By John A. Norwood, Esq
IIABCal Legislative Advocate
The second year of the California Legislature’s 2023-24 legislative session might be captioned as the “Wake Up Call”. After two years of budget surpluses that soared to $100 billion dollars and resulted in a state budget that exceeded $300 billion dollars, reality hit. It turns out that the $100 billion dollar surplus was more like $60 billion or less.
With tax revenues in 2023 in a free fall comparable to the Great Recession and the dotcom bust, California faced a projected $68 billion budget deficit going into the 2024 legislative session. In addition, the non-partisan Legislative Analyst forecast that the state faces annual operating deficits of around $30 billion per year. These operating deficits represent additional budget problems the Legislature needs to address in the coming years, either by reducing spending, increasing revenues, shifting costs, or using reserves. Although highly uncertain, the Analyst has projected the state’s deficit would accumulate to $155 billion across the 3-year forecast window, which is significantly more than the amount of reserves the state has available (about $24 billion).
Due to term limits, the great majority of legislators have never had to deal with a state budget deficit. Moreover, the tendency of most legislators is to simply ignore the problem believing that their bills are special and should be exempt from deficit concerns. Alternatively, they are happy to just let the Appropriations Committees of the Legislature or the Governor deal with whether their bills proceed or become law.
The state’s fiscal predicament affects almost any bill that expands or creates a new state program or mandate. Despite these facts, in the 2023-24 legislative session legislators introduced 4821 bills: 2632 in 2023 and 2124 in 2024. Of these 3,935 bills were keyed fiscal by Legislative Counsel indicating some additional state costs.
From a business and industry standpoint, the state budget deficit can be a good thing. In some cases, it deters legislators from introducing or pursuing costly bills that expand or set up new programs. A budget deficit also provides additional hurdles for bills opposed by business groups. Such bills often die in the Appropriations Committee of either house or get vetoed by the Governor. This session, the two Appropriations Committees held between 32-34% of all the bills assigned to them for hearing. Governor Newsom vetoed 189 of the 1,206 bills sent to him for signature, amounting to a 15.7% veto rate—slightly above the average 15% over the past decade.
The 1,206 bills the Governor addressed this session was the highest number in his six years in office, signing 1,017 of them into law. Of the 668 Assembly bills signed, 12% came from Republican lawmakers, while the rest were Democrat and committee bills. In the Senate, Newsom signed 349 bills, of which only 9% were authored by GOP legislators. Newsom vetoed 123 Assembly bills and 66 Senate measures, with Republican-authored bills making up 14% of the vetoed measures in both chambers. He issued 18 signing messages this year, the same as last year, bringing his total to 89 signing messages during his tenure, with an average of 15 per year.
State legislators aren’t the only ones that received a wake-up call this year. It is no secret that Governor Gavin Newsom spent a considerable amount of time in 2024 out of state focused on raising his national profile as a leader in the Democratic Party, in anticipation that President Biden might not seek re-election or be replaced on the Democratic ticket. With the appointment of Kamala Harris as the Democratic Party nominee for President, the Governor had to return home to address the myriad of problems facing the state including increased crime and homelessness, affordable housing, unemployment, poverty, energy costs, wildfires and climate change.
The ongoing challenges facing California are daunting. Despite a $300 billion state budget and the Legislature passing almost a thousand new bills each legislative session, problems persist. California is the fourth largest economy in the world but has one of the highest unemployment rates in the nation. The state has spent $24 billion dollars to address homelessness but the homeless population in the state grew by another 8% last year. California is the wealthiest state in the union but has the highest poverty rate. The state has the highest gas and energy costs in the nation. Affordable housing is at a crisis level with the median price of a single-family home hitting over $900,000 in May of this year. Climate change is hitting the state especially hard with more and longer droughts, floods, an increased number of earthquakes, and numerous catastrophic wildfires, all of which come with high price tags on state recourses. Lastly, retail theft is rampant challenging the ability of many businesses to continue operations in California.
With these challenges facing the state as a backdrop, legislators focused on regulating Artificial Intelligence (AI) and privacy, passed a package of retail theft bills, reformed PAGA, continued to try to expand employee benefits and anti-discrimination laws, introduced a series of wildfire related bills, continued its assault on fossil fuels and fought over increased energy and gasoline prices.
Throughout the session, more than 60 bills were introduced addressing various aspects of AI and privacy. Of these, approximately fifteen bills were approved by the Legislature and sent to the Governor. These legislative efforts reflect a growing focus on consumer rights and data protection, addressing emerging concerns in the digital age. Key privacy measures include new opt-out mechanisms for consumer data use, enhanced protections for children’s privacy, and recognition of consumer rights in mergers and acquisitions. In the AI space, lawmakers approved bills requiring transparency in generative AI systems, establishing standards for large AI models, and defining AI within existing law. Notably, Governor Newsom vetoed SB 1047 (Wiener), the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act. The measure sought to require developers of large AI models and providers of computing power to implement safeguards against potential harms. It also proposed the creation of a state entity to oversee AI development and a consortium to explore a public cloud computing cluster. Governor Newsom acknowledged the need for AI regulation but criticized the bill's focus on large-scale models, which he argued might provide a false sense of security. He expressed concerns that smaller, potentially dangerous AI models would not be addressed, and emphasized the need for a flexible, science-based regulatory approach.
In early August, California lawmakers approved a package of 10 bills aimed at addressing retail theft, a pressing issue tied to the upcoming November election. The legislation, which passed with bipartisan support but faced opposition from some progressive lawmakers, seeks to curb organized theft rings and online marketplace crime while toughening penalties for repeat offenders. Key measures of the package include AB 2943 (Zbur), which allows felony charges on third theft offenses, and SB 905 (Wiener), which introduces new "wobbler" offenses for car-related theft. Despite this legislative effort, political divisions remained, as many Democrats, including members of the Legislative Black Caucus, opposed parts of the package, citing concerns over mass incarceration and the disproportionate impact on communities of color. Governor Newsom signed the retail theft package on August 16. Additionally, a more punitive ballot measure, Proposition 36, which seeks to reverse some of the reforms from Proposition 47, will be on the November ballot, presenting voters with two differing approaches to tackling crime.
Months of negotiations between business, labor, and legislative leaders, led by Governor Newsom, resulted in the passage of a Private Attorneys General Act (PAGA) reform package. SB 92 (Umberg) and AB 2288 (Kalra) passed both legislative houses on June 27, marking a significant shift in the state's approach to PAGA. This reform addressed long-standing concerns over lawsuit abuse, which had placed heavy financial burdens on businesses, especially small businesses and nonprofits. The new measures aim to expedite claim resolutions, protect compliant employers, provides an opportunity to cure, and ensure robust labor law enforcement against bad actors. Governor Newsom, who played a key role in facilitating the negotiations, signed the bills into law on July 1.
Numerous employment-related bills were passed by the Legislature. Key proposals include expanding FEHA protections to recognize intersectionality, revising time off provisions for victims, adjusting paid family leave, and enhancing protections for freelance workers and whistleblowers. Several bills, such as SB 1137 (Smallwood-Cuevas) on intersectionality in anti-discrimination laws, SB 399 (Wahab) banning captive meetings, and AB 2123 (Papan) eliminating vacation use before paid family leave, were signed by the Governor.
The Legislature introduced several wildfire-related bills in 2024, focusing on prevention and relief for victims. Among the most notable were SB 1004 (Wilk), which aimed to exempt wildfire settlements from state income tax to ease financial burdens on victims, and SB 610 (Wiener), which sought to establish a new framework under the State Fire Marshal's authority for identifying fire mitigation zones, replacing the current fire hazard severity mapping. AB 1513 (Calderon) proposed addressing utilities' wildfire liability through reforms within the California Public Utilities Commission to reduce future wildfire risks. However, all of these measures failed to pass.
Two successful measures were AB 3062 (Bauer-Kahan) and SB 310 (Dodd), which were both signed into law. AB 3062 authorizes a fire protection district to require utilities to provide at least 24 hours' notice before performing a prescribed or controlled burn, while SB 310 allows Native American tribes to conduct cultural burns more easily by removing the need for separate state permits for each burn. The law aims to promote traditional controlled burning practices, a proven method for preventing catastrophic wildfires, to protect tribal lands and nearby communities.
The Legislature focused on several natural gas-related bills, particularly aimed at reducing reliance on fossil fuels and addressing environmental impacts. One significant piece of legislation that passed was SB 1221 (Min), which authorizes the implementation of 30 pilot projects to decarbonize priority neighborhoods meeting specific criteria. The projects can move forward if the California Public Utilities Commission (CPUC) confirms that adequate alternative energy sources are available. The bill also gives gas corporations the authority to cease providing service within these pilot project areas, contributing to broader efforts to transition to cleaner energy sources. Many efforts reflect the state's push toward electrification and reduced dependency on natural gas to meet its climate commitments.
At the end of session, just hours before the Legislature concluded for the year, Governor Newsom called for a special legislative session to address rising gasoline prices. The Governor's plan aims to combat price spikes by enforcing stricter regulations on oil refiners, including mandates for maintaining minimum fuel inventories and ensuring reliable resupply during refinery maintenance periods. Newsom emphasized that these measures could potentially save Californians millions annually by preventing fuel shortages and stabilizing prices at the pump.
One of the key proposals involved requiring oil refiners to maintain a minimum inventory of fuel to prevent supply shortages during scheduled refinery maintenance. This proposal, authored by Assemblymember Gregg Hart, is expected to save Californians significant amounts annually by stabilizing the gasoline supply and preventing sharp price increases. The legislation also aimed to enhance oversight of oil refiners through the California Energy Commission and other newly established regulatory bodies, ensuring they plan more effectively for refinery shutdowns and avoid unnecessary profit spikes at the expense of consumers. Both bills are highly controversial and subject to opposition from oil and gas companies as well as the powerful Building and Trades Unions.
The 2023-24 California legislative session was marked by significant fiscal challenges and a wide array of policy initiatives. Despite facing a substantial budget deficit, lawmakers addressed pressing issues such as retail theft, privacy concerns, AI regulation, and environmental challenges. They failed to do anything substantial to tackle ongoing state problems like homelessness, affordable housing, and climate change. As California moves forward, the state's ability to innovate and adapt while managing its fiscal realities will be crucial in addressing its complex and evolving challenges.
New California Laws take effect in 2025
Effective Jan. 1, the minimum financial responsibility limits for California drivers will increase for the first time in over 50 years to 30/60/15—one of several changes that will affect independent insurance agents and brokers in the coming year.
AB 1107, enacted in 2023 with a delayed effective date to 1/1/25, will require drivers to establish financial responsibility in the amounts of $30,000 for injury/ death to one person, $60,000 for injury/death to multiple persons, and $15,000 for damage to property.
The California Department of Insurance has reportedly approved all amended rate filings that insurers were required to submit to meet the new requirements. CDI explained the new requirements in a bulletin it issued shortly after the new law was enacted: https://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/bulletin-2023-1-re-sb-1107-final-003.pdf
Other new laws of interest:
AB 1871: This bill adds personal financial literacy—including instruction on insurance--for the course of study in social sciences for grades 7 through 12.
AB 2743: This bill updates the insurance coverage limits for a personal vehicle sharing program (PVSP) when the vehicle is engaged in personal vehicle sharing.
SB 1295: This bill clarifies that the 10-day notice of cancellation period for nonpayment of premium for auto insurance policies shall not commence until after nonpayment of premium.
SB 1100: This bill prohibits employers from requiring applicants for employment to have a valid driver’s license unless the employer reasonably expects driving to be one of the job functions for the position, and an alternative form of transportation would not be comparable in travel time or cost to the employer. The act defines “alternative form of transportation” to include ride hailing services, taxis, carpooling, bicycling or walking.
AB 2123: Effective January 1, 2025, an employer can no longer require its employees to use up to two weeks of accrued vacation prior to receiving California Paid Family Leave benefits, making the benefits immediately available.
SB 905 eliminates the need for victims to prove their cars were locked to press burglary charges.