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IN THIS ISSUE – “You’re The Man, Governor Gav!” (LeBron James)
- Newsom “Still On A Learning Curve”
- Governor Finishes Signing & Vetoing Bills
- Vetoes Build Construction Union Anger
- Gas Tax Funds Are Properly Spent – Newsom Refutes Critics
FOR THE WEEK ENDING OCT. 18, 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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Californians will soon be allowed to eat roadkill but be prohibited from buying fur coats. Abortion pills will become available on college campuses, but tiny bottles of shampoo will be banned from hotel rooms. High school and middle school kids will get a later first bell, but schools won’t be forced to give kindergartners a full-day program.
Democratic Gov. Gavin Newsom signed and vetoed the year’s final batch of legislation Sunday night, making decisions that will shape California in ways big and small. His choices during his first year as governor largely reflect Newsom’s progressive vision for the state. But they also offer a window into how he approaches his role as a leader — not only of California, but of the broader “resistance” movement opposed to Republican President Donald Trump.
Here are a few things Newsom revealed as he made his way through 1,042 bills the Legislature sent him this year.
He’s no Jerry Brown — and he wants you to know that.
Lawmakers frustrated by past vetoes saw fresh opportunity with a new governor and re-introduced many bills this year that Newsom’s Democratic predecessor had rejected. In most cases, Newsom obliged, signing numerous bills that amounted to do-overs from the past.
“Third time’s a charm,” quipped a cheerful Assemblyman Phil Ting as Newsom signed his bill expanding the use of gun restraining orders — something Brown had vetoed twice.
Other legislation Newsom signed that Brown had rejected: measures to make abortion pills available at college health clinics, allow child care workers to form unions, ban smoking on state beaches, make charter schools more transparent, start school later for sleep-deprived adolescents, and make it easier for victims of sexual harassment and child sex abuse to sue.
Newsom’s decisions reflect a steady effort to distinguish himself from Brown, which began early in the year with a State of the State speech that signaled he would depart from his predecessor’s approach on water, education and housing. By the end of the year he had vetoed a higher proportion of bills than Brown did — 16.5% compared to 13.5% in Brown’s second stint as governor.
Newsom did agree with Brown on a few vetoes, however. In giving a thumbs down to AB 1451, Newsom became the third consecutive governor to veto a bill that sought to change the process for qualifying initiatives for the ballot by limiting the use of paid signature-gatherers.
He’ll seize any opportunity to bash Trump …
The high cost of rent for many Californians really doesn’t have anything to do with President Trump. It’s largely a supply-demand problem in regions where land values are high, employment is strong and housing production is low.
Yet Newsom managed to make dissing Trump a theme of his bill-signing ceremony at a senior center in Oakland where he enacted new laws protecting tenants from eviction and capping rent increases. He likened the president’s recent visit to California to “a seagull that comes in, and does what seagulls do, and flies away.”
Then he paused for comedic effect to let the seagull imagery sink in.
Newsom acknowledged that sky-high housing costs are a political vulnerability for California Democrats — and said Trump wasn’t wrong to highlight the state’s large homeless population.
“He’s exploiting it,” Newsom told housing activists at the bill signing ceremony. “You’re trying to solve it.”
It was one of countless times this year Newsom used his platform to criticize or make fun of Trump, and another example of how his style breaks from his predecessor. Brown limited his Trump-needling largely to climate policy, and engaged in fewer of the political tit-for-tats that Newsom seems to relish. It’s hardly a risky strategy in a state where two-thirds of adults disapprove of Trump, and has helped Newsom foster a national profile in his short time as governor.
… Even when he and Trump are on the same side.
Progressive Democrats sent Newsom a bill meant to counter Trump’s rollbacks of environmental regulations by enshrining Obama-era rules in California law. At first glance, it sounds like something Newsom would support as part of his broader anti-Trump agenda.
But the legislation got caught up in delicate negotiations over water, and in the end Newsom sided against environmentalists and progressive Democrats, and with farmers and the Trump administration.
Not that you’d know that from his veto message. Newsom reframed the debate, distancing himself from the president even as he took his side.
“No other state has fought harder to defeat Trump’s environmental policies,” Newsom wrote in his veto of SB 1. “And that will continue to be the case.”
He understands the power of image…
After vetoing the environmental bill on a Friday night — a classic politician move to bury unflattering news — Newsom followed up with an early Monday morning announcement orchestrated to attract national buzz. He released a video of himself signing a bill allowing college athletes to make money from sponsorships — on an HBO show with basketball star Lebron James.
“You the man Governor Gav!” James later wrote on Twitter.
On James’ Instagram, a video of the bill signing has been viewed more than 1.2 million times.
Newsom’s approach to signing the college sports bill took a page from former Gov. Arnold Schwarzenegger’s playbook. Aaron McLear, Schwarzenegger’s press secretary during his governorship, said the movie star governor saw bill-signing ceremonies as “a great opportunity to get out of Sacramento and speak directly to the public to demonstrate what their government is doing.”
… But he’s no entertainer, at least when it comes to veto messages.
Obscure historical references and snarky turns of phrase peppered Brown’s most lively veto messages. He complained of “enough mischief” and “mayhem” in nixing a bill to keep bars open later, bemoaned the “coercive power of government” in vetoing a ban on smoking on state beaches, and directed legislators to read a 50-year-old essay in the Federal Bar Journal in vetoing an anti-corruption bill.
The prose in Newsom’s veto messages was comparatively mundane. (“I am acutely aware of the need to address congestion and safety around Lombard Street. However, the pricing program proposed in this bill creates social equity issues,” he wrote, managing to find the prosaic even in a bill to charge tourists to visit the crookedest street in the world.)
But like Brown, Newsom also issued surprise vetoes, nixing some innocuous-seeming bills that had sailed through the Legislature, and even some of his own priorities.
For instance, though he promoted full-day kindergarten at the outset of his administration, he vetoed a measure that would have required schools, within three years, to add a full-day kinder program, citing fiscal concerns.
And not a single lawmaker voted “no” on measures requiring animal shelters to microchip dogs and cats, directing state technology officials to evaluate uses for artificial intelligence, and asking school districts to include apprenticeship programs at their college and career fairs. Yet Newsom vetoed all three.
“There’s reasons governors do things like that, because they have to pay attention to how it all gets implemented,” said Dana Williamson, a top aide to Gov. Brown. “A bill that the Legislature passes, even with no controversy, could have some operational impact on the state.”
His operation is still on a learning curve.
Newsom accomplished a lot in his first year as governor. He advanced policies that Democratic presidential candidates are just talking about — expanding health care coverage, closing private prisons and offering two years of community college without tuition for some students. He tackled long-simmering California challenges, getting dueling interest groups to agree on legislation to increase regulations on charter schools and limit when police can use deadly force.
But he stumbled, too. He sowed confusion with contradictory messages about his plans for high-speed rail. He garnered mistrust when he wavered on a bill to crack down on bogus medical exemptions from childhood vaccines — asking lawmakers to change the bill, and then, after they made the changes, taking to Twitter to demand more.
“Everyone in the Capitol was gasping, ‘What is going on?’” said Mike Madrid, a GOP consultant who was working for the doctor association that backed the vaccine bill.
“When you are dealing with the governor, or any executive office, you have to believe 100% that their word is their bond.”
Lawmakers were especially frustrated because the vaccine bill was so contentious, drawing hundreds of protesters to the Capitol for days on end — and culminating with a demonstratorthrowing a menstrual cup of blood at senators on the final night of session.
Their sense of betrayal may have made it harder for Newsom to get what he wanted as the legislative year drew to a close. His fellow Democrats in the Legislature sent Newsom an environmental bill he opposed, and refused to take up a recycling bill that he wanted them to pass.
The snafus exposed shortcomings that the governor should try to address next year, Madrid said: “Being a governor, half of it is visioning and half of it is managing. On the visioning, he’s got an A-plus. On managing, there is room for improvement.”
From fighting President Donald Trump’s agenda to signing first-in-the nation laws that expand access to health care and regulate the gig economy, California Gov. Gavin Newsom earned no small amount of praise from liberals since he took office in January.
But not everybody on the left is happy with the governor’s job performance.
A set of bills Newsom vetoed last week earned him criticism the left. Here’s a look at the vetoes that disappointed some of Newsom’s constituents.
Last weekend, Newsom vetoed a bill that would have regulated hospital closures, frustrating the influential California Nurses Association
The union’s president accused the governor of “craven submission to wealthy hospital corporations and Wall Street speculators” when he returned Assembly Bill 1014 unsigned.
AB 1014, sponsored by Assemblyman Patrick O’Donnell, D-Long Beach, would have required that hospitals providing emergency medical services provide at least 180 days of notice before eliminating or reducing the level of those services or shutting down entirely, as well as at least 90 days notice before eliminating or relocating a supplemental service.
“I agree that hospital closures have vast impacts on communities. However, this bill would not change the fact that the state is not able to force a hospital to stay open when they are financially unable,” Newsom wrote. “I am concerned that this bill may exacerbate the financial and patient safety concerns that often lead to closures.”
Califronia Nurses Association President Deborah Burger had sharp words for Newsom in the wake of his decision.
“With this veto, Gov. Newsom is abandoning both patients and communities. Closures force patients to travel much farther for critical care and that puts lives in grave danger,” Burger said in prepared remarks.
Stephanie Roberson, CNA’s director of government relations, said in a statement that 23 hospitals have closed or been sold off in the last four years in California.
“That’s a death sentence for many Californians because when these facilities leave, they do not return,” Roberson said. “We are concerned about the posture of this governor as he is clearly choosing what the corporate hospital industry wants over what is best for our communities and patients.”
Burger’s words might sting more than most for Newsom; the CNA endorsed his run for governor, calling him “a natural ally for nurses.”
Assembly Bill 1282, sponsored by Assemblyman Ash Kalra, D-San Jose, would have prohibited Department of Corrections and Rehabilitation employees and contractors from allowing private security contractors to enter CDCR property for immigration enforcement purposes.
“I am concerned that provisions in this bill would negatively impact prison operations and could hinder and delay needed transfers between facilities for myriad situation-specific reasons such as medical care and court obligations,” Newsom wrote of his decision to veto the bill.
The group Asian Americans Advancing Justice disputes Newsom’s position.
“AB 1282 would have been a major step toward California fulfilling its pledge as a sanctuary state,” said Liza Chu, California policy manager for the group.
“Gov. Newsom’s decision will continue to separate families and implicate our state in facilitating unlawful arrests by private contractors for deportation purposes,” Nourn said.
Newsom notably broke with the left with some other high profile bills.
He vetoed Assembly Bill 197, sponsored by Assemblywoman Shirley Weber, D-San Diego. That bill would have required schools to offer at least one full-day kindergarten program, beginning with the 2022-23 school year.
Newsom cited budget reasons for his decision to veto.
“While I support increased access to full-day kindergarten, I cannot sign this bill as it would impose new costs outside the budget,” the governor wrote.
Newsom added that the 2019 Budget Act included $300 million specifically to expand full-day kindergarten offerings.
The California Teachers Association had listed the bill as one to watch, and chose not to comment on Newsom’s decision to veto it.
Newsom also chose to execute his veto on a bill aimed at improving voter turnout in primary elections.
Assembly Bill 681, sponsored by Assemblywoman Lorena Gonzalez, D-San Diego, would have required county elections officials to send out notices ahead of upcoming primary elections, informing voters of their current political party preference, the type of ballot they would be able to cast in the election and instructions on how to change that preference.
The bill was aimed at preventing people from being unable to vote in a party’s primary because they did not have the right political party preference.
“While I share the Legislature’s intent to reduce voter confusion, this bill may create a state-reimburseable mandate with likely significant ongoing general fund costs to the state, thus it should be considered in the annual budget process,” Newsom wrote in his veto message.
Newsom’s decision to veto three significant bills sought by building trades unions widened the split between him and a labor organization, which, like other unions, backed his election.
The bills sought to provide.
- More affordable housing,much of it to be built by building trades workers, but at a cost estimated by Newsom of $2 billion.
- Ensure that workers on more construction projects receive prevailing wages, in other words union wages.
- Workers would receive prevailing wages in the construction of charter public schools.
The vetoes came after the Newsom administration invited and then disinvited Robbie Hunter, head of State Building and Construction Trades Council, to serve on Newsom’s Future of Work Commission.
- The building trades council represents 450,000 blue collar workers, including 63,000 apprentices.
Hunter responded to the vetoes by referring to the victory of President Trump over Hillary Clinton, and perhaps Newsom’s future:
- “National politics provides us a cautionary tale of what happens when the working class is forgotten by candidates who are steeped in the ambitions of unrequited presidential aspirations.”
And the building trades unions are running digital ads all but accusing Newsom of ignoring the deaths of blue collar workers, indicating a widening rift between the influential labor organization and the Democratic governor.
The spots say 10 months into his administration, Newsom has not filled a position on the board that oversees the Division of Occupational Safety and Health of California, Cal-OSHA.
- The ads on social media read: “Construction workers die while you can’t be bothered to fill OSHA vacancy,” and link to accounts of deaths of a refinery worker, a construction worker and an ironworker.
Newsom’s spokesman Nathan Click did not say when the position would be filled. Regarding any rift with the blue collar workers’ union, Click cited a recent news release about Newsom signing “landmark legislation drafted in response to the #MeToo movement.”
Democrats rely on the building trades for campaign money and volunteers. The organization also splits with Democrats, particularly those who view themselves as environmentalists.
Hunter said he has been asking that the vacancy be filled for months and got no response from the administration when he sent a note in September about an ironworker, Brien Daunt, who died on the job, leaving behind a daughter.
- “A construction worker is of no lesser human value than anyone else, when he or she doesn’t come home to their children. The loss is just as big as if they were someone with a title and an Ivy League diploma.”
Not lost on the building trades: The Newsom administration responded quickly when race horses died at Santa Anita racetrack.
Gov. Gavin Newsom answered critics who’ve accused him of a “bait and switch” by diverting gas tax money from road projects, saying that the law is “locked in” and the money will be “used for its intended purposes, full stop.”
Newsom, during a Wednesday tour of a Project Homeless Connect, addressed sharp criticism this week from Republicans and some Democrats on the gas tax issue, which comes as California drivers are seeing the average price per gallon soar above $4, well beyond the national average.
The issue arose after Newsom issued a Sept. 20 executive order directing more funds toward projects that would reduce the use of automobiles, “to help reverse the trend of increased fuel consumption and reduce greenhouse gas emissions associated with the transportation sector.”
“I’m confused. … I think they’re conflating things. Some are doing it, respectfully, intentionally. SB 1 is locked in,” he insisted Wednesday regarding concerns raised by Republicans and even some in his own party that he is tapping into the funds for projects not intended by voters.
“That money is used for its intended purposes, period, full stop,'” he said. “One cannot legally redirect those dollars.”
Both Republicans and Democrats expressed concern after Caltrans responded to his executive order by proposing a delay in funding for a trio of major highway improvement projects in San Luis Obispo County and the Central Valley. The agency said it was reserving $61 million “for priority rail projects and other priorities aligned with [the] Executive Order.”
Republicans like Fresno Assemblyman Jim Patterson charged that Newsom appeared to be taking gas tax funds intended for road improvements and shifting them toward his own pet projects.
Assembly Speaker Anthony Rendon weighed in, saying “the voters of California recognized those promises and resoundingly defeated a proposal that would have been a roadblock on the way to fixing roads used by residents, businesses and visitors. … Now is not the time to go back on those promises, and the Legislature will stand by those safeguards.”
Newsom argued that “we have a ‘fix it first’ framework” with regard to roads. But he added that “the state invests about $17 billion a year on transportation, we’ve never had more abundance in funding.”
“And so transportation is a top priority, maintenance is a top priority,” he said. With discretionary dollars, he told POLITICO, “we want to be thoughtful about how we use those dollars and plan in a way that’s consistent with our climate values — and that means building roads and connecting jobs and housing … in a thoughtful and judicious way.”
Legislative Analyst’s Office
Multiple signs suggest a slowdown could be on the horizon, but recent actions by the Federal Reserve could help improve economic conditions. If, despite Federal Reserve actions, conditions do not improve in the coming months the risk of a decline in state revenues would be high.
Knowing when the state’s next budget slowdown will happen is impossible. Many economic factors outside the state’s control influence state revenues. Despite this, certain data points can help us understand whether shifting economic conditions are likely to lead to growth or declines in state revenues in the coming months.
We created the State Fiscal Health Index to track the strength of economic conditions relevant to the state’s fiscal health. The index ranges from 0 (representing the lowest level in the last 25 years) to 100 (representing the highest level in the last 25 years). Both the level of the index and changes in the index from month to month offer information about the state’s fiscal health. When the index is high, revenues tend to be high compared to historical norms. Similarly, when the index is increasing, state revenues are likely to increase over the next six to twelve months. On the flipside, a consistent decline in the index over a few months has typically signaled that the state is entering an extended period of revenue weakness.
The figure below shows the index through August 2019. The index remained near historic highs in August.
States looking to legalize recreational marijuana might believe they’re going after easy money.
Think again. States that have legalized recreational cannabis are finding that it’s not always the cash cow they envisioned. And there are plenty of other complicated issues to confront as they try to create and manage a legal market for a product long considered taboo.
Eleven states and the District of Columbia have given the green light to recreational cannabis, starting with Colorado and Washington state in 2012, with sales already underway in seven states. In those states, bringing marijuana into the legitimate economy was often sold to officials and the public as a way to raise new tax revenue from sales and production and funnel it into areas like education, mental health and law enforcement.
So what have those states experienced? Tax revenue that has largely fallen short of expectations and a growing recognition that taxing marijuana is pretty complicated.
It’s not just that states have struggled in projecting the size of a legal marijuana market and deciding how to best tax and regulate it. In a lot of ways, states are also grappling with their central goal of bringing cannabis out of the black market.
Advocates for legalization in California originally envisioned legalized pot raising $1 billion a year. As it turns out, the state raised not even a third of that in fiscal 2018-19, the first full year since recreational sales began. Massachusetts had projected it would bring in $63 million in revenue for its first year of recreational pot, which ended in June, and didn’t even get half of that.
There are a few exceptions: Colorado got its original revenue estimate for legal marijuana almost exactly right, and Nevada zoomed past its projections. But one reason that some states have had difficulties is that it’s hard to predict consumer demand for legal recreational cannabis, in part because it’s still competing with the black market. And when you can’t predict demand, it’s hard to predict how much revenue you’ll get.
Experts say that making those projections is getting easier, as state budget analysts lean more on hard data from states that have already legalized instead of on independent surveys of drug use for which respondents might not want to admit to breaking the law.But at the same time, analysts warn that legalized marijuana is an inherently volatile market that will also change as consumer preferences evolve, neighboring states legalize, and the federal government potentially considers changes to cannabis policy.
“Forecasts probably will become more reliable because they have extra data to work with,” said Alexandria Zhang of the Pew Charitable Trusts, one of the authors of a recently released study on marijuana revenue. “But marijuana revenues are reliant on consumer behavior, so it’s really hard to say if consumer preferences would dramatically shift in the long term.”
Then there’s the problem of figuring out the right level of taxation, including how much to tax purchases and whether or how much to tax growers.
In fact, California’s structure for taxing recreational cannabis has been perhaps the biggest scapegoat so far for the state’s lagging revenue. The Golden State taxes marijuana on three separate levels, charging a 15 percent excise tax on purchases on top of the statewide 7.25 percent sales tax, as well as a variety of taxes on cannabis flowers, leaves and plants.
The backlash to California’s taxing regime was so severe that Democratic officials there, including the state treasurer, supported eventually unsuccessful legislation this year that would have temporarily cut taxes on the marijuana industry.
But other issues might be at play as well. Analysts who defend California’s high taxes on cannabis point out that Washington state’s legal market is thriving even with an aggressive taxing regime, and put more of the blame on the state’s licensing requirements.
And then there is the larger question of just what the goal is for taxation of marijuana. Governments need to have a clear idea of their main goals in legalizing recreational pot and setting up a tax system, as with other so-called sin taxes, like on alcohol and gambling. States use cigarette taxes, for instance, to raise revenue and discourage smoking.
“Why are you legalizing marijuana? Are you battling the black market? Are you dealing with equity issues within criminal justice? Are you trying to maximize revenues?” asks Richard Auxier of the Urban-Brookings Tax Policy Center, which is run by a senior Treasury official from the Obama administration. “Different priorities will lead you to different policies.”
In all, five of the nine states that have set up tax systems for legalized marijuana employ cultivation levies on growers, while all but Alaska charge an excise tax specifically on cannabis sales. Five states also charge the general sales tax, though not the same exact group that has a cultivator tax.
The actual effective tax rates that states charge on marijuana varies wildly, according to Carl Davis of the liberal Institute on Taxation and Economic Policy, from a high of around 46 percent in Washington to a low of 16 percent in Michigan.
States will continue to have plenty of questions to grapple with even after they’ve dealt with initial implementation problems, in no small part because the marijuana market is so new and the policy landscape over pot remains uncertain.
“No matter how sophisticated the economic model, there are crucial inputs on which everyone is basically just guessing,” said Jared Walczak of the conservative-leaning Tax Foundation, who himself wondered how much marijuana use would grow as it faced less of a stigma and how much of a revenue boost early adopters have gotten from marijuana tourism.
The biggest looming question might be when or if the federal government will legalize marijuana or at least liberalize its cannabis policy — something that seems quite unlikely in the short term, though it polls well.
There’s more: Western states have taken the lead in legalization so far, but will it be harder for states in the more crowded East to project demand and cross-border sales?
Will states be able to keep up with consumer preferences between concentrates, edibles and extracts? How would pot revenue be affected by a recession? And how much will marijuana prices fall as cannabis gains a greater toehold across the nation?
“Look at the price of cannabis compared to other agricultural products — it costs far, far more than other products that involve a similar amount of effort to grow,” Davis said. “The price is being propped up by federal and state restrictions.”
The answer to all that uncertainty, these experts say, is for states who are legalizing to be conservative in predicting pot revenue and to frequently check back in with taxing and regulatory regimes to ensure they’re working correctly. In a sign of how volatile the taxing situation is, Nevada is putting its collections from marijuana into its rainy-day fund, instead of incorporating them into the state budget, and California and Colorado hold off a year before using cannabis revenue for the same reason.
That said, it’s also quite possible that the concerns about the amount of revenue states are bringing in from marijuana are more of a perception issue than anything else. After all, those governments are bringing in hundreds of millions of dollars a year to help their bottom line, and states like Alaska, Colorado, Nevada, Oregon and Washington saw marijuana tax collections spike as the legal market took hold — even though some analysts believe those gains will level off with time.
“You’ll see people get mad at the revenue. It’s not the revenue’s fault. The revenue’s fine,” said Auxier of the Tax Policy Center. “The problem is that you’ve either promised or budgeted too much, on something you at the very least should have known was volatile.”