For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Legislating By Whim”
- Legislators Spend $200,000 On Office Remodels…Building to be Demolished
- “Legislating By Whim” – New Bad Habit in Sacramento
- Newsoms Have Long Taken PG&E Contributions
- Biggest, Boldest Utility Takeover Proposed for PG&E
- SMUD Seeks Solar Panel Mandate Shift; Industry Opposes
GIG WORKES & HOUSING
- Truckers File First Court Challenge to Gig Worker Law
- California is “America’s Worst Housing Nightmare”
FOR THE WEEK ENDING NOV. 15, 2019
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.
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It’s just a matter of time until the annex of offices attached to the California Capitol comes down.
The Legislature authorized a chunk of money last year to do away with the 67-year-old building that houses the majority of state senators and Assembly members to make space for a more modern model. Work is already underway for a temporary space that will house lawmakers and their staff while that project is completed.
That hasn’t stopped legislators from sprucing up their offices in the meantime.
Since January 2018, dozens of members have requested and received nearly $190,000 in office improvements despite voting to tear down or gut the current structure.
The list of improvements since last year ranged from $548 of “touch up” paint in the office of state Sen. Mike McGuire, D-Healdsburg, to a $10,555 carpet renovation for Sen. Connie Leyva, a Democrat from Chino. Others received larger paint upgrades, complete carpet repair, modest remodeling and new furniture, according to invoice reports obtained by The Sacramento Bee.
- State Sen. Ben Hueso’s office received nearly $12,000 in new carpeting this year, after Senate Facilities completed a walk-through and determined that tearing in several spots was severe enough to warrant a complete replacement, Hueso’s office said.
- Another $8,000 of new carpeting was rolled out in Assemblyman Rudy Salas’ office.
- And $6,000 went into fixing Assemblyman Devon Mathis’ flooring and repairing damaged walls in mid-2018. Mathis said in an emailed statement that, “Over the course of years, used by the previous office, the carpets had not been changed, let alone cleaned.” The “major repairs” were needed, he said to maintain “professional standards” for his staff.
- State Sen. Henry Stern’s office said the Canoga Park Democrat’s work space needed a paint and carpet makeover as a result of “inheriting an office” in shabby condition. More than $12,000 worth of “Frost Grey” base paint, “Pebble Drift” accents and “Delicate White” trimming now decorate Stern’s office. Another $9,690 in new carpet and a $3,351 door swing were also installed, according to the invoices.
The Assembly, home to 80 lawmakers, requested approximately $64,000 worth of repairs. The Senate, a chamber half in size, nearly doubled that dollar number.
Within two years, lawmakers are expected to move out of the decades-old building attached to the east side of the Capitol and into the temporary building under construction on 10th and O streets. The temporary space is scheduled for completion in November 2021 and will cost more than $400 million. It’s projected to be 10 stories and large enough to house more than 1,250 legislative and executive branch staff, according to plans for the project.
It’s unclear at this point when the separate annex project will be completed, or whether the current structure will be renovated or torn down, said Debra Gravert, chief administrative officer for the Assembly. Former Gov. Jerry Brown set aside last year up to $755 million to fix the six-story structure.
In the meantime, both Gravert and Senate Secretary Erika Contreras said ongoing maintenance for the current Annex is necessary to uphold a work environment acceptable to visitors and constituents.
“We have an obligation to have a presentable, clean, and safe work space for our employees – and for the public who frequent our Capitol – so continued maintenance and upkeep of both the historical and Annex side of the building remains important,” Contreras said. “The new building that is currently under construction will not be finished for several years, so we do need to continue to do repairs as needed.”
Lawmakers voted to dispose of the annex after a 2017 report found desperate deficiencies in the structure. According to Assemblyman Ken Cooley, D-Rancho Cordova, the lack of disability access, asbestos problems and overcrowding pose safety threats to Capitol staff and the estimated 2 million annual visitors who tour the building. The structure also sits on top of a parking garage, which is considered a bomb risk.
Cooley spearheaded the initiative to remodel the outdated annex and championed a modern model that boasts a more formal visitor center and a new parking garage. CSHQA, the firm that completed the report, recommended a 514,000 square foot building.
The Democrats who dominate the state Legislature have developed a very bad habit — legislating by whim.
If they take a dislike to something or someone, they ban it. If they like something, they impose it on everyone and/or give it taxpayers’ money.
However, their whims, awash in self-righteousness, often violate not only common sense, but existing laws and even constitutional rights.
An excellent example was a law that required clinics offering non-abortion alternative services to pregnant women to post notices telling them about the availability of abortions.
Unfettered — and unquestioned — access to abortion is a Democratic Party shibboleth, so anything or anyone expressing an alternative viewpoint is, in the minds of legislators, an evil to be suppressed.
However — and predictably — the U.S. Supreme Court slapped it down as a violation of the U.S. Constitution’s right to free speech.
“By compelling petitioners to speak a particular message, it alters the content of (their) speech” and thus violates a previously enunciated judicial principle, the majority opinion declared.
As that case illustrates, when the Legislature acts on one of its collective whims, it invites adult supervision. The Supreme Court provided it on the abortion notice law, and although he signed that law, former Gov. Jerry Brown vetoed some of the Legislature’s more immature outbursts.
Things changed when Gavin Newsom became governor this year. He has his own streak of impulsiveness, and has been willing, even eager, to tread where Brown did not.
One of the Legislature’s evident dislikes is President Donald Trump, so it passed a bill last year declaring that to appear on California’s presidential primary ballot, a candidate had to release his or her income tax returns.
However, Brown, who shares legislators’ disdain for Trump but had refused to release his own income tax returns, vetoed the measure.
“While I recognize the political attractiveness — even the merits — of getting President Trump’s tax returns … it may not be constitutional,” Brown warned, adding, “Today we require tax returns, but what would be next? Five years of health records? A certified birth certificate? High school report cards? And will these requirements vary depending on which political party is in power?”
Undeterred by Brown’s common sense, the Legislature passed a virtually identical bill this year. Newsom signed it, and — of course — characterized it as an expression of moral principle, rather than a constitutionally dubious and petty hit job.
In “extraordinary times,” Newsom declared, state officials “have a legal and moral duty to do everything in their power to ensure leaders seeking the highest offices meet minimal standards, and to restore public confidence.”
A federal judge quickly declared that the law violates the U.S. Constitution and last week, justices of the state Supreme Court questioned the measure’s logic and legality and signaled its doom.
“Would the Legislature be entitled to impose requirements that candidates produce birth certificate or psychotherapy records or affidavits that they have never committed adultery or been a member of the Communist Party?” Justice Joshua Groban asked the hapless state lawyer trying to defend the law’s legitimacy.
“The Legislature can then tack on any number of additional requirements?” asked Justice Ming W. Chin. “Where does it end? Do we get all their high school report cards?”
Chief Justice Tani Cantil-Sakauye made the most telling point — that the court searched the records to determine if the Legislature even consulted the state constitution before acting and “We didn’t find anything.”
The unspoken answer was that when the Legislature — and now the governor — enact one of their whims, constitutionality is never a barrier.
California Gov. Gavin Newsom has accused his state’s largest utility company of mismanaging funds he said it should have used to upgrade an aging electrical grid prone to deadly wildfires.
But over the past two decades, Newsom (D) and his wife have accepted more than $700,000 from the Pacific Gas & Electric Co., its foundation and its employees as the utility has supported his political campaigns, his ballot initiatives, his inauguration festivities and his wife’s foundation, including her film projects, according to records reviewed by The Washington Post.
The contributions illustrate Newsom’s ties to the company responsible for wildfires that have killed at least 85 people and caused billions of dollars in damage over the past three years. The governor has slammed PG&E for paying bonuses to executives and cash dividends to its investors instead of spending more on infrastructure upgrades that could have prevented the fires.
“As it relates to PG&E, it’s about dog-eats-dog capitalism meeting climate change,” Newsom said at a news conference last month. “It’s about corporate greed meeting climate change. It’s about decades of mismanagement. It’s about focusing on shareholders and dividends over you and members of the public.”
He added that he while can forgive the company for not predicting the degree of impact climate change has had on California, “I will not forgive them for not making the kind of investments in their equipment — hardening and undergrounding and anticipating this new reality of which they have had ample time to anticipate.”
Records show PG&E has spent at least $227,000 on Newsom’s political campaigns and committees supporting them over his two decades in public office, helping to fund his rise from San Francisco mayor to one of the country’s most influential Democratic leaders. PG&E employees have spent an additional $70,000 on his campaigns. The company gave $25,000 for his mayoral inaugural costs and $25,000 to city ballot measures that he supported.
Between 2011 and 2018, the utility’s philanthropic arm gave $358,000 to the Representation Project, a nonprofit group founded by Jennifer Siebel Newsom, the governor’s wife. The PG&E Corporation Foundation also gave $10,000 to the PlumpJack Foundation, a charity led by his sister, Hilary Newsom, according to information provided by PG&E.
The company gave enough money to be listed as an associate producer in the credits for two of Jennifer Siebel Newsom’s documentary films. It also hosted high-profile screenings of the films at its offices, including in the atrium of its San Francisco skyscraper in 2011.
The payments are not unusual for PG&E, one of the most politically active companies in California state and local politics and a prolific contributor to Bay Area charities. PG&E spent $5.3 million on state and local political campaigns in 2017 and 2018, the company said in a court filing this year, with Newsom receiving more of that money than any other single candidate.
PG&E’s political and philanthropic spending, along with executive compensation and shareholder payouts, are determined by the holding company PG&E Corp. Its subsidiary, the PG&E Co., is a regulated monopoly that must negotiate its revenue and expenses with state regulators every three years.
Still, the money PG&E contributed to the campaigns of Newsom and other politicians could have been used to put power lines underground or clear brush that leads to wildfires, said David Pomerantz, executive director of the Energy and Policy Institute, a San Francisco-based utilities watchdog.
“Every dollar that PG&E spends on a campaign contribution right now is one they should be spending to hasten the transition to a safer, more distributed electrical grid,” Pomerantz said.
PG&E, an investor-owned utility whose largest shareholders include hedge funds Knighthead Capital Management and Abrams Capital Management, filed for bankruptcy in January, declaring itself unable to pay the billions of dollars in mounting liabilities from repeated seasons of wildfires. Its market value is about $3.4 billion, after losing more than $30 billion in equity value over the past two years.
When a federal judge asked PG&E in July to explain why its political spending was “more important than replacing or repairing the aging transmission lines,” the company said it needs to make the concerns of its employees, customers and shareholders known to policymakers.
“Like many individuals and businesses, PG&E participates in the political process,” Ari Vanrenen, a spokeswoman for the company, said in an emailed statement. “PG&E holds itself to the highest standards of public disclosure and compliance with applicable laws and regulations.”
Vanrenen said the utility has invested $27 billion in its electric system over the past decade, including $3 billion in vegetation management and tree trimming. The company is actively moving some of its power lines underground, but PG&E estimates that process costs about $3 million per mile, or more than three times the cost of building overhead lines. By that estimate, converting all 18,000 miles of its overhead lines to underground lines would cost more than $50 billion.
Gov. Newsom declined a request to be interviewed. When asked about PG&E’s campaign contributions at a news conference earlier this month, he said the money has never affected his decisions in office.
“If the suggestion is that somehow I am influenced by that, you’re wrong,” Newsom told a reporter from Sacramento news channel ABC10. “There’s not one thing you can point to during my tenure as governor.”
Nathan Click, a spokesman for Newsom, said in an emailed statement that the governor has “used every tool at his disposal” to hold PG&E accountable, including passing a law that he said created new safety requirements for PG&E if it wants to access a state wildfire relief fund.
Click said Newsom stopped taking contributions from PG&E after his election in November 2018. There is no record of the company contributing to his inaugural events or future gubernatorial campaign since then. Still, a week after the election, his wife’s Representation Project held its annual gala at San Francisco’s historic Ferry Building and listed PG&E as a main sponsor.
Caroline Hellman, executive director of the nonprofit, told The Post in an email that the organization stopped taking donations from PG&E “upon Gov. Newsom taking office,” which happened in January.
In interviews, Nathan Ballard and Steve Kawa, two of Newsom’s former advisers, said the politician never gave PG&E any special treatment. Kawa pointed to Newsom’s effort as lieutenant governor to pressure the company to close its Diablo Canyon nuclear power plant, which PG&E petitioned to keep active despite concerns it is vulnerable to earthquakes.
“It is impossible to curry favor with Gavin Newsom,” said Ballard, a longtime Newsom friend and communications adviser. “He has a very strong sense of right and wrong, and he has a long track record of voting against his closest allies and making policy decisions that displease his closest allies.”
Ballard is on the board of Jennifer Siebel Newsom’s nonprofit. PG&E is a client of his public relations firm.
PG&E was despised by many Californians long before the recent wildfires. Cast as the villain of “Erin Brockovich,” the Oscar-winning 2000 film based on a true story about PG&E’s role in contaminating the water supply in a small California town in the 1990s, PG&E has also been blamed for exploding manholes covers, accused of falsifying safety records and criticized for charging some of the highest electricity rates in the country.
Some public officials have distanced themselves from PG&E by returning or donating funds they received from the utility.
Gov. Jerry Brown (D), Newsom’s predecessor, returned $9,000 to PG&E in 2017 after the utility was convicted of six federal felonies for failing to prevent a pipeline explosion that killed eight people and destroyed 38 homes in San Bruno in 2010. Filings show that PG&E gave Brown and committees supporting him more than $300,000 for his statewide campaigns.
Timothy Grayson (D), a state assembly member for Contra Costa County, said he donated the $6,500 he received from PG&E to his local United Way charity after meeting with constituents who had lost their homes to last year’s wildfires.
“When we saw the pain on their faces, the tears in their eyes and the brokenness of having lost everything, there was no doubt in my mind that the right thing to do was to take the money from those who were responsible for the fire and give it to those who were most impacted by the fire,” Grayson said.
RL Miller, the chair of the California Democratic Party’s environmental caucus, said Newsom should return the funds he has taken from PG&E.
“Doing so will show that he’s committed to genuine reform,” Miller said in an email.
Newsom’s spokesman declined to comment on whether the governor would consider returning any funds.
As mayor of San Francisco from 2004 to 2011, Newsom became a rising star in California politics. Corporations such as PG&E that were seeking city contracts were banned from contributing to local political campaigns but found other ways to show their support.
Newsom faced off against eight other candidates in his first run for mayor, but his championing of two city ballot measures — a ban on aggressive panhandling and an overhaul of the city’s welfare program — helped raise his profile and put him over the top in the race. The utility chipped in $15,000 to support the efforts, campaign finance records show, and later gave $10,000 to support a measure he backed for citywide WiFi.
PG&E’s foundation was also among the largest donors to both of Newsom’s mayoral inaugurals, giving a total of $25,000, city records show.
John Avalos, who later served on the city’s Board of Supervisors, said that in those years, PG&E was the biggest player in city politics and philanthropy, because the technology sector was still young.
“You couldn’t be mayor in San Francisco without having the backing of PG&E,” Avalos said. “They were like the anchor, the one percent — the rich and powerful that determine the outcome of elections.”
San Jose Mercury
It would be the biggest government-led intervention in California’s electricity system in decades, a bold takeover of the state’s largest and most troubled utility as Pacific Gas and Electric Co. is assailed over widespread blackouts to avoid power line-sparked wildfires that have put it in bankruptcy court.
But will the proposed PG&E remake as a customer-owned cooperative bring cheaper, safer and more reliable power to Silicon Valley and beyond? One thing is certain: A state whose power business deregulation imploded in 2000 with rolling blackouts again would be charting new ground in delivering electricity.
“This is unprecedented,” said Robert McCullough, an energy consultant and adjunct professor of economics at Portland State University.
Following three years of devastating wildfires and a series of forced power blackouts to try and prevent equipment-related blazes, the mayors of San Jose, Oakland and 20 other cities and the leaders of five counties say it’s worth trying. San Jose Mayor Sam Liccardo is spearheading the local officials’ proposal to create a nonprofit cooperative that would raise the estimated $60 billion it might take to pay creditors and wildfire victims.
PG&E has declared it’s “not for sale.” But Liccardo said the cities and counties could use the California Public Utilities Commission, which must sign off on the company’s bankruptcy exit plan, as leverage.
A federal bankruptcy judge is weighing competing exit plans from PG&E’s shareholders and bondholders, groups Liccardo says are dominated by “hedge funds.” The cities and counties would be asking the court to consider their cooperative as another alternative when it evaluates them in the spring.
Their pitch is that a nonprofit cooperative could borrow at lower cost than a private utility, because it would have access to lower-rate financing and would not have to pay dividends or federal taxes.
“It’s going to take tens of billions of dollars to fix PG&E,” said Jan Baker, a bankruptcy attorney advising the mayors. “A co-op would enable a new PG&E to have a lot more money to invest in its system for the benefit of the customers.
The mayors believe deeply that PG&E not only needs more money, but it needs a laser focus on the needs of the customer. We believe they’re much more likely to get that if the board is elected by the customers.”
If all goes according to plan, PG&E would be restructured over the next year through the bankruptcy proceeding and led by a new co-op board. Employees would continue to work and customers receive energy as usual, though they would soon have a say in running the utility.
Still, there is a lot of uncertainty surrounding the proposal, much of which would have to be resolved in the next few months before it is even considered by the judge. The co-op has yet to be incorporated, to name its directors, to raise money and even to hire bankruptcy lawyers and investment bankers to raise the capital.
“There’s just a lot here that’s really complicated,” said Jared Ellias, a bankruptcy law expert at the UC Hastings College of Law. “This company is moving to get out of bankruptcy, so the train is leaving the station. We haven’t reached point of no return. But there’s just a lot to do, and it has to be done very quickly, and it’s expensive.”
Electric cooperatives are private, independent, nonprofit businesses owned by their customers who elect its directors. They were promoted by the federal government during the Great Depression to bring power to America’s farm country where private utilities considered the investment unprofitable.
But none exist on the scale of PG&E, with 5.4 million electric customers across 70,000 square miles from Bakersfield to Oregon, an area bigger than North Dakota. The median electric co-op serves 13,000 customers.
And co-ops aren’t the same as the government-run public utilities that deliver power such as those in Santa Clara, Palo Alto, Alameda, Sacramento and Los Angeles. A municipal takeover of the local electric system also is being weighed in San Jose, as well as San Francisco, which was not among cities that had signed on to pursue a cooperative.
San Francisco has considered acquiring PG&E’s grid in the city many times over the years. It recently offered $2.5 billion, which the utility rejected last month as significantly undervaluing its assets. Although San Francisco officials continue to pursue it, they say its municipalization bid isn’t mutually exclusive with the co-op plan.
Municipalization efforts elsewhere involved decades of wrangling over acquisition costs. Boulder, Colorado, has been at it since 2011. Sacramento residents voted to municipalize their PG&E grid in 1923, a process that lasted through 1946.
Cities hoping a municipal-run system might shield them from PG&E’s blackouts to reduce wildfires could still find themselves in the dark. That’s because they may have to rely on PG&E’s long-distance transmission lines in fire-prone wilderness to deliver power generated elsewhere to the city grid.
The co-op proposal instead would take over PG&E and its transmission system wholesale with a new governing structure.
There is only one modern case of a cooperative taking over a private utility. In 2002, local businesses led the formation of Kauai Island Utility Cooperative and its $218 million takeover of Kauai Electric in a bid to more aggressively pursue renewable energy. Kauai’s small co-op serving 37,000 customers now gets 55 percent of its power from renewables, up from 8 percent in 2010. But a 2016 U.S. Department of Energy study said that “since its inception, KIUC’s residential rates have remained higher than the state average.”
The Kauai acquisition didn’t involve a hostile takeover in a bankruptcy proceeding. But PG&E’s unwillingness to sell isn’t necessarily a barrier, said Dan Richard, a former senior PG&E executive advising the San Jose mayor’s cooperative effort.
“They put themselves up for sale when they filed for Chapter 11 protection,” Richard said.
Richard is confident investors will be interested, but others aren’t so sure.
“How interested are private investors going to be in funding this plan,” Ellias asked. “PG&E has to borrow money all the time. So if private markets have never seen anything like this, how interested are they going to be in lending money?”
Moreover, once customers replace shareholders as the utility’s owners, they become solely responsible for costs of disasters linked to the company. Richard argues “customers are already on the hook” with PG&E shareholders and often end up sharing those costs.
But the California Public Utilities Commission said it has not allowed PG&E to recover significant past liability costs from ratepayers. That includes the $333 million 1996 settlement of the Erin Brockovich lawsuit over Hinkley groundwater contamination and more than $2.85 billion in penalties, refunds, system improvements and legal settlements from the 2010 San Bruno gas pipe explosion.
“Be careful what you wish for — if you own PG&E, you own PG&E,” Ellias said. “Sometimes you don’t want to own things. Sometimes it’s better to beat them up from afar.”
A proposal by a single utility threatens to upend California’s sweeping mandate requiring solar panels on almost every new home.
The Sacramento Municipal Utility District is asking state regulators to allow its customers to get power from solar farms instead of installing their own panels, saying they should have a choice. Rooftop solar installers are meanwhile warning that this would undercut California’s clean-energy goals.
The utility’s proposal, which California energy regulators delayed vote on Wednesday. It would be a big win for home builders — who’ve warned that the state’s solar mandate will drive up housing costs — and would deal a major blow to Sunrun Inc., Vivint Solar Inc. and other panel installers that were betting on the rule for a surge in sales. The plan also threatens to undermine a movement to make rooftop panels mainstream and has broader implications for lawmakers elsewhere who were looking to follow California’s lead.
“If this proposal goes through, we should expect to see other utilities follow,” said Benjamin Davis of the California Solar & Storage Association, which represents panel installers. “This is just essentially a loophole.”
The California Energy Commission member who spearheaded the state’s solar mandate, Andrew McAllister, said its intention was to power more homes with clean energy — regardless of whether it’s from rooftop panels or solar farms.
“This is all additional, so it’s all good,” McAllister said in an interview. “I think the either-or approach is kind of a red herring.”
The mandate was unprecedented when enacted last year as part of former-Governor Jerry Brown’s effort to slash California’s carbon emissions. It required most new homes built starting in 2020 to include solar systems. Builders and others warned it would drive up the cost of buying a house by almost $10,000.
The rule includes a provision that allows utilities and others to propose programs for homeowners to forgo rooftop panels and instead get power from “community solar” farms, which are generally smaller installations close to customers they serve. Critics argue the Sacramento utility’s proposal shouldn’t be considered “community solar” because the power plants are too far away or too large.
Panel installers contend rooftop systems have advantages over solar farms because they’re more likely to spur homeowners to install batteries and don’t require significant upgrades to the grid. That includes building transmission lines, which have been blamed for sparking deadly wildfires in California.
Sunrun, based in San Francisco, said the proposal to allow homeowners to choose is a “substantial step backward for clean energy in California.” The company’s chief executive officer, Lynn Jurich, said the plan is really about “competition, where utilities are wanting to sell more power directly” and said the argument that this is about customer choice doesn’t “hold water.”
“It’s really out of touch with what’s happening in the world,” she said in an interview Tuesday.
Sacramento’s utility, known as SMUD, serves 1.5 million customers and is the first in the state to propose the idea.
“I have no doubts that this is in compliance,” said Tim Tutt, SMUD’s program manager for state and regulatory affairs. “We made very sure about that.”
The California Trucking Association filed what appears to be the first lawsuit challenging a sweeping new labor law that seeks to give wage and benefit protections to workers in the so-called gig economy, including rideshare drivers at companies such as Uber and Lyft.
The legislation violates federal law and would deprive more than 70,000 independent truckers of their ability to work, the association said. Many would have to abandon $150,000 investments in clean trucks and the right to set their own schedules in order for companies to comply with a law it says illegally infringes on interstate commerce.
“Independent truckers are typically experienced drivers who have previously worked as employees and have, by choice, struck out on their own. We should not deprive them of that choice,” association CEO Shawn Yadon said in a statement.
The law set to take effect Jan. 1 makes it harder for companies to classify workers as independent contractors instead of employees, who are entitled to minimum wage and benefits such as workers compensation.
“We expect big corporate interests — especially those who have misclassified their workers for years — to take this fight back to the place they know they can delay justice for workers: the courts,” the bill’s author, Democratic Assemblywoman Lorena Gonzalez of San Diego, said in a statement.
Her office said it’s apparently the first such lawsuit, although Uber, Lyft and DoorDash have said they will spend $90 million on a 2020 ballot measure opposing the law if they can’t negotiate other rules for their drivers. Uber also said it will keep treating its drivers as independent contractors and defend that decision in court if needed.
The law could also affect construction workers, janitors and home health aides. But the law’s effect on ridesharing and meal delivery drivers has received the most attention because those companies pay their drivers on a per-ride basis and don’t provide benefits such as health insurance and paid leave.
The law implements a legal ruling last year by the California Supreme Court regarding workers at the delivery company Dynamex.
The court set a new, three-prong test for companies to use when determining how to classify their workers. To be labeled a contractor, a worker must be free from control of the company; performing work “outside the usual course of the hiring entity’s business”; and engaged in an independently established trade, occupation or business of the same nature as the work they are performing.
The lawsuit was filed in federal court in San Diego the same day the University of California, Berkeley, Labor Center estimated that the law will apply to nearly two-thirds of independent contractors, including truck and taxi drivers, janitors and maids, retail workers, grounds maintenance workers and childcare workers.
Categories specifically exempted under the law make up another 9%, mostly high-wage jobs including doctors and dentists, lawyers, accountants and real estate agents.
Roughly a quarter of workers will be covered unless certain strict criteria apply, the center projected. They include construction workers, hairdressers and barbers, designers and other artists, and sales representatives.
California, the land of golden dreams, has become America’s worst housing nightmare.
Recent wildfires have only heightened the stakes for a state that can’t seem to build enough new homes.
The median price for a house now tops $600,000, more than twice the national level. The state has four of the country’s five most expensive residential markets—Silicon Valley, San Francisco, Orange County and San Diego. (Los Angeles is seventh.) The poverty rate, when adjusted for the cost of living, is the worst in the nation. California accounts for 12% of the U.S. population, but a quarter of its homeless population.
How did we get here? Simply put, bad government—from outdated zoning laws to a 40-year-old tax provision that benefits long-time homeowners at the expense of everyone else—has created a severe shortage of houses. While decades in the making, California’s slow-moving disaster has reached a critical point for state officials, businesses and the millions who are straining to live there.
This fall, as President Donald Trump blamed Democrats for the situation on his swing through the state to raise money for his reelection, lawmakers in Sacramento passed some of the most sweeping legislation in years to address housing affordability. Google, Facebook Inc. and Apple Inc. are throwing billions of dollars at the issue. But nobody’s kidding themselves that it’s enough.
“Broadly speaking, there is no solution to the California housing crisis without the construction of millions of new houses,” said David Garcia, policy director for the Terner Center for Housing Innovation at the University of California, Berkeley.
McKinsey & Co. estimated in 2016 that California needed some 3.5 million more homes by the middle of next decade—a figure that Governor Gavin Newsom made a central part of his administration’s goals. A more recent analysis suggests it may take the state until 2050 to meet the target.
As severe as this sounds, the rest of the country is becoming more—not less—like California. During the longest economic expansion on record, the U.S. has been building far fewer houses than it usually does, pushing prices further out of reach for a vast portion of the population that has barely seen incomes rise.
“California is not alone,” said Chris Herbert, the managing director of Harvard’s Joint Center for Housing Studies. “It’s just more extreme.”
For the poorest Americans, affording adequate housing has long been a challenge. But in California, it’s become a middle-class problem, too.
Silicon Valley teachers are having such a tough time affording rents that Facebook just announced a $25 million donation to build subsidized apartments for them. Another Bay Area town recently decided to retrofit an old firehouse into barracks for its cops after they took to sleeping in their cars.
In a state where more than 40% of residents are considered cost burdened for housing—paying more than 30% of their income toward shelter—even people in high income brackets are often stretching their budgets.
Local jurisdictions in California hold enormous sway over what gets built. Officials have often caved to NIMBY (“not in my backyard”) pressure against new development, much of it in the name of protecting the environment or preserving “neighborhood character.”
Parts of the state were downzoned starting in the 1970s, making it harder to build dense urban areas and contributing to racial segregation and sprawl. Three-quarters of the residential land in Los Angeles is restricted to single-family homes, according to UrbanFootprint, software that helps government and businesses understand cities and urban markets. In San Jose, the figure is 94%.
California also has a distinct burden: Proposition 13, a measure approved by voters in 1978 that limits property-tax increases on homes until they’re sold. That’s been a boon for Baby Boomers who’ve lived in their houses for decades and aren’t assessed at anything close to their property’s market value.
But it’s especially unfair to their children, who are in effect subsidizing their parents’ generation.
Prop 13 also created a fiscal incentive for many cities to favor new commercial development over residential construction—and heap fees on developers to fund budget gaps.
For decades, many Californians have just moved farther out of town to find cheaper places to live. But as climate change increases the intensity and frequency of wildfires—leading to devastation and billions of dollars in costs—officials may decide to put some areas off-limits for new construction.
That could exacerbate the housing shortage, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. “At some point, the regions that are under pressure to build more housing are going to find areas that are prone to more frequent fires,” he said.
Not surprisingly, some residents aren’t waiting around to see what happens. In recent years, younger, less-educated and lower-income folks have led the exodus from the state, according to an analysis by the Legislative Analyst’s Office. They’re being replaced by high earners with graduate degrees in what amounts to a sort of state-wide gentrification.
Corporations are also decamping for lower-cost locales. Even companies like Apple, Facebook and Google that are still adding employees in the region have looked to cities including Atlanta, Austin and Pittsburgh for growth. The three tech giants have also pledged to address the issue itself, with a total of $4.5 billion in commitments toward affordable housing development in the state.
Those very same companies have been blamed for contributing to the crisis by bringing in a flood of workers over the past decade while housing supply failed to keep up. The Bay Area saw 5.4 new jobs for every unit of housing it built between 2011 and 2017.
What now? Newsom has vowed to be aggressive, and has taken steps such as suing a city for refusing to build affordable housing. At a ceremony last month to sign an anti-rent-gouging law, he was blunt about what else needed to be done: “We need to put in more damn housing.”
The coming year is likely to bring a showdown over one of the biggest issues: land use. An ambitious bill to force cities to accept density around transit and job centers was tabled in May because of opposition from suburban legislators, generating an outcry. Its backer, state Senator Scott Wiener, has vowed to try again in 2020. Whether or not he’s successful, the bill demonstrates the kind of sweeping change that researchers say is necessary to build more homes where they’re needed most, without sprawling into risky areas.
Los Angeles neighborhoods that have seen prices soar because of an influx of tech-heavy jobs would potentially accommodate more growth.
The stakes couldn’t be higher. California can keep attracting all the “highly talented individuals that make the knowledge economy work,” said Herbert of Harvard’s Joint Center. But, at some point, he added, “the state’s economy will be strangled by the inability to have a broad workforce.”
In other words, a place known for diversity, innovation and quality of life may be left for no one but the rich and lucky, who got there before it was too late.