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IN THIS ISSUE – “Newsom needs to turn his attention from being nationally focused to California. He needs to make sure he positions himself to have a strong legacy over these next two years”
Brian Parvizshahi, Democratic Presidential campaign consultant
- Newsom Moves from National Star Turn to California Legacy
- Governor Snubs “Just a Couple of Mayors” Over Prop. 36
- Cash Spike Begins State Budget Fiscal Year
- Tax Dispute with Multinational Corporations Could Cost State Billions
- California Hits Renewable Energy Milestone, But Has Long Way to Go
- Automakers Put EV Production in Reverse
- Ballot Propositions by the Numbers
- About 90% of State Workers Return to the Office
Capital News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
FOR THE WEEK ENDING AUG. 23, 2024
Newsom Moves from National Star Turn to California Legacy
CalMatters
CHICAGO — Many voters have gotten to know more about Vice President Kamala Harris in the past few weeks.
But, having come up politically during the same time one county over, Gov. Gavin Newsom has seen her star rise for the last 20 years, he said this evening during the ceremonial roll call nominating Harris at the Democratic National Convention.
After touting California’s diversity and its status as “the great state of Nancy Pelosi,” Newsom traced Harris’ journey from a prosecutor in Alameda County to vice president.
“Kamala Harris has always done the right thing,” he said. “A champion for voting rights, civil rights, LGBTQ rights, the rights for women and girls. So Democrats — and independents — it’s time for us to do the right thing and elect Kamala Harris as president of the United States.”
The two minutes of airtime from the noisy convention floor was Newsom’s latest opportunity to build his national stature.
The governor was tapped to present the tally of all 482 California delegates who voted for Harris — like his predecessor, Jerry Brown, did in 2016. But this time, as her home state, California had the honor of going last.
His prominent role is a signal that Newsom, who was one of President Joe Biden’s most vocal supporters, has a place in the Harris campaign and possible administration.
While Newsom seemed to have gone relatively quiet after Biden stepped aside July 21, Nathan Click, a spokesperson for Newsom, told CalMatters earlier this month that Newsom was actively fundraising for Harris, and that they were finalizing plans for him to hit the campaign trail after the convention.
Immediately after the roll call, the governor did an interview with CNN in which he focused on the contrast between Harris and former President Donald Trump.
While the governor denies that he was ever pursuing the 2024 nomination, Harris’ ascendance presents a couple of obstacles, should he choose to eventually run for president.
Some expected he would run in 2028. But if Harris wins in November, she could serve two terms. That means the next opportunity for Newsom would be 2032 — which, since his term as governor ends in 2026, might be a long time to try and stay relevant.
Another possible hurdle would be selling the nation on the second president in a row from California — a state whose reputation can be a tough sell to some who lean more moderate or conservative.
Still, at least one consultant thinks focusing his attention on California would help Newsom.
“With Kamala as the nominee, he needs to turn his attention from being nationally focused to California,” said Brian Parvizshahi, a consultant who previously worked for Obama’s campaign.
“He needs to make sure positions himself to have a strong legacy over these next two years. Especially as he needs to give voters a reason to elect two California Democrats as president.”
Governor Snubs “Just A Couple Of Mayors” Over Prop. 36
Politico CA Playbook
Gov. Newsom signed a package of anti-theft bills, but what really got political insiders buzzing was the San Jose Home Depot where he chose to hold the ceremony — and the absence of the city’s mayor.
The governor’s office didn’t invite San Jose Mayor Matt Mahan to the signing event last Friday despite his support for the bills, as the mayor’s office confirmed to Playbook.
It was a less-than-subtle snub that came after Mahan publicly broke with Newsom and endorsed Proposition 36, a November ballot initiative on crime that Newsom argues is overly punitive and draconian — and which he failed to negotiate off the ballot.
Mahan is part of a group of local Democratic leaders who last week traveled to Sacramento to launch a fundraising committee in support of Prop 36, a measure backed by local prosecutors and big-box retailers like Home Depot. They argue the state hasn’t done enough to prosecute drug crimes and force repeat offenders into treatment.
At the signing ceremony, Newsom accused Mahan and other supporters of lying to Californians by framing Prop 36 as an effort to treat alleged felons rather than convict and sentence them.
The governor dismissed the notion of a rift within the party over the ballot measure, though its Democratic supporters also include mayors Todd Gloria of San Diego and London Breed of San Francisco: “This is not the Democratic Party, it’s just a couple of mayors,” Newsom said.
Mahan held a press conference outside San Jose City Hall to respond to Newsom’s comments. He said Prop 36 is “not controversial at the local level” and invited Newsom to come walk around the city’s downtown and speak with business owners frustrated by rampant theft, homelessness and drug addiction.
When asked whether Newsom coming to San Jose for the event felt personal, Mahan grinned and replied, “All I can say is, you’d have to ask him. It’s always an honor to have the governor here.”
Cash Spike Begins State Budget Fiscal Year
State Dept. of Finance
Preliminary General Fund agency cash receipts were $983 million, or 10.1 percent, above the Budget Act forecast for July, driven by strength in corporate and personal income tax payments, which exceeded the forecast by $844 million and $418 million, respectively.
July is not a particularly important month for corporate and personal income taxes as there are no major payment due dates within the month. Moreover, the overage in corporate income tax receipts was likely due to large payments from a few corporations and may not necessarily be indicative of overall ongoing corporation tax revenue strength.
Cumulatively since April when the forecast was finalized, preliminary General Fund agency cash receipts were $4.2 billion above projections. This includes an overage of $3.2 billion attributed to cash collected during the 2023-24 fiscal year.
Personal income tax cash receipts were $418 million, or 5.8 percent, above forecast in July and were $1.8 billion above forecast cumulatively since April. The July overage was due to the non-withholding components of personal income tax as non-withholding payments exceeded the forecast by approximately $400 million and refunds were $50 million below forecast.
Corporation tax cash receipts were $844 million, or 161.8 percent, above forecast in July and were $1.9 billion above forecast cumulatively since April. The July overage was likely due to large payments by a small number of companies and may not necessarily be indicative of overall corporation tax revenue trends. Corporation payments exceeded the forecast by $1.7 billion cumulatively since April while refunds were $167 million lower than projected.
Preliminary sales and use tax receipts were $306 million, or 18.4 percent, below forecast in July. This shortfall is related to the timing of collections as higher-than-expected cash receipts shifted from July to August. July cash receipts included the final payment for second quarter taxable sales. Sales tax receipts were $299 million below forecast cumulatively since April.
California’s unemployment rate was unchanged at 5.2 percent for the third consecutive month in July 2024, as the state’s labor force and civilian household employment increased by 15,100 and 7,300 persons, respectively, and unemployment increased by 7,800 persons. California added 21,100 nonfarm payroll jobs in July 2024, as job gains were concentrated in four of the eleven major sectors led by government (19,200) followed by private educational and health services (12,300), construction (2,700), and leisure and hospitality (1,800).
The other seven sectors lost jobs in July driven by trade, transportation and utilities (-4,300), followed by manufacturing (-3,100), information (-3,000), financial activities (-2,300), and other services (-2,000), while mining and logging and professional and business services each lost 100 jobs.
Year-to-date through June 2024, California has permitted 104,000 housing units, down 1.2 percent from May 2024 and down 3 percent from a year ago in June 2023. June year-to-date annualized total permits consisted of 61,000 single-family units (down 1.5 percent from May, but up 13.1 percent year-over-year) and 43,000 multi-family units (down 0.8 percent from May, and down 19.2 percent year-over-year.
https://dof.ca.gov/wp-content/uploads/sites/352/2024/08/Finance-Bulletin-August-2024.pdf
Tax Dispute with Multinational Corporations Could Cost State Billions
CalMatters commentary from Dan Walters
During Jerry Brown’s first stint as governor of California, he became enmeshed in a very complicated dispute over how the state should tax the incomes of multinational corporations.
More than four decades later, the issue has resurfaced in a corporate tax case involving Microsoft, one of the nation’s largest corporations, a legislative bill that was semi-secretly attached to the state budget in June, and two subsequent lawsuits.
The outcome could reopen tax returns from past years and potentially force companies to pay billions of dollars in retroactive taxes, or alternatively could eliminate a windfall of corporate taxes that Gov. Gavin Newsom is counting on to help close the state’s budget deficit.
The issue that Brown faced in the 1970s was whether corporations should report their global incomes to California and have a calculated percentage subjected to state taxes, or could confine their taxable income reports to actual activities within the state.
At the time, the first methodology, called “unitary taxation,” was used by the Franchise Tax Board, which is California’s version of the Internal Revenue Service. However, foreign corporations, particularly those based in Japan and Great Britain, were adamantly opposed and sought the alternative, dubbed “water’s edge.”
The infighting over corporate taxation continued. At one point it even became an issue in a tax treaty that the U.S. government was negotiating with the British government. Eventually, in the 1980s, corporations were given the option of using either the unitary or water’s edge method. Microsoft adopted the latter for its 2017-18 tax return, but found itself in a dispute with the tax board over how dividends from foreign subsidiaries should be treated.
The dispute jelled when Microsoft sought a $90.9 million refund, the tax board rejected the claim and the company appealed to the Office of Tax Appeals, which is essentially a tax court. Last year, after extensive trial-like hearings, a three-member appellate panel unanimously ruled in favor of Microsoft.
It could have forced the state to refund $1.3 billion immediately and perhaps more as the decision trickled through the state’s corporate tax process. But the tax board did not concede defeat and instead turned to Newsom and the Legislature for a rescue.
It came in the form of Senate Bill 167, one of the dozens of “trailer bills” attached to the state budget. It declares that the Franchise Tax Board’s position on the dividend issue is state law, regardless of how the appellate panel ruled.
This month, two lawsuits were filed to challenge the constitutional validity of SB 167, one by the California Taxpayers Association in Fresno, the other by the National Taxpayers Union in Sacramento.
“This legislation imposes a retroactive tax hike that would reach back several decades, allowing California’s tax collectors to go after companies that already paid every cent of the taxes owed under the laws that were in place at the time,” CalTax president Robert Gutierrez said. “This egregious violation of taxpayers’ rights cannot go unchallenged.”
It should be very troubling that California officials claim the right to levy taxes retroactively by changing the law after losing in court.
https://calmatters.org/commentary/2024/08/corporate-taxes-microsoft-budget-lawsuits/
California Hits Renewable Energy Milestone, But Has Long Way to Go
CalMatters
California has given America a glimpse at what running one of the world’s largest economies on renewable energy might look like.
The state recently hit a milestone: 100 days this year with 100% carbon-free, renewable electricity for at least a part of each day, as tracked by Stanford University engineering Professor Mark Z. Jacobson.
The state notched the milestone while — so far — avoiding blackouts and emergency power reductions this year, even with the hottest July on record.
That progress is largely due to the substantial public and private investments in renewable energy — particularly batteries storing solar power to use when the sun isn’t shining, according to energy experts.
The state faces a huge challenge in coming years: A series of mandates will require carbon-free energy while also putting more electric cars on roads and electric appliances in homes. California, under state law, must run on 60% renewable energy by 2030, ramping up to 100% by 2045.
Signs of progress are emerging. From January to mid-July of this year, zero-carbon, renewable energy exceeded demand in California for 945 hours during 146 days — equivalent to a month-and-a-half of 100% fossil-fuel-free electricity, according to the California Energy Commission, the state agency tasked with carrying out the clean energy mandates.
But California still has a long way to go to stop burning fossil fuels for electricity. Natural gas, which emits greenhouse gases and air pollutants, remains its single largest source of electricity.
Just over half of power generated for Californians in 2022 came from solar, wind, other renewables and nuclear power, while 36% came from natural gas plants.
Reliability of the power grid is a top concern as the state switches to solar and wind energy. Unpredictable events like wildfires and winter storms also cause outages, while hot summer months, with air conditioners whirring, strain the supply.
In August of 2020 California experienced its first non-wildfire blackouts in nearly 20 years, and in late August and September of 2022, a severe heatwave forced regulators to ask consumers to voluntarily reduce power for 10 days.
Since September 2022 — when California teetered on the edge of those blackouts and the governor pleaded for conservation — nearly 11,600 new megawatts of clean energy have been added to the state’s grid, said Elliot Mainzer, chief executive of the California Independent System Operator, which manages the grid. (That’s enough to power around 9 to 12 million homes although it’s not available all at one time.)
California also now has more than 10,000 megawatts of battery capacity, making it the largest supply outside of China. Battery power from large commercial facilities proved its worth during last month’s heat wave, Mainzer said.
Batteries “were a major difference-maker,” Mainzer said. “The batteries charged during the day, when solar energy is abundant, and then they put that energy back onto the grid in the afternoon and evening, when solar production is rolling off the system.”
California relies heavily on four-hour duration lithium-ion batteries, which come in large, centralized facilities and hybrid facilities paired with solar energy projects. More homes also are installing batteries with their rooftop solar installations, but they supply a small amount of power.
Planning and practicing various emergency scenarios has also helped immensely, Mainzer said.
“Our grid operators are now increasingly experienced at managing these extreme heat events,” Mainzer said. “Our forecasters also did an excellent job of reviewing the next day’s conditions so that the market could respond effectively.”
California may need to more than double its energy generation capacity by 2045 to meet the 100% clean energy target while adding electric cars, appliances and other technologies, said Siva Gunda, who sits on the California Energy Commission.
To do that, California aims to build about 6,000 to 8,000 megawatts of new energy resources each year. The state hit a record last year, adding more than 6,000 megawatts, Gunda said. Each megawatt is enough to serve between 750 and 1,000 homes.
“The table is set,” Gunda said. “The pieces are there for success, and it’s about executing it, together with a common vision and collaboration.”
The commission is closely monitoring a new concern: Artificial intelligence technology, which uses large data centers that consume power. “We’re carefully watching where the loads are going to grow,” Gunda said.
MORE:
Automakers Put EV Production in Reverse
Wall Street Journal excerpt
Ford Motor’s decision this week to kill a highly touted future electric vehicle is a sign that the industry’s pullback on EVs is deepening. The Dearborn, Mich., automaker said it is canceling plans for an electric, family-hauler sport-utility vehicle
General Motors, Volkswagen, Mercedes and other automakers also have curbed their EV ambitions in recent months. Taken together, the walked-back plans are an acknowledgment that the big investments outlined at the start of the decade got ahead of the consumer’s appetite for a full switch to EVs.
While surveys have shown that as many as half of U.S. consumers are open to buying an electric car, their relatively high prices and concerns over charger availability are dissuading many.
EV sales in the U.S. and other regions are still growing, but the pace of the increase has decelerated sharply, despite many new models hitting the market.
Delaying some EV investments will conserve cash and buy automakers time to lower their battery costs and other EV-related expenses, analysts say. The moves also will hurt major parts suppliers, which have to adjust their businesses.
The cost of batteries is so high that most big automakers are losing money on their electric offerings. Ford’s EV business is on pace to lose about $5 billion this year. In the quarter ended June 30, it lost an average of about $44,000 per electric vehicle sold.
Aakash Arora, a partner in the automotive practice at Boston Consulting Group, said more car companies in the U.S. and Europe are likely to focus on fully electric systems for small- and midsize vehicles, and hybrids for larger ones.
“That is a multidecade journey for U.S. customer preferences to shift” away from bigger vehicles, he said.
Despite the uncertain demand picture and heavy losses, auto executives say they aren’t walking away from the EV market. Two forces are prodding them to continue: toughening government emissions rules and the rapid global expansion of both Chinese EV makers and Tesla.
In the U.S., for example, new federal emissions rules adopted this past spring will in effect require a heavy dose of electric cars by later in the decade. Many automakers also have said that, to comply, they will need to introduce more plug-in hybrid vehicles, which operate in electric mode for a number of miles before reverting to a gas engine.
Ballot Propositions by the Numbers
CalMatters
This November, voters will decide the fate of 10 thorny policy proposals, including crime, health care, rent control and taxes. This year, there were far more last-minute changes than usual.
Five measures were withdrawn by their proponents in deals with lawmakers, and another was kicked off the ballot by the state’s highest court. And Gov. Gavin Newsom scrapped a crime measure at the last minute.
But on the final day possible, legislators added two bond issues, one for climate action and another school construction. The 2024 ballot will be more crowded than only seven measures in 2022, the fewest in more than a century.
What are all these propositions really about? How did they make their way to the ballot in the first place? And how did Californians first fall in love with direct democracy?
Here is California’s passion for propositions, explained.
About 90% of State Workers Return to the Office
Sacramento Bee
In opposition to Gov. Gavin Newsom’s return to the office directive for public employees, labor groups filed grievances, lawmakers demanded a state audit of the policy and workers picketed in the rain.
But in the two months since Newsom told employees to get back to their desks, it’s become clear who has the final say in the debate over telework.
Over 90% of workers that fall under the governor’s umbrella have returned to offices at least two days a week.
But the most recent data from the state confirms employees and labor leaders’ concerns with the mandate: Not all departments are enforcing the return to office mandate.
In one example of workers attempting to resist the return-to-office mandate, an arbitrator ruled with the state and said it can demand multiple days of in-person work after a union filed a grievance against a department’s telework policy.
“As our employees transition more fully to a hybrid workplace, [the Department of General Services’] most recent data shows that approximately 92.1% of workers in the administration are in the office or in the field at least twice per week,” said Roy Kennedy, California Government Operations Agency’s deputy secretary of communications.
Data from DGS shared with The Sacramento Bee showed that in many departments upwards of 90% of workers eligible for remote work are complying with the mandate. In other departments, as few as 50% of telework employees were back in the office two days a week as of June.
Independent agencies and departments that are run by officials other than Newsom are not subject to the return-to-office mandate. Though some of those departments may have individual telework policies requiring employees to work in person, DGS data from June revealed that civil servants who don’t report to Newsom came to the office less frequently than their peers.
Not all state workers were called back to the office this past April when Newsom issued the directive. The numbers indicated that of 10,639 telework employees — those who are eligible to work partially from home — 37% came to the office at least two days a week. These are workers in departments such as the Department of Justice and the Department of Education.
The California Department of Transportation reported over 99% of all employees were working from the office or the field at least two days a week. The California Department of Corrections and Rehabilitation reported 95% of its employees complied with the mandate in June, though the vast majority of CDCR employees are not eligible for remote work.
Of the departments subject to the in-person directive, there are 92,253 public employees eligible for telework, according to the June numbers. Of those civil servants, 82% were back in the office two days a week. Among other departments, compliance with the in-person requirements ranged significantly.
At the California Department of Public Health, for instance, 50% of its 4,059 telework employees had returned to at least two days in the office. At the Department of Housing and Community Development, 24% of the department’s employees eligible for remote work were compliant.
At the Department of Financial Protection and Innovation, 16% of telework employees showed up to the office at least twice a week. The state noted that some employees with accommodations are exempt from the mandate. Hourly workers and office moves might have impacted the percentage of workers who are back in the office, the state said.
Additionally, the return-to-office deadline, which was June 17, came in the middle of the month when departments reported these numbers, which the state said could have led to an undercount of the actual number of employees back at their desks.
https://www.sacbee.com/news/politics-government/the-state-worker/article291071185.html#storylink=cpy