Governor Newsom Signs 2019-20 State Budget

Governor Gavin Newsom signed a balanced, on-time state budget he says builds a strong fiscal foundation to make significant progress toward improving affordability for all Californians. The $214.8 billion budget, of which $147.8 billion is the General Fund, creates the biggest reserve in state history while increasing funding to priority policy efforts.

In a press release from the Governor, Newsom states the budget preserves health coverage protections for Californians and includes a series of proposals that lead the nation in reducing health care costs and increasing access for families. Over three years, $1.45 billion will be spent to increase Covered California health insurance premium support for low-income Californians. A portion of that amount will provide premium support to qualified middle-income individuals earning up to $72,000, and families of four earning up to $150,000. The budget also includes an increase of $1 billion, using Prop 56 funding, to support increased rates to Medi-Cal providers, expanded family planning services, and value-based payments which encourage more effective treatment of patients with chronic conditions. With an aging population, the budget will expand health and other vital state services to California’s senior population.

With increased burdens of climate change being our new reality in California, the budget allocates nearly $1 billion in funding to increase disaster response and tackle recovery, including $225.8 million to implement forest health and wildfire prevention efforts. This portion of the budget will also provide funds for new firefighting resources and state-of-the-art tools and technology for Cal FIRE when responding to disasters, such as $127.2 million for C-130 Air Tankers and twenty-first-century firefighting helicopters, and $130.3 million for better communication equipment for first responders. The state is committed to supporting communities so they can get back on their feet after a disaster through investment in local property tax backfill, Camp Fire Recovery and the California Disaster Assistance Act. 

Ultimately, the budget will end the year with total reserves of $19.2 billion, of which $16.5 billion is in the Rainy Day Fund, $1.4 billion in the Special Fund for Economic Uncertainties, $900 million in the Safety Net Reserve, and nearly $400 million in the Public School System Stabilization Account. It also makes an extra payment of $9 billion over the next four years to pay down unfunded pension liabilities, including $3 billion to CalPERS and $2.9 billion to CalSTRS on behalf of the state, and $3.15 billion to CalSTRS and CalPERS on behalf of schools.

Learning lessons from the previous recessions, the Governor and the Legislature prioritized one-time investments, with 88 percent of new expenditures being temporary rather than ongoing. This addresses the affordability crisis facing Californians while minimizing ongoing commitments to avoid putting the state at a fiscal disadvantage in the future.

Administration Continues Developing Wildfire Safety Standards

These days, wildfire engulfs everything from homes and businesses to California’s landscape to the policy discussions in Sacramento. This week, Governor Gavin Newsom has presented legislative language for his Power Company Safety and Accountability Standard. The legislation, which does not yet have a number, will be authored by Assemblymembers Chris Holden, Chad Mayes, and Autumn Burke. 

According to the bill’s synopsis, “the Power Company Safety and Accountability Standard will pace the way for unprecedented safety investments by power companies without profits for shareholders, force power companies to be accountable for their wildfire safety record and performance, and protect ratepayers and taxpayers from wholly bearing the costs of devastating wildfires.” 

This bill will do several things. It will create the California Catastrophe Council to oversee the California Earthquake Authority and the Wildfire Fund Administrator. It then proposes to establish a Wildfire Safety Division within the California Public Utilities Commission to provide safety expertise, which will have guidance from a Wildfire Safety Advisory Board of outside experts. The bill will require investor-owned utilities (IOUs) to meet specified safety conditions, linked to clear standards allowing for recovery of reasonable costs arising from utility-ignited wildfires. To address liability from utility-ignited wildfires, it will establish a Wildfire Fund as an insurance fund contingent on IOUs providing at least $10.5 billion of funding, or a liquidity fund if they do not meet required conditions. It will also require utilities to receive safety certification for the above-stated benefits, as well as provide additional authority to permit IOUs to securitize just and reasonable costs in the interest of ratepayers. 

The Rubber Starting to Meet the Road Regarding Dynamex

In a bicameral legislature, it is not unusual to see bills that receive substantial support in their house of introduction confront a bumpier road in the second house. AB 5 (Gonzalez), the bill dealing with the issue of employee/independent contractor as a result of the Dynamex ruling, may be starting to experience a little slippage in traction. Even if some version of the proposed public policy change makes it through the Legislature, the Governor has the last word. 

In a recent interview with the San Francisco Chronicle, Governor Gavin Newsom was asked about AB 5 for it places him squarely between two of his favorite constituencies, organized labor and high-tech disrupters. The Governor opined he hopes a compromise can be reached between the two factions. In fact, during the interview, the Governor indicated Uber/Lyft and labor interests were negotiating toward this end literally at the same time. It has been reported in various press articles Uber/Lyft have been offering employee-like benefits to its drivers in an effort to develop a compromise with organized labor that would provide them an exemption from AB 5. 

Up to this point, the author of AB 5, Assemblymember Lorena Gonzalez of San Diego, has indicated she would not include gig workers in her legislation. Also, in the interview, the Governor indicated there is a need to develop a system wherein all workers would be eligible for employee-like benefits supported by employers who rely on the gig economy. He indicated he was worried about the classification of workers as independent contractors, as they do not have access to traditional benefits, and he further stated if things continue as they are, a majority of the California workforce could be temporary workers, a system which is not sustainable without access to benefits. He closed by saying the status quo is untenable, and he was pushing for a good compromise.

Back in the Legislature, AB 5 is most likely to be set for hearing in the Senate Labor, Public Employment and Retirement Committee on Wednesday, July 10. Discussions between labor and the Chamber of Commerce, the trucking industry and other interested parties continue as details for possible amendments are worked out and will likely be addressed in the Senate Labor Committee hearing. These potential amendments include a business-to-business exemption in the construction industry, including swimming pools and spas. Amendments may also include language that preserves existing exemptions, texts, and presumptions regarding employment status for unemployment insurance, wage orders and potential exemptions for various professions (grant writers, freelance writers/photographers, broaden the personal care exemption). 

A July 12 legislative deadline for policy committees of the Legislature to hear all second house bills will shed some additional light on the status of various negotiations relative to this legislation. Further, as we enter the Legislature’s summer recess, it is presumed negotiations on AB 5 will continue and further amendments to the bill will be forthcoming when the bill is heard in the Senate Appropriations Committee toward the end of August.  

Governor Newsom Takes Actions to Improve Safety of Horse Racing

In an effort to respond to a string of horse deaths, Governor Gavin Newsom took steps to improve horse safety and bring a greater level of transparency and accountability to race tracks this week. Governor Newsom signed SB 469 (Dodd) to allow the California Horse Racing Board (CHRB) to suspend horse racing licenses when necessary to protect the health and safety of horses and riders. He also announced the appointment of veterinarian Gregory Ferraro to the CHRB. 

The bill signing comes weeks after Governor Newsom directed CHRB to apply new safety measures and create a review group at Santa Anita Park to provide an additional examination and determine if an individual horse is at elevated risk of injury before racing. A total of 38 horses were scratched or denied entry at Santa Anita Park since this new review process was established earlier this month.

“Business as usual has resulted in too many horse deaths,” said Governor Newsom. “I applaud the Legislature for taking action to expand the authority of the CHRB to cancel or move race meets when animal and human safety are at risk. This problem demands a deeper partnership between the CHRB and track officials. I call on race tracks around the state to hold themselves to the higher screening standards recently adopted at Santa Anita. This model can save horses’ lives.”

Currently, the CHRB is limited in its ability to take action against a licensee to limit, place conditions on or suspend a racing license. SB 469 will update the law to allow the CHRB to take immediate action on race meet licenses if horse or rider safety is determined to be at risk.

“Putting the safety of horses first is paramount,” said Senator Dodd, the author of SB 469. “I appreciate Governor Newsom’s partnership and swift action in supporting this commonsense measure to allow the Horse Racing Board to halt racing when dangerous conditions exist.”

The Governor’s appointee to the CHRB, Gregory Ferraro, was the director of the University of California, Davis School of Veterinary Medicine Center for Equine Health from 1997 to 2014. Prior to that, he was the owner and chief executive officer of Gregory L. Ferraro DVM, LLC since 1972. He earned a Doctor of Veterinary Medicine degree from the University of California, Davis School of Veterinary Medicine and is a member of the American Association of Equine Practitioners and the American Veterinary Medical Association.

Two New Bills Pass Senate Insurance Committee

The Senate Insurance Committee last Wednesday met to hear an array of bills. Among those measures were two recent gut-and-amend bills, AB 295 and AB 1816. 

AB 295 by Assemblymember Tom Daly (Anaheim) protects underwritten title companies (UTCs) from facing new regulations due to changes in the GAAP system. As agents of a larger title insurer, UTCs prepare title searches, examinations, reports, or certificates that are used by a title insurer to write title insurance policies. Existing law requires UTCs to maintain current assets of at least $10,000 in excess of their current liabilities. A recent change in the system of Generally Accepted Accounting Principles (GAAP), which most underwritten title companies use, now recognizes short-term lease obligations as a liability. As a result, UTCs would have to raise additional capital, which they would then have to set aside and be unable to use, in order to satisfy regulations and cover liabilities derived from a lease obligation. AB 295 would exclude lease obligations from a UTC’s current liabilities for the purposes of calculating the company’s required current assets, thus preventing UTCs from being forced take unnecessary action because of the change in GAAP. AB 295 passed the Senate Insurance Committee unanimously with a 13-0 vote. 

AB 1816, also by Assemblymember Daly, helps ensure the California Insurance Guarantee Association (CIGA) can fully cover claims concerning lost or damaged residential property. The role of CIGA is to back up insurers and cover claims when an insurer goes insolvent. The law currently caps the amount CIGA can give for any claim at $500,000, with the exception of worker’s compensation claims. Issues recently arose concerning the $500,000 cap after the Paradise wildfire, which was so damaging that a small insurance company which covered homes in that area went bankrupt. CIGA promptly stepped in to cover the claims but noticed that the $500,000 cap was extremely limiting for residential property claims. CIGA was able to work around the cap by interpreting the law so the $500,000 cap applies separately to the structure of the home, the contents of the home, additional living expenses, outbuildings, and other claims. That prompted concerns that if an insurance company were to go insolvent in the future, the $500,000 cap would prevent CIGA from paying the full value of claims for residential property loss. AB 1816 alleviates this potential issue by raising the cap on claims for the structure of a home to $1,000,000. Additional claims concerning outbuildings, contents, or additional living expenses will still be capped at $500,000 each. The goal of AB 1816 is to assure that in the event of an insurance company going insolvent, CIGA will be able to fully repay residential property loss claims. The Senate Insurance Committee passed AB 1816 with another unanimous, 13-0 vote.

Senator Dodd’s Disaster Insurance Bill Advances

Under legislation that cleared a key Assembly committee this week, California could take out an insurance policy to protect itself from emergency response costs arising from wildfires and other unexpected disasters. The bill, Senate Bill 290, is authored by Senator Bill Dodd (Napa) and sponsored by Insurance Commissioner Ricardo Lara and State Treasurer Fiona Ma.

“Rising wildfire suppression costs can strain California’s financial resources and threaten cuts to critical programs,” said Senator Dodd. “This bill allows the state to invest in an insurance policy to ensure budget predictability and reduce taxpayers’ exposure to increasing costs associated with disasters, especially wildfires.”

Last year, California spent $947 million for firefighting – nearly $450 million more than was budgeted, according to Cal FIRE. The costs of fighting wildfires have overrun Cal FIRE’s emergency budget in eight of the last 10 years. “With extreme wildfires driving up the cost of firefighting to protect communities, disaster insurance will leave California in better financial shape,” said Commissioner Lara. 

SB 290, which cleared the Assembly Insurance Committee, would create California Disaster Insurance. According to the author’s office, it would function like home insurance, but for the state, with premiums paid by a portion of existing emergency funds. The policy would trigger a payment to the state in the event of a disaster. The federal government, the World Bank, and the State of Oregon have all used insurance to reduce the risk to taxpayers following disasters, and this bill will implement a similar plan in California.

Legislative Update

Governance-related

SB 667 (Hueso) Requires the CalRecycle on or before January 1, 2020, to develop a five-year investment strategy to meet the state’s organic waste and diversion goals by supporting organic waste infrastructure development; requires CalRecycle to coordinate with the Treasurer’s Office on developing financial incentives for in-state recycling infrastructure. Recent action: Passed Assembly Natural Resources Committee, 11-0. Referred to Assembly Appropriations Committee.

AB 1486 (Ting) Expands Surplus Land Act requirements for local agencies, requires local governments to include specified information relating to surplus lands in their housing elements and annual progress reports, and requires the State Department of Housing and Community Development to establish a database of surplus lands. Recent action: Passed Senate Governance and Finance Committee, 4-3. Referred to Senate Housing Committee for hearing on July 2.

Labor-related

AB 1677 (Weber) Requires an employer to give 120-days’ notice to the Labor Commissioner if that employer intends to relocate its call center, or one or more facilities or operating units within a call center comprising at least 30 percent of the call center’s total volume from this state to a foreign country. Recent action: Passed Senate Labor, Public Employment and Retirement Committee, 4-1. Referred to Senate Judiciary Committee for hearing on July 2.

SB 142 (Wiener) Expands worker protections for lactation accommodation requests and requires the California Building Standards Commission to develop and propose building standards for the installation of lactation space for employees in new buildings. CalChamber has expressed opposition to this bill as it wrongfully considers lactation as a break similar to meal or rest that is predictable to schedule. Recent action: Passed Assembly Labor and Employment Committee, 6-0. Referred to Assembly Business and Professions Committee for hearing on July 2.

SB 171 (Jackson) Requires private employers with 100 or more employees to submit a report annually to the Department of Fair Employment and Housing (DFEH) with pay data for specified job categories broken down by race, ethnicity, and sex. Recent action: Passed Assembly Labor & Employment Committee, 5-2. Referred to Assembly Judiciary Committee for hearing on July 2.

AB 673 (Carrillo) Allows an employee to recover a penalty owed for failure to pay wages as a statutory penalty through a hearing; allows the Labor Commissioner to recover a penalty owed for failure to pay wages on behalf of a person financially unable to employ counsel as a civil penalty; specifies an employee is only entitled to recover the statutory penalty described above or to enforce a civil penalty through the Private Attorneys General Act, but not both. Recent action: Passed Senate Labor, Public Employment and Retirement Committee, 4-1. Referred to Senate Judiciary Committee for hearing on July 9.

AB 749 (Stone) Voids termination and no-rehire provisions in settlement agreements that resolve employment disputes in which the worker filed an official complaint; would apply prospectively to any settlement agreement entered into on or after January 1, 2020. Recent action: Passed Senate Judiciary Committee, 7-2. Sent to Senate Floor.

AB 1478 (Carrillo) Allows an employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by their employer because the employee has exercised the employee’s rights to take time off for domestic violence, stalking, or sexual harassment; allows a court to award reasonable attorney’s fees to a prevailing employee in addition to any other relief that, in the judgment of the court, will effectuate the purpose of preventing employer discrimination. Recent action: Passed Senate Labor, Public Employment and Retirement Committee, 4-1. Referred to Senate Judiciary Committee for hearing on July 9.

SB 688 (Monning) Expands the Labor Commissioner’s citation authority for an employer’s failure to pay minimum wages to include an employer’s failure to pay contract wages. Recent action: Passed Assembly Labor and Employment Committee, 7-0. Referred to Assembly Judiciary Committee for hearing on July 9.

Insurance-related

AB 47 (Daly) Requires the Department of Motor Vehicles to assess a point on a person’s driving record for any conviction of operating a handheld wireless communications device that occurs within 36 months of a prior conviction of the same offense. Recent action: Passed Senate Transportation Committee, 12-0. Referred to Senate Appropriations Committee for hearing on July 8.

AB 567 (Calderon) Establishes the Long-Term Care Insurance Task Force, consisting of 15 voting members, within the Department of Insurance to be chaired by the Insurance Commissioner; requires the Task Force to recommend options for establishing a statewide long-term care insurance program and comment on the respective degrees of feasibility of those options in a report by July 1, 2021. Recent action: Passed Senate Health Committee, 8-1. Referred to Senate Appropriations Committee.

AB 740 (Burke) Establishes the continuously appropriated California Catastrophic Wildfire Victims Fund in the State Treasury, and specifies those who may recover from the fund: 1) insurance companies for a portion of claims paid provided waiver of claims against a party that may be liable for damages, 2) homeowners who become underinsured due to a catastrophic wildfire, and 3) local governments after exhausting all other forms of state or federal emergency aid. Recent action: Passed Senate Insurance Committee, 10-0. Referred to Senate Energy, Utilities and Communications for hearing on July 2.

SB 190 (Dodd) Requires the Office of the State Fire Marshal to develop a model defensible space program for local government and a Wildland-Urban Interface Fire Safety Building Standards Compliance training manual for local building officials, builders, and fire service personnel. Recent action: Passed Assembly Governmental Organization Committee, 19-0. Referred to Assembly Natural Resources Committee for hearing on July 8.

SB 209 (Dodd) Establishes a multi-agency California Wildfire Warning Center to monitor fire-weather and threat condition and to enhance fire-weather forecasting models. Recent action: Passed Assembly Governmental Organization Committee, 19-0. Referred to Assembly Utilities and Energy Committee for hearing on July 10.

Business-related

AB 1288 (Cooley) Requires the California Department of Food and Agriculture (CDFA), in consultation with the Bureau of Cannabis Control’s track and trace program, to include the date of retail sale and whether the sale is on retail premise or by delivery; requires CDFA to ensure the track and trace program is fully integrated with the California Law Enforcement Telecommunications System. Recent action: Passed Senate Business, Professions and Economic Development Committee, 9-0. Referred to Senate Agriculture Committee for hearing on July 2.

SB 730 (Stern) Creates the Commission on Tech Equity comprised of six members to develop policy recommendations regarding the development, deployment, and fair distribution of technology. Recent action: Passed Assembly Labor and Employment Committee, 7-0. Referred to Assembly Privacy and Consumer Protection Committee for hearing on July 9.