Looking back on California’s legislative season

The California Legislature ended the first year of it’s 2- year session at 2:34 AM, Saturday, September 16. The Governor then had until October 15 to sign or veto legislation sent to him in the last weeks. Now that we are 3-weeks past the signing deadline we can provide an overview of what made it, what didn’t, and maybe look ahead just a bit.

The number of bills that the legislature dealt with this year is comparable to the number they handled in the first year of the 2015-16 session.

What is different is the scope and importance of the bills this year. Major issues like energy, transportation, affordable housing, immigration, privacy, and prescription drugs were alive and being debated into the last month of session.

Two of the session’s most hotly debated issues were passed in the final 48-hours of the legislative session; the so-called “Sanctuary State” measure (SB 54) and an affordable housing package of bills.

Legislation on both issued passed and were then signed into law by Governor Brown resulting in restrictions on communications between local law enforcement and federal immigrations officials, a new real estate tax, and a $4-billion bond that will be on the ballot in 2018.
The legislature extended the cap-and-trade program through 2030 (AB 398) with the support of the oil industry, business and eight Republicans, and the ouster of the Republican Assembly leader who voted for the plan; passed a $52-billion transportation plan (SB 1) resulting in a new vehicle licensing fee, and higher taxes on gas; and passed a $183.2 billon state budget, the largest in the nation by far; and pushed the state primary from June to March in an effort to make the election more relevant nationally.

Legislation on Internet privacy, a California single payer health care system, later school start times, and the release of police body camera video release stalled before the start of the interim study session and can be debated again next year.

In 2018 the Legislature is expected to hit the ground running focused heavily on next steps for affordable housing, opioid abuse, the environment, privacy – both legislative and at the ballot box, and of course the November elections which include selecting a new Governor to replace Governor Brown.

With election on horizon, new extension of Calif.’s cap and trade program remains uncertain

The California legislature last Friday failed to approve language to extend the state’s Cap and Trade program beyond its current 2020 expiration. The self-imposed deadline was intended to take advantage of Assembly member Jimmy Gomez’ presence before he was sworn in to replace now-Attorney General Xavier Becerra in the US House of Representatives on July 11.  Governor Jerry Brown had presented a compromise plan earlier in the week but the proposal was regarded unfavorably by nearly every party, and many close to the issue believed that language was designed to help identify the truly significant issues still remaining on both sides of the argument.

In 2010 California voters enacted Proposition 26, sponsored by the California Chamber of Commerce and others, which more stringently defined what constitutes a “tax” and therefor requires a two-thirds vote of the legislature. Based on the language of Prop 26 any extensions of the state’s Cap and Trade program will require a two-thirds vote and therein lies the problem.

While Democrats held 54 of the 80 seats in the Assembly – exactly what’s needed for the Cap and Trade extension to pass – the legislature now needs Republican votes because, with Gomez’ departure last week, the Democrats no longer hold a two-thirds majority. On top of that, the progressive Democrats and moderate wing of the party cannot agree on the terms of the extension.  It is believed that a coalition of moderate Democrats and central leaning Republicans will be needed to satisfy both industry and the environmental communities.

Now that the pressure of the Gomez departure has been lifted, the legislature has until the beginning of Interim Study Recess on September 15 to achieve a resolution. Any extension will require new regulations that will take 18-24 months to promulgate, and next year is an election year, a time when risky, controversial votes don’t come easy.

Time will tell if in the next two months the legislature can come to agreement on the details of a program that is supported in broad strokes by both environmental groups and industry.

Calif, the Trump counterweight on climate

Only days after President Donald Trump withdrew the United States from the Paris climate accord, alleging that the accord disadvantages American business, California, the world’s sixth-largest economy, and China, the world’s second-largest economy, signed an agreement to coordinate efforts to reduce emissions.

California Governor Jerry Brown says he believes the nation is “abdicating its leadership role” and believes that role will now be filled by individual states as they work with Europe and China on their own.  The agreement does not establish emissions goals but does call for investments in low-carbon energy development, cooperation in the development and commercialization of green technologies and climate research and is generally seen as a plus for both the California economy and the environment.

Meanwhile, Governor Brown and the state legislature are considering two proposals that will further establish California’s preeminent role in the clean energy market – SB 775 (Wieckowski) and SB 100 (De León).  These bills represent an effort to continue and amend the state’s cap-and-trade program and to accelerate the timetable for California to achieve 100 percent renewable electricity.

As you may expect, there is deep division over these proposals.  Oil companies, who once fought the state’s cap-and-trade program in court, are now supporting the legislation that would extend it, while many environmental justice groups are opposed to the program in favor of a command-and-control strategy.  Many environmental groups who would be expected to wholeheartedly support the move to 100% clean energy are sticking to the sidelines, believing the legislation as currently written does as much harm as good and are seeking amendments.

This is a critical time for the state’s economy, environmental goals, and the perception of California as a world leader.  As the Los Angeles Times recently noted, “Getting the details right means the difference between California burnishing its role as an incubator for innovation or proving itself to be a canary in the coal mine…”

California’s political landscape at 30,000 feet

Although today California is as blue a state as blue can be, to understand what that means requires an appreciation of three underlying pieces of recent political history.

First, it was not always thus. From 1900 until 1998, Californians elected only three Democratic governors, two of them related by blood. As late as 1994, inspired by Speaker Newt Gingrich’s Contract with America, Republican Pete Wilson was reelected governor and his party regained control of the State Assembly. (Today, Newt Gingrich is a Dentons Senior Advisor in Washington, D.C.)

But in 1996, the Assembly Democrats, occupying only 39 of the 80 seats, brought in a new campaign strategist who guided them to a gain of four seats that year, five in 1998 and two in 2000. At the turn of the century, the Democrats held 50 seats and were back in firm control of the lower house. (That campaign strategist, Darry Sragow, is today a Dentons Partner in Los Angeles.)

Second, by the early 2000’s California’s business leaders, contemplating the possibility of a permanent Democratic majority in the legislature, began to identify and recruit business-friendly candidates to run in safe Democratic seats that were opening up under strict term limits. The California Chamber of Commerce and its members and allies were at the center of this effort. (The Vice President of Government Relations for the Chamber was Marc Burgat, today a Dentons Principal in Sacramento.)

Third, in 2010 California voters approved a ballot measure instituting a top two primary system, dramatically increasing the prospects that business friendly Democrats could be elected to the legislature.

Today, policy debates in the California legislature are often between the liberal and moderate wings of the Democratic caucus, to the exclusion of the Republican membership. Their two-thirds super majorities in both houses afford the Democrats total control of legislative policy. But with that power comes the unavoidable responsibility for essentially all outcomes.

The influence of the so-called “Mod Democrats” is rarely reflected in vote counts but can be seen in legislative amendments that temper the impact on business of more liberal legislation, and in the abandonment of bills that are likely to fail on the floor.

Until such time as the California Republican Party stops its free-fall in voter registration and support, public policy in the state will be shaped by the continuing struggle between moderate and liberal Democrats.

Our public policy team in California is prepared to guide businesses doing business in the state through this complicated by critically important terrain.

California takes first in race to regulate driverless tech

California has conditionally made first-in-the-nation allowances for the public road testing of autonomous vehicles by easing the requirement for safety driver fallbacks or the presence of human controls.

The Golden State became an early adopter of driverless regulation when it passed in 2012 one the country’s first loose frameworks for autonomous vehicles.

The years since marked something of a calm in the autonomous vehicle regulatory space–including California, only 9 states adopted even loose driverless regulations–but the federal government triggered something of an arms race among the states last month when regulators at the US Department of Transportation gave the green light to driverless cars in guidance to state lawmakers and technologists.

In the days since the DOT’s announcement, California’s governor signed into law a first-in-the-nation bill allowing for the public road testing of Level 4 autonomy robotic-controlled driverless cars at two specially designated sites. Separately, the California Department of Motor Vehicles unveiled new driverless guidelines permitting the remote monitored, robotic operation of an autonomous car that lacks any human controls.

Keep an eye on our federal policy and Dentons 50 verticals for more on state and federal attempts to regulate driverless cars over the coming months.

California Policy Prospective

A rebounding economy has produced a rise in government revenues but done little to quell the political and policy turmoil that has roiled the legislature and statehouse in recent years, as Democrats seeking to restore spending to programs that had been reduced or eliminated in the aftermath of the Great Recession locked horns with a popular governor pressing for fiscal restraint and singing the praises of cash reserves. Some bills were passed and signed into law, others are wending their way through the legislative process, and  still others, stymied by governmental gridlock or on notice of intent to veto, will be put to the voters in November. The following summarizes key policies that were active considered:

With revenues on the rise, a popular governor championing fiscal restraint and large reserves and Democrats calling for increased spending on programs that suffered during the economic downturn, California is experiencing another year of political and policy turmoil. Add to the mix a presidential election, 100 of the 120 members of the state legislature up for election, and new leadership for an increasingly powerful Democratic Caucus that is attempting to test the limits of its influence, and the outcome of this year’s legislative session is harder to predict than ever.

Issues that have proven too controversial for the legislature to resolve will be decided by the voters this fall. So far, eight statewide propositions have been certified for the  November 8ballot and one measure is slated for a June 7 vote.

However, as of February 23, 2016, more than 100 initiatives had been filed with the California Secretary of State and there remains the very real possibility that 20 or more of them could ultimately be put to the voters in November, on subjects including:

  • Income taxes
  • Cigarette/vaping taxes
  • Legalization of recreational marijuana
  • Gun control

Here is a summary of key policies that were active consideration:

Legislature, Governor approve $15 minimum wage by 2020
An initiative was approved for the November ballot that would raise the state’s minimum wage to $15 per hour by 2021, but the legislature and the Governor preempted the measure by approving legislation to hit the same $15 per hour target by 2020, which will make California the state with the highest minimum wage in the nation. The legislature rallied around a legislative fix knowing the difficulty it would have altering anything passed via the initiative process.

Legislature has gun restrictions in its sights
California has some of the nation’s toughest gun restrictions, including a 1999 ban on assault weapons, such as the AK-47, and on the importation, manufacture and sale of large-capacity ammunition magazines. With a recent report showing a national average of 92 gun deaths per day and four dozen school shootings in 2015 alone, the state legislature continues to stiffen regulations concerning the use of, and access to, firearms. Currently active are bills that would expand the classification of assault weapons, ban the use of a “bullet button” and the sale of weapons to people on the federal government’s “no fly” list, and require background checks to purchase ammunition.

Medi-Cal managed care insurers support new tax structure
The state’s health care delivery system is receiving special attention from the Governor, who called a special session to work on a key policy concern, specifically a tax on the state’s Medi-Cal managed care insurers that new federal guidelines had made “likely impermissible.” The federal government gave the state until August 2016 to revise its tax structure to either comply with the new guidelines or jeopardize more than $1 billion in federal Medicaid dollars. Last-minute negotiations to resolve the issue resulted in a replacement for the tax that had the support of most of the state’s health plans.

Funding transportation infrastructure a continuing challenge
California’s transportation infrastructure is in crisis. The state needs to invest more in its road systems but current financing methods are insufficient given the magnitude of work that needs to be undertaken. An assessment by the California Transportation Commission (CTC) in 2011 concluded that maintenance and repair of the state’s highway system are underfunded by more than $5 billion a year, and local street repair is underfunded by an additional $1.8 billion a year. A 2013 report by the Reason Foundation ranked the state 45th in overall highway performance and 46th in urban congestion. Policy debates on the most effective way to adequately fund the state’s transportation infrastructure continue. Ideas range from more of the same (e.g., increased gas taxes, additional bonds) to new ideas untested at scale (e.g., mileage-based user fees), each concept differing as to funding mechanism, amount of fiscal burden and political viability.

Vaping and smoking draws legislative scrutiny
Several measures were introduced addressing e-cigarettes (aka vaping) and tobacco use. In California, most tobacco restrictions have already been extended to vaping but additional legislation addressing tobacco and/or vaping that has been active in the legislature includes tax increases, raising the legal smoking age, expanding public places where smoking is prohibited, and eliminating smoking on community college and state university campuses.

Legalization of online poker a long shot
Legislation to legalize daily fantasy sports betting is moving through the legislature with broad support. Perhaps the fact that daily fantasy sports betting is already happening throughout the state and is arguably legal in 44 other states explains why the legislation is being moved so quickly. By contrast, online poker has been debated in the legislature for several years and 2016 has been no different, with three bills active in the process that would, in one way or another, legalize the game. None have broad support but no one’s ruling out the possibility of an agreement on this issue in the final days of session, which will be late August.

No activity on high-speed rail and water diversion projects
California’s $68 billion high-speed rail system and a $15.5 billion plan to divert water around the Delta to the south are still subjects of heated debate in Sacramento and around the state. Both are high priorities for Governor Brown that need ongoing funding—and additional legislation—if they are to become reality. As of now, however, there is no activity on either issue in the legislature.