Capital News & Notes
For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Back Into the Shadows”
POLICY & POLITICS
- Jerry Brown’s $42-Billion Turn-Around
- Just Another Weird Week Under the Dome….
- New State Senator Seated: “Voters Were Clear”
- Gas Tax Repeal On November Ballot
- US Supreme Court Rejects Public Employee Union Mandate
POWER & WATER & WEED
- CA Federal Judge Throws Out Climate Change Lawsuit Against Oil Companies
- Irrigators Launch Groundwater Market
- “Back Into the Shadows”: Cannabis Growers Return to Black Market
- High Tech And High-Rise – Silicon Valley May Re-Define Downtowns
- Tiny Houses Making Large Urban Imprint
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.
FOR THE WEEK ENDING JUNE 29, 2018
READ ALL ABOUT IT!!
When Jerry Brown returned to the California governor’s office in early 2011, the state faced a $27 billion deficit.
On Wednesday, Brown signed the final budget of his 16 years as governor — one that seeks to leave the state with $16 billion in reserves while boosting state spending to record levels.
What a difference eight years makes.
As he joined Democratic legislative leaders in Los Angeles for a signing ceremony Wednesday, he referenced the “real financial mess” he inherited.
And although Brown scorns questions about his legacy, he sought to frame his second stint as governor through the lens of his state’s fiscal recovery.
“I pledged to work with the Legislature and get it solved,” the governor said Wednesday. “Well, this budget that I sign today fulfills that pledge and prepares us for the future.”
The $201.4 billion spending plan — including $138.7 billion in California’s general fund — is encompassed in a 26-bill budget package that Brown signed Wednesday. It reflects an agreement with legislative Democrats reached earlier this month that increases state funding for the UC and CSU systems, child care, and welfare grants.
By comparison, the first budget Brown signed, in 2011 during the heart of the recession, was $126.4 billion — with a general fund of $86.4 billion.
Brown called it “a milestone” that “represents the collective effort of the people of California.”
“This is the way we together — the 40 million people — invest in our collective future: for roads, for childcare, for higher education, for our schools, for health care, all sorts of things,” the governor said. “And I think people ought to be proud of that.”
For the third consecutive year, Brown did not issue any line-item vetoes. Before 2016, the last time a governor left a spending plan untouched was in 1982. The governor then, too, was Jerry Brown.
“It’s the right combination for the times we are in that we’ve been able to do this,” Senate President pro Tem Toni Atkins, D-San Diego, said at the news conference.
California’s $201-Billion Financial Plan:
The final chapter in the removal of an incumbent California state senator — the first since 1914 — played out in Sacramento on Monday, as Sen. Ling Ling Chang (R-Diamond Bar) filled the sudden vacancy by taking the oath of office.
Chang was selected by voters in the state’s 29th Senate District to replace Josh Newman, a Fullerton Democrat who was recalled from office in the same election. Newman had narrowly defeated Chang in 2016 and was only two years into his four-year term when voters removed him on June 5.
Newman became the face of GOP anger over California’s new gas tax increase, passed by the Legislature last year to fund transportation projects. He was a key vote for the plan, and lost the recall election by 58% to 42%.
“Voters were clear that we need someone in Sacramento to protect taxpayers, and I’m prepared to fight tax increases wherever I see them,” Chang said in a written statement. Her arrival in the Senate was coincidentally on the same day state elections officials announced a formal repeal of the gas tax increase had qualified for the November statewide ballot.
Chang, 41, served one term in the Assembly from 2014 to 2016. She was one of six candidates on the ballot as a replacement for Newman.
Before Newman, San Francisco politician Edwin Grant was the last state senator to be recalled from office. His 1914 ouster came just three years after voters created the recall process on the recommendation of then-Gov. Hiram Johnson. An article in the Los Angeles Times from that fall described Grant’s removal from office as a “revolt” against Johnson’s agenda of Progressive Era politics.
A crosscurrent of deadlines governing November’s election and the legislative process led to a chaotic week of policymaking in Sacramento, as lawmakers hurriedly acted on Thursday to expand consumer privacy rights and limit local soda taxes rather than see interest groups take both issues to the fall ballot.
A third proposal, asking taxpayers to subsidize lead paint cleanup projects, was withdrawn by paint companies in exchange for lawmakers scrapping a slate of bills designed to impose new rules on the industry.
When the dust had settled, there was relief from those who dreaded three separate, and costly, ballot measure campaigns. But far more participants seemed to think the final frenzy of wheeling and dealing had served no one well.
“Extortion is defined as the practice of obtaining something through force or threats,” Assemblyman Jim Wood (D-Healdsburg) said during a fierce debate on the Assembly floor. “That’s what’s happening this week.”
Thursday marked the deadline for elections officials to certify the list of statewide ballot measures voters will consider in November. Under a rarely used 2014 state law, an initiative’s proponents can cancel their plans if they decide to instead work with the Legislature to craft a compromise.
The challenge was that a different law — enacted by voters in 2016 — bans the state Senate and Assembly from taking final action on any bill until it’s been available for public review for 72 hours. That meant even though Thursday was not too late by election standards to fine-tune the policy plans, the real deadline had already come and gone.
“We find ourselves truly between the biggest rock and the smallest hard space,” said Senate President Pro Tem Toni Atkins (D-San Diego)
While three initiatives were withdrawn from the November ballot, no compromise was reached on a fourth ballot measure, to allow more cities and counties to impose local rent control rules. That proposal will appear, as planned, on the Nov. 6 ballot.
The focus of much of the week’s attention was AB 375, the quickly drafted law offered in exchange for the removal of the consumer privacy initiative. Gov. Jerry Brown signed it into law less than two hours after it cleared the Assembly.
Under the new rules which take effect in 2020, Californians will have a right to know what information a business has about them, prohibit companies from selling that information and ask businesses to delete their personal information after it’s been provided. Consumers would be able to sue companies if a data breach leads to their unencrypted information being exposed or stolen.
Alastair Mactaggart, the San Francisco-based real estate developer who backed the privacy initiative, said negotiations for a legislative alternative did not really take off until the last two weeks, and then became all-encompassing.
“It was like a wave,” he said. “You’re walking on the beach and one of those sneaker waves comes and grabs you. ‘Oh, I’m in the water now. I guess I better start swimming.’”
Mactaggart acknowledged that the ability of wealthy people to shoulder the high cost of collecting voter signatures gives them enormous leverage over lawmakers. But he said such a tool was necessary when certain industries or businesses had their own powerful grip on the Capitol.
“If AT&T owns Sacramento, then stopping the initiative process is the worst thing to do,” he said. “If someone like me can make this change, that’s probably a good thing.”
While Mactaggart’s team and tech companies haggled, the initiative compromise that came together quickly — and quietly — involved business and labor interests and local taxes. The initiative was sponsored by the California Business Roundtable, a coalition of the state’s biggest businesses, and sought to raise the threshold for voter approval on all local tax proposals.
It was the soda industry that spent more than $7 million gathering voter signatures. The initiative was, in effect, a way to make it harder for local communities to tax sugary drinks. The compromise in Sacramento, also signed by Brown Thursday, imposes a ban on soda taxes at the municipal level for the next dozen years.
The governor called the business group’s initiative an “abomination” in a signing message on the alternative passed by the Legislature.
Left out of the negotiations, though, were public health advocates who were stunned when they saw the measure emerge over the weekend.
“I was surprised at how well the secret was kept,” said Carter Headrick, director of state and local obesity policy initiatives at the American Heart Assn. “I don’t know who was in the room when they were cutting this deal, because state capitals don’t usually keep secrets that well.”
Headrick became further dispirited on Tuesday when the Sacramento Bee published a photoof Brown and his wife, Anne Gust Brown, with soda industry executives after they had dined together at the governor’s mansion earlier this month. (Brown’s office said the dinner had nothing to do with the deal that emerged.) In response, American Heart Assn. CEO Nancy Brown published an open letter to the governor that began, “Let’s have dinner together.”
The final deal, struck late Thursday afternoon, was between paint manufacturers and lawmakers over an initiative that wipes out Sherwin-Williams and Conagra’s legal liability for potentially hundreds of millions of dollars in cleanup costs for lead paint in homes.
Last fall, an appeals court ruled the companies had promoted the use of lead paint in homes despite knowing the health risks. The court case also put the companies on the hook for the costs of cleanup on homes built before 1951 in 10 cities and counties that had sued.
Soon after, the counties filed a ballot measure to overturn the court ruling and replace it with a $2-billion taxpayer-funded loan to finance the cleanup of lead and other health hazards. Lawmakers fretted the initiative could spark voter confusion with two other housing bonds on the ballot, one to finance new low-income housing construction and a second for homeless housing developments.
Negotiations became heated on Monday when the companies released a proposed deal that would eliminate their liability in exchange for $500 million. They said Assemblyman Tim Grayson, a Bay Area Democrat involved in the discussions, would be the one introducing the bill.
That was news to Grayson. “When people reach desperate times, they do desperate things,” Grayson said. “That was something that was desperate on the part of the paint companies.”
The final deal was much simpler: The paint companies blinked. They withdrew their measure in exchange for legislators putting three bills on hold they’d only introduced to penalize the paint industry in the wake of the initiative being filed.
Sen. Bob Hertzberg was at the heart of multiple efforts to pull ballot measures in exchange for legislation. The Van Nuys Democrat, who has worked on revamping the ballot measure system for nearly 20 years, said the 2014 initiative overhaul was rooted in the history of the state’s initiative process. A rule that existed until 1966 allowed for what was called an “indirect initiative,” in which Californians could ask lawmakers to place a measure on the ballot.
“When the initiative process was initially created, it never was intended to completely eliminate government involvement,” Hertzberg said. “It all envisioned harmonizing between the current government at the time … and initiative proponents.”
Still, Hertzberg said the frenzied negotiations in recent weeks showed the need for additional tinkering.
Complicating the dynamics of the final hours was that lawmakers said they needed to get the completed bills to Brown’s desk early enough to have the information relayed to Secretary of State Alex Padilla, who was waiting to hear which initiatives he would ultimately move to the ballot.
In all, 12 propositions were ultimately qualified for the fall ballot. Even without the three withdrawn proposals, it will be one of the longest statewide ballots in recent years.
California voters will decide this fall whether to overturn a recent increase to state gasoline and diesel taxes that has raised billions of dollars for road repairs and other transportation projects.
Secretary of State Alex Padilla announced Monday that an initiative to repeal the tax hikes, as well as new vehicle registration fees, has qualified for the November ballot. The measure is being pushed by Republican politicians, including gubernatorial candidate John Cox, to boost conservative turnout in the upcoming election.
Led by Gov. Jerry Brown, mostly Democratic lawmakers passed the transportation tax package last year, arguing that the money was desperately needed to fix California’s crumbling streets and highways. The new fees took effect in November and are expected to raise more than $5 billion per year.
Public polls have consistently shown weak support for the taxes and a majority of California voters prepared to repeal them. One state senator was recalled earlier this month after opponents cast him as the deciding vote on the increase.
California’s public employee unions were handed a serious blow in a Supreme Court ruling Wednesday that forbids them from collecting fees from workers who benefit from their representation but do not want to join them.
In a 5 to 4 ruling, the court determined that public sector unions’ so-called “fair share” fees violate “the free speech rights of nonmembers by compelling them to subsidize private speech on matters of substantial public concern.”
The decision in Janus vs. AFSCME effectively makes California a “right to work” state, ending a 41-year precedent that allowed public sector unions to levy so-called fair share fees on workers who don’t belong to labor organizations.
To unions, the fees ensured that employees don’t get a “free ride” by gaining raises and representation in workplace disputes without paying for those services.
But to critics inside and outside labor groups, the fees trampled the First Amendment rights of workers who believed the charges subsidized inherently political organizations that they opposed.
A majority on the Supreme Court sided with unions’ critics. Writing for the five conservative justices, Justice Samuel Alito argued that forcing non-union members to pay even a portion of union dues amounts to compelled speech on significant policy issues. “In addition to affecting how public money is spent, union speech in collective bargaining addresses many other important matters,” Alito wrote, including “education, child welfare, healthcare, and minority rights, to name a few.”
Specifically, Alito singled out California’s own battles over teacher union fees, citing the Friedrichs v. California Teachers Association case that made many of the same arguments against “fair share fees.” After Justice Antonin Scalia’s death in early 2016, a shorthanded Supreme Court split 4 to 4 on on Friedrichs, effectively punting the case and upholding a 9th Circuit Court of Appeals ruling that ruled in favor of the unions.
“Take the example of education, which was the focus of briefing and argument in Friedrichs,” Alito wrote. “The public importance of subsidized union speech is especially apparent in this field, since educators make up by far the largest category of state and local government employees, and education is typically the largest component of state and local government expenditures.”
The Janus ruling overturns years of precedent established by a 1977 Supreme Court decision, Abood v. Detroit Board of Education. Alito argued Wednesday that that the Abood decision was “poorly reasoned” and an “ ‘anomaly’ in our First Amendment jurisprudence.”
“Abood’s line between chargeable and nonchargeable union expenditures has proved to be impossible to draw with precision,” he added.
In a dissent joined by Justices Breyer and Ginsburg, Justice Elana Kagan warned that Wednesday’s ruling “”will have large-scale consequences,” which she argued were not justified. The Abood decision “struck a stable balance between public employees’ First Amendment rights and government entities’ interests in running their workforces as they thought proper,” she wrote.
More “than 20 States have statutory schemes built on the decision,” Kagan added. “Judicial disruption does not get any greater than what the Court does today.”
Justice Sonia Sotomayor, the court’s other liberal justice, wrote a separate, one-paragraph dissent, adding that she joined Justice Kagan’s “dissent in full.”
As one of the 23 states that allowed unions to charge fair share fees, California is among those who will be disrupted by Wednesday’s ruling . Union leaders in the state have been bracing for the decision for months by cutting costs and running membership drives to strengthen their finances as they head into an era when they won’t be able to take fair share fees for granted.
They’ve also persuaded state leaders to pass laws that guarantee them access to new employees and compel public agencies to follow union rules if workers want to quit paying dues to a labor organization.
A federal judge tossed out two groundbreaking lawsuits by San Francisco and Oakland that sought to hold some of the world’s largest oil companies liable for climate change.
In an exhaustive, 16-page ruling that touched on such scientific matters as the ice age and early observations of carbon dioxide, U.S. District Judge William Alsup acknowledged the problem of a warming planet but said it is just too big for the courts to solve.
The cities are trying to get five oil and gas giants, including Bay Area-based Chevron, to help cover the costs of dealing with sea-level rise, like picking up the tab for seawalls. However, Alsup, noting that Congress and the White House, not the judiciary, are responsible for addressing the fallout from fossil fuels, granted the industry’s request to dismiss the suits.
“The problem deserves a solution on a more vast scale than can be supplied by a district judge or jury in a public nuisance case,” he wrote.
The two cases are among the first of many nationwide that have recently attempted to force the oil industry to pay for what might amount to hundreds of billions of dollars to combat climate change. While the other municipalities, including a handful in California as well as New York City and Kings County, Wash., are closely following what happens in the Bay Area, Monday’s decision does not affect the cases in other courts.
The cities and counties all claim that oil companies have long known that greenhouse gas emissions from fossil fuels are warming the planet. Yet, according to the suits, the industry did nothing to prevent problems and even sought to cover up its ties to the climate, akin to how big tobacco tried to deceive the public about the health impacts of cigarettes decades ago.
The lawsuits argue that like tobacco companies, the oil firms create a public nuisance and should be held accountable. San Francisco alone estimates that rising seas at the hands of climate change has put $10 billion of public property and as much as $39 billion of private land at risk.
But Alsup, who works in the court’s Northern District of California, opined that the world has undoubtedly benefited from fossil fuels, from the industrial revolution to today’s modern conveniences. The bench, he determined, was not in a position to weigh the industry’s positives against the negative.
“Having reaped the benefit of that historic progress, would it really be fair to now ignore our own responsibility in the use of fossil fuels and place the blame for global warming on those who supplied what we demanded?” he wrote. “Is it really fair, in light of those benefits, to say that the sale of fossil fuels was unreasonable?”
Alsup tried to grapple with such questions at a first-of-its-kind climate “tutorial” in March. He invited experts from both sides of the case to weigh in on the science of climate change. The hearing was so popular that it had to be live-streamed to an additional courtroom.
In the end, Alsup determined that the nation’s environmental agencies should be tapped for their expertise on the subject and that the legislative and executive branches of government should have final say.
Attorneys for San Francisco and Oakland are reviewing their options and are not yet ready to concede defeat.
“Our belief remains that these companies are liable for the harm they’ve caused,” said John Coté, spokesman for the San Francisco City Attorney’s Office. “This is obviously not the ruling we wanted, but this doesn’t mean the case is over.”
Besides Chevron, the targets of the lawsuits were BP, ConocoPhillips, ExxonMobil and Shell.
The National Association of Manufacturers, which represents the interests of the oil industry, praised Alsup’s action.
“From the moment these baseless lawsuits were filed, we have argued that the courtroom was not the proper venue to address this global challenge,” said the association’s president and CEO, Jay Timmons.
Attorneys for the oil companies have long maintained that greenhouse gas emissions from fossil fuels are regulated under the Clean Air Act and remain the purview of lawmakers and the president.
While the San Francisco and Oakland cases are the first of the recent climate suits to get a decision, the others are in different courts, both at the state and federal level, and could elicit different judgments.
San Mateo and Marin counties are both trying to get climate suits heard in California court, where public nuisance cases are generally easier to make.
San Francisco and Oakland had initially tried to make their cases in state court, but Alsup determined that because of the scope of the matter, the issue belonged to the federal judiciary.
A “USE-IT-OR-LOSE-IT” SYSTEM of water allocation has historically required growers in California to irrigate their land or lose their water rights, whether market forces compelled them to grow crops or not.
Now, in a significant breakthrough for the state’s water economy, a community of farmers near Ventura are about to join a new groundwater market. The buying and trading system, expected to begin by July 1, will allow farmers under the purview of the Fox Canyon Groundwater Management Agency to fallow their own land and sell groundwater to other users willing to pay more than their crop sales would generate. This small-scale water market has been in planning stages for more than a year and is being launched as a pilot project that could eventually serve as a model for the rest of California.
Matthew Fienup, executive director of the California Lutheran University’s Center for Economic Research and Forecasting, has worked with the Fox Canyon agency, local growers and the Nature Conservancyto help design and launch the program. He said the new system creates a powerful incentive for the region’s growers, who produce strawberries, lemons, celery and avocados, among other crops, to conserve water.
“If all you’re allowed to do with your water is turn it into an agricultural product, there is an incentive to use all of it, and you end up with a race to the bottom of the aquifer,” Fienup said.
The new groundwater market not only limits each farmer to a specific water allocation but may actually reward them for not using it and instead allowing another grower to buy it. The market comes at the same time that California is working to implement the Sustainable Groundwater Management Act. That law, passed in 2014, requires that Groundwater Sustainability Plans be created to curb the overdrafting of aquifers.
In the Fox Canyon area, where some groundwater basins are considered critically overdrafted, the regulations could eventually result in 40 percent reductions in pumping allowances, according to E.J. Remson, a Ventura-based senior program manager for the Nature Conservancy. Such cuts could mean scaled-back farm production and reduced revenue – and that’s where the market will come in. It will allow for quick and easy transactions that will offer farmers the chance to sell one asset – water – if growing another one – fruits and vegetables – doesn’t pencil out.
In fact, the Sustainable Groundwater Management Act could potentially put growers in some areas out of business by imposing “existential financial stress” upon them, Fienup said.
“They’re afraid agriculture can’t exist with those kinds of reductions. Confronted with such serious cuts, the agricultural community decided that a water market would give them the flexibility they would need to remain in business.”
The wide range of crops grown in California makes it a prime place for successful water markets, explained Ellen Hanak, director of the Public Policy Institute of California’s Water Policy Center. That, she said, is because farmers who are growing a crop of relatively low value “would be paid handsomely” for their water as growers with more valuable crops – like, say, avocados or almonds – purchase the right to pump more water.
“Everyone is better off in the end,” the PPIC’s Hanak said. She added that in regions like the Midwest, with sprawling grain monocultures, the economic playing field is too level to drive movement of water from one grower to another. Under such conditions, water trading systems are less serviceable.
Water trading is nothing new for California – farmers in the state have long traded surface water allocations in transactions that allow for water to be delivered over long distances, often from areas of plentiful supply to those with severely impacted supplies.
Although these trades may be very profitable for the parties involved, they are associated with a problematic scheme whereby the seller uses groundwater to replace the water he or she sells – a system of so-called groundwater transfers that ultimately increases the net volume of water being used. The Sustainable Groundwater Management Act will make these transfers more difficult to conduct, if not illegal, while encouraging groundwater trading within basins.
Water is also purchased for environmental uses. According to research by the PPIC, more than 5 million acre-feet of California water was acquired via trading from 1982 to 2014 to support environmental needs, including replenishing depleted wetlands and rivers.
As of mid-June, 86 wells were registered under the new Fox Canyon groundwater market, with each well newly fitted with electronic meters to prevent farmers from pumping more than they are allowed. The growers in the affected basins use about 62,000 acre-feet of water, with individual allocations based on historical use, according to Remson. This environmental organization has been closely involved in developing the new water market. Last week, Remson personally assisted farmers who were installing their electronic well meters. He said the Nature Conservancy has a vested interest in helping farmers stay in business, since that will ensure their land is not converted into suburban developments.
“We’ve spent a lot of money and time trying to save and restore the Santa Clara River, which runs across the Fox Canyon area,” he said. He noted that permeable agricultural land allows rainfall and runoff to seep into the earth, where it helps maintain waterways and marshes. Asphalt surfaces, on the other hand, prevent water from entering the ground and divert it elsewhere.
“So, it turns out agriculture is a great neighbor to wetlands and streams,” Remson added. “The last thing we want is the new groundwater regulations to cause this area to become developed.”
Fienup said the tamper-proof well meters, which electronically record and aggregate pumping data, will be essential to sustaining an effective water market free of unscrupulous overpumping. In addition, at least two other elements are critical, he said – grower participation in designing the trading system and stiff regulatory oversight.
“There needs to be enough regulatory pressure that farmers take seriously the prospect that cuts [to their allocations] are coming,” he said. In other words, if farmers believe that their own use of groundwater will never, in fact, be curtailed, they will have no need to buy water from neighbors.
Such enforcement of the laws created by the Groundwater Sustainability Plans required by the Sustainable Groundwater Management Act will come directly from local authorities. State officials, Fienup said, will theoretically provide close oversight, and mandatory usage cuts, he added, will be imposed over the next 20 years.
“As that happens, trading will increase,” he said.
Hanak expects regions with severe groundwater deficits to launch their own groundwater markets in the near future. She sees the southern San Joaquin Valley, the Central Coast region and the area around Paso Robles as likely candidates for groundwater markets modeled, at least loosely, on that of the Fox Canyon area. Even areas where aquifers are robust but which have impacted surface water resources – like the Russian River basin – could benefit from water markets to even out imbalances in distribution.
While the Sustainable Groundwater Management Act will probably eventually reduce California’s total irrigated acreage, Hanak said benefits will outweigh the sacrifices.
“Groundwater markets make water flow toward the most valuable uses, which is good for everyone,” she said.
California’s move to open up its cannabis market to recreational users has had an unexpected result: A growing segment of the industry may be moving back into the shadows.
Thousands of manufacturers, growers and retailers have lost their licenses amid tighter regulations on marijuana and more oversight from local authorities, some of which aren’t too keen on the plant. The cannabis companies that still operate legally face a dizzying array of new taxes.
“Industry insiders have been referring to this as the moment of reckoning,” said Kenny Morrison, president of the California Cannabis Manufacturers Association. “Some people are going to be left flat footed, and others are going to expand their market share.”
The next hurdle is a July 1 deadline for laboratories to certify that legally sold marijuana products are free of mold and dangerous pesticides. Lab testing was delayed from the start of the year to give producers time to comply.
The new rules implement a 2016 voter-approved referendum, Proposition 64, that expanded legal cannabis sales from medical patients to all adults. Under the old rules, it had been easy for anyone seeking a prescription for marijuana products to obtain one — and with little oversight, the market exploded.
Now, it’s shrinking again — at least by the official count. With years of operating outside of the law, many in the industry are simply retreating away from the open market instead of dealing with the new rules.
“The illicit market outnumbers us by five to one,” Morrison said. “You can go to a random city and find four legal stores and 20 illegal stores. What’s worse, those four legal stores are charging two and and three times the price of the illegal stores.”
Local authorities can now opt to ban cannabis businesses if they wish — even those that operated legally under the old rules. Alex Traverso, spokesman for the state Bureau of Cannabis Control, said 70 percent of jurisdictions have done exactly that.
As a result, the number of licensed retailers has plunged to 410, according to the state. That’s down from about 1,100 under the old rules, according to research firm BDS Analytics. State licensed delivery services have dropped to 116, versus a BDS estimate of about 2,000 historically.
Growers face a similar shake out. About half the state’s 50,000 to 60,000 cannabis farms have been driven out of business by the new rules, and many are reverting to the black market, said Hezekiah Allen, executive director of the California Growers Association. The smallest growers are having the hardest time making the transition, he said.
The state has issued 3,693 active grower licenses as of June 18, said Steve Lyle, a spokesman for the California Department of Food and Agriculture. The largest growers hold multiple licenses, putting the actual number of legal farms closer to 1,700, Allen said.
Public companies have been tripped up by the California changes as well, which were put in place largely to protect consumers. The rapid shift burned Scotts Miracle-Gro, which gets more than 20 percent of sales from the cannabis industry. Excluding acquisitions, Scotts expects sales at its Hawthorne Gardening unit, which supplies marijuana growers with products such as fertilizers and lights, to drop this year, a reversal from November when it had forecast a gain of at least 10 percent. The weaker outlook has helped send Scotts shares tumbling about 24 percent this year.
And Scotts’ woes may not be over. The July deadline for producing clean cannabis “is going to be a very disruptive event,” Allen said. Retailers are clearing out non-compliant products with fire-sale prices, and there’s no guarantee there will enough lab-cleared marijuana to replenish shelves.
Only about half of the marijuana products coming through Cannalysis Labs in Santa Ana pass the new pesticide standards, said Chief Scientific Officer Swetha Kaul.
“We are seeing a troubling number of failures,” Kaul said.
She’s concerned that contaminated cannabis will simply shift to the black market. Many cannabis dispensaries now operate without a license, letting them undercut legal operators that play by the rules and pay taxes.
Cannabis Control has sent more than 1,800 cease-and-desist letters to unlicensed retailers and the bureau is evaluating its next steps for those “that seem to have no intention of ever getting a license,” said Traverso, the agency’s spokesman. Governor Jerry Brown proposed a $14 millionprogram to crack down on illicit marijuana, only to be rejected this month by the legislature in a funding dispute, according to the Los Angeles Times.
The disappearance of legal industry players is hurting business at Coastal Analytical, which has cannabis-testing labs in San Diego and Vista, said president Samuel Z. David. Licensed labs, growers, distributors and retailers can only do business with other licensed businesses.
“It’s a tough situation to muddle through,” David said. “We have bigger customers and their invoices are higher, but there are fewer of them. It kind of sucks for us.”
David remains hopeful that California’s legal market will take off after the current rough patch. BDS Analytics says there’s reason to believe it will.
The best indicator of California’s future is Oregon, where there was similar disruption to the cannabis market during its shift to recreational, lab-tested products, said Greg Shoenfeld, BDS vice president for operations. Oregon saw shortages, spiking prices and businesses going under before the trend started to reverse after about five months, he said.
Higher prices in California would be “scary” because the heavily taxed legal market already has a hard time competing with the state’s entrenched black market, Shoenfeld said. Local taxes can be as high as 20 percent of gross receipts on top of a 15 percent state excise tax, plus sales taxes as high as 10.25 percent and a state cultivation tax of $9.25 per ounce, according to a report from Fitch Ratings.
BDS this week is cutting its 2018 forecast for California’s legal pot sales to $2.9 billion, down from as high as $3.7 billion previously, due to the slow pace of licensing and the start of lab testing, Shoenfeld said. That’s still higher than BDS estimates for the next biggest states: $1.5 billion in Colorado, $1 billion in Washington and $500 million in Oregon.
Total legal U.S. sales should rise to $11 billion this year, from $8.5 billion, according to a report by Arcview Market Research and BDS.
Alex Zafrin, who manufactures marijuana-infused ice cream, has been required to overhaul his business because his products — flavors such as Coffee Pot and Vanilla Kush — didn’t comply with the new rules.
But he’s not abandoning California. Half a year tinkering in the kitchen has yielded a new line of dosed sweets, like Chocolate Trip cookies and Twisted and True pretzel bark, which are compliant with the new rules that regulate edibles’ potency, packaging and ingredients. And his Fully Baked Brands, which he runs with partner Rekka Nicholson, signed a licensing deal to bring their banned ice creams to Canada’s newly legal market.
“We had to start over,” Zafrin said. “Everyone in the industry is kind of scratching their heads thinking, ‘What the hell went wrong here?”’
“Silicon Valley” was not always just a name for the computer-technology industry. Today, the phrase mostly conjures up a catalog of corporate successes: Hewlett-Packard, Oracle, Facebook, Google, Apple, Uber, and all the start-ups aspiring to similar wealth and glory.
But Silicon Valley is also a real geographic place, with a real history, where real people live and work—and not just in tech, but also in its shadow.
That place can be difficult to describe to folks outside the Bay Area, because as far as places go, Silicon Valley is a pretty banal one. Seen by car (the dominant local mode of transportation), the two counties and dozen or so cities and towns that comprise the region blend into a single, seamless expanse of suburbs, strip malls, and tilt-up concrete office buildings. Starchitect-designed tech campuses have only recently begun to punctuate that monotony. The scarcity of architectural monuments and disorienting car culture make defining the heart of the area challenging. Writing for The Atlantic, Alexis Madrigal once fixed the “center” of Silicon Valley at a storage unit in Sunnyvale.
Amidst that scene, many cities in Silicon Valley have tried to claim the mantle of the region’s epicenter. Palo Alto has the strongest historical title as home to the Stanford Research Park, which lured engineering firms to the region beginning in 1951. It’s also the site of two landmarks of high-tech industry—the garage where Hewlett-Packard began its business, and the office where Fairchild Semiconductor perfected the integrated circuit. Mountain View also makes a strong case. It is home to the decommissioned Moffett Field Naval Air Station, where the defense industry took an early foothold in the region; today it hosts the Googleplex.
San Jose, the largest city within this sprawl and the tenth-largest city in America, bills itself as “the capital of Silicon Valley,” although even the city’s most loyal residents will admit that’s a bit of a reach. Mostly it is perceived as the bedroom community for people working elsewhere along the peninsula. But some hope that might be about to change.
As the anchor company in a massive, multiyear downtown revitalization project, Google is embarking on an ambitious development plan in San Jose. It includes new office space for the company and new residential housing. The project could dramatically reshape a city that, despite its size and Silicon Valley affiliations, has long been treated like a Bay Area afterthought. The city’s government and residents are waiting to see if the effort will offer a meaningful alternative to the displacement that has defined the region for years, or if it will perpetuate a long history of industry redefining the California landscape in its own image. Given its history and base of community organizing, San Jose might be better positioned to revitalize itself than its valley neighbors.
Facebook and Google have led the way in a series of new proposals from big tech companies seeking engagement with urban developments in Silicon Valley. Facebook is working on a residential development near its Menlo Park offices that promises at least 1,500 housing units. And last December, Mountain View approved a plan around Google’s campus that includes 9,850 housing units, anchored in part around the company’s new Bjarke Ingels–designed office building.
The initial announcement of these projects inspired anxiety and criticismamong tech and architecture journalists deriding the possibility that Google and Facebook might turn their campuses into “company towns.” But these ripostes seemed to forget the extent to which the towns of the Santa Clara Valley—the older name for the region Silicon Valley inhabits—have long histories intertwined with corporate fortunes, albeit with the particular companies and framings changing hands over the course of the last 150 years.
Before data mining was the preferred extractive industry of the Santa Clara Valley, mineral extraction built one of the region’s earliest variations of the company town. Back in the 1850s, the New Almaden mine, located south of San Jose, fueled the Gold Rush as one of the most productive mercury mines in the world (mercury being a valuable mineral for refining gold and silver ore). Modeled on Spanish haciendas, immigrant miners from Mexico and Chile lived on parcels of land belonging to the mine’s corporate owner.
The other major industrial influence in the Santa Clara Valley was agriculture. It fed California’s development for decades before software ate the world. Californians sometimes recall this era with images of idyllic, small-scale fruit orchards—the poet Clara Louise Lawrence called it the “Valley of Heart’s Delight” in 1931. But that pastoral vision was already disappearing by the 1920s. By then, the region was producing 90 percent of California’s fruit and vegetable yield, and the California Packing Corporation had industrialized the production process, relying heavily on a low-wage and largely disposable Mexican and Latino immigrant workforce to do so with minimal liability. San Jose was also where Cesar Chavez would first learn about labor organizing, after cutting his teeth in agriculture.
That labor pool, along with Vietnamese and Filipino immigrants, would eventually go on to work in the semiconductor manufacturing plants that sprang up after Fairchild’s breakthrough discovery in 1959. In this era, tech had a less explicit influence on housing development than the New Almaden model had, preferring to act through understated local philanthropy and by lobbying local governments via the Silicon Valley Manufacturing Group (now Silicon Valley Leadership Group), an industry association first convened by David Packard in 1977.
It’s not in tech’s interest to look like a company town. “Capitalists have learned from Pullman and other company towns that they make it too clear who is in charge,” said Richard Walker, a geography professor emeritus at UC Berkeley and author of Pictures of a Gone City: Tech and the Dark Side of Prosperity in the San Francisco Bay Area, when I suggested the comparison. Instead of direct intervention into city planning, Walker told me, companies have benefited from the fact that Silicon Valley is not one city but a collection of smaller cities, each with different agendas and priorities (and bureaucracies), and each too small to challenge big companies or make credible demands of them.
The more unusual aspect of Google and Facebook’s projects, then, is not that companies of the Santa Clara Valley took interest in shaping housing development—it was that they were so explicit about doing so. But coverage also oversimplified the mechanics of these projects, which offer some degree of corporate deniability. In Google’s case, the company isn’t technically building housing. Instead, it’s buying land and issuing ground leases to developers on land the company owns. Google also isn’t submitting proposals on a whim: Both the Mountain View and San Jose projects build on existing plans the cities had been working on for quite some time.
In San Jose, the original vision for the Diridon Station Area Plan (DSAP, named for the city’s downtown train station) was approved in 2014. It centered around building a baseball stadium, with the dashed hope of enticing the Oakland A’s to relocate to the city. It was also spurred by some much-needed transit developments, including the long-awaited California High-Speed Rail project, an extension of BART into San Jose managed by the Santa Clara Valley Transit Authority, and the electrification of the CalTrain commuter rail system. Google initially approached the city about getting involved in an update to the Diridon plan in 2017, although the company had been quietly acquiring property in the area as far back as December 2016. As of right now, Google owns roughly 50 of the acres in the 240-acre development area, including nine parcels of property the city council approved selling to Google for $67 million.
Tiny Houses Making Large Urban Imprint
Wall Street Journal excerpt, June 27, 2018
Cities are starting to think small when it comes to housing.
Many cities have previously discouraged homeowners from building small cottages or apartments on their properties with zoning ordinances that made it nearly impossible to have them in areas designed for single-family homes.
But increasingly, municipalities such as Austin, Texas, Boston, Boulder, Colo., Los Angeles, and Portland, Ore., see these small units as a way to appeal to renters and others on limited budgets who otherwise can be shut out of a city’s more desirable areas. The hope is the units will rent for less than larger single-family homes and allow more people to live within the city limits.
“Not everyone needs or wants to live in a 2,500-square-foot home,” says Anthony Flint, a senior fellow at the Lincoln Institute of Land Policy. “It increases the supply and diversity of a city’s housing stock, so there are more choices to suit different housing needs.”
Mini-homes, granny flats and carriage houses—technically referred to as accessory dwellings—are usually only a few hundred square feet. They have their own kitchen and bathroom and function as a separate living quarters from the main unit. Designs vary. Some look like miniature versions of the main house, others are long, open spaces similar to a mobile home, while still others could be attached to or even part of the main dwelling. The hope is that the new units will create additional housing while maintaining the neighborhood’s look and feel.
Their size, however, can run afoul of local zoning ordinances. Throughout the U.S., many city neighborhoods are zoned for single-family homes, which can constrain homeowners who may want to add a rental unit to their property. Local ordinances often dictate lot and building size along with density requirements. Complying or getting a variance can be a long and expensive process.
Portland in 2010 began exempting accessory units from certain fees associated with new construction, like charges for water, sewage and street access. Homeowners putting units in their backyards now save about 10% of the overall construction cost, or $8,000 to $11,000, the city estimates.
“It creates more options for renters,” says Morgan Tracy, a project manager for Portland’s residential infill project.
People willing to live in smaller spaces have more access to desirable city neighborhoods with shops, public transportation, libraries and other important amenities—neighborhoods that had previously been zoned for single-family residences, Mr. Tracy says.
Similarly, in 2015, Austin eased the requirements for accessory dwellings in certain neighborhoods. It reduced minimum lot size and the space required between buildings, and eliminated requirements for driveways. More accessory-dwelling building permits were issued in 2017 than in 2014, according to the city. But, Ming-ru Chu, an Austin city planner, says, the city’s planning and zoning department has just begun to analyze the permit data to better understand the effects of the code amendment. “It’s not clear how affordable rents for these new units actually are and if the new units/properties are even rented or if they end up being sold.”
In fact, the jury is still out in general on whether such units will do much to ease housing prices where it’s most needed. The Oregon Department of Environmental Quality looked at rental prices for accessory dwellings in the state and found the units tend to rent for slightly more than apartments of similar size in nearby neighborhoods, though about 20% of the dwellings are rented free or below market value.
Jake Wegmann, an assistant professor at the University of Texas at Austin’s School of Architecture, says research shows that if older and unregistered secondary dwellings are included in an analysis, prices drop below market rent. He theorizes that prices will continue to fall as more units come on the market and the existing stock begins to age.
A report by several groups including the University of California at Berkeley’s Terner Center for Housing Innovation and the University of Texas at Austin surveyed owners of accessory dwellings in Portland, Seattle and Vancouver and found the average unit rented for about $1,298 a month (with about 58% of respondents saying they rented the unit for below market rates) and cost on average about $156,000 to build.
“There is no cost of land. A lot in a central neighborhood can go for hundreds of thousands of dollars. That’s before there is even a spadeful of dirt,” says Mr. Wegmann, a co-author of the Terner Center report, which also found that financing these units was the biggest hurdle for many homeowners since it is frequently difficult for homeowners to borrow against the expected income or added value from an accessory dwelling.
Meanwhile, Boston’s Housing Innovation Lab recently embarked on a small pilot program studying the feasibility of tiny houses and granny flats. This spring it built a 360-square foot prefabricated house at Boston’s City Hall, designed to be quickly and cheaply inserted into backyards and vacant lots.
The home took a five-person team five hours to build and cost about $50,000, says Marcy Ostberg, director of the innovation lab. Ms. Ostberg is also intrigued by the idea of homeowners leasing their backyards to existing tiny-house owners.
The idea came from Sharon Day, 59 years old, who built a tiny house for $65,000. Her house is off the grid. It has a rain barrel, water filtration system, and composting toilette and runs on solar power. Ms. Day is talking with city officials in Somerville and East Boston about creating a small community of such homes on vacant lots or even on brownfield sites.
In Boston it can cost $1,200 a month to rent a room where you are still sharing a bathroom and a kitchen, says Ms. Day, who adds that her initial outlay to build a tiny home was much more palatable than spending thousands of dollars on rent or spending hundreds of thousands of dollars of her retirement savings buying an apartment in the city.