2020 Was Chaotic In California Government. What Can You Expect From The Legislature In 2021 To Support Business And Job Creation?

2020 WAS CHAOTIC IN CALIFORNIA GOVERNMENT. WHAT CAN YOU EXPECT FROM THE LEGISLATURE IN 2021 TO SUPPORT BUSINESS AND JOB CREATION?

As many of you may know, the California Legislature was a much different entity in 2020, the second year of the 2019-2020 Legislative Session. When the COVID-19 outbreak resulted in Stay At Home Orders beginning in late March, the ability for the Legislature to meet and conduct business was severely impacted and restricted many Legislative session days committee meetings. The Legislative Leadership ordered that the focus and time would primarily be spent on issues related to COVID-19. In this opening Governor Newsom took charge with ongoing executive orders. This included moratoriums on evictions and providing more support for those impacted by the pandemic. However, it seemed that we were frequently on a roller coaster not knowing whether the next day would result in more businesses being opened or closed down. In addition, our children’s schools, both K-12 and college have been primarily remote with severe restrictions on interaction and extra-curricular activities.

COVID-19 also had a significant impact on the November 2020 election, the legislature mandated that every voter would receive a mail ballot whether or not they requested one. This resulted in huge voter turnout of 70.8 % of eligible voters (not just registered voters), the largest since 1952. An amazing 87% of the ballots were returned by mail or dropped off at mail centers. While this was mandated by the pandemic, there has already been legislation introduced by Assemblyman Marc Berman (D-Palo Alto) to make this election process permanent.

So how did this huge election turnout affect the November results? They were mixed. The Republicans picked up an Assembly seat, Suzette Valladares in the 38^th who represents Santa Clarita, Porter Ranch and Simi Valley, but lost 2 State Senate Seats. As a result, the Democrats still have a 2/3 Super Majority in both the State Senate and Assembly. However, even while President Trump lost by more than 30 points statewide, the Republicans picked up 3 Congressional seats they lost in 2018 and retained the 25h Congressional Seat that Congressman Mike Garcia had picked up in a May Special Election, albeit by a very narrow margin.

However, while the State Legislature stayed overwhelmingly Democratic, the voters defeated several propositions which were strongly supported by them. These key results were:

-Proposition 15 which would have increased property taxes on many commercial properties by changing their Proposition 13 protections. 52% of voters rejected this measure.

-Proposition 21 would have expanded local government’s ability to expand rent control. It failed with 57% voting no.

-Proposition 22 allowed gig workers to be reclassified as independent contractors. It passed with 59% support and removed these workers from the requirements of AB 5 which had classified them as employees with all of the state mandated benefits. AB 5 had already carved out some industries and there may now be other industries who will look to the ballot box to get similar exceptions. It is unlikely any further exemptions in the State Legislature since the major unions in the state oppose them.

These results showed that voters can still be conservative when it comes to spending, taxes and government overreach.

One of the major concerns about the impacts of COVID 19 had been that tax revenues would be significantly reduced as people lost jobs due to the various government orders and businesses were closed down or limited in their operations. However, the California Legislative Analyst’s office (LAO) recent report in January 2020 stated that instead of the anticipated catastrophic decline in tax receipts, it was much less severe. In fact, from August to December 2020 state tax revenue was $11 billion higher than anticipated in the 2020-21 budget and the LAO has estimated that the State will receive a $26 billion one time windfall in revenue due to increased tax payments by higher earners. While this will allow the State to provide additional relief this year and not severely cut programs, the LAO pointed out that the serious impact of the economic downturn will be seen in the next several yeas and estimates there could be an operating budget deficit of $17 billion in the 2024-25 fiscal year. One of the reasons is that revenue is only increasing at 1% while expenditures are projected to increase by 4%. This disparity will result in a demand for increases in taxes even while businesses are trying to stay afloat.

Interestingly, locally in the City of Santa Clarita the initial budget impact has been weathered with no decreases in city services and the proposed renewal of several capital improvement programs while maintain a healthy $17 million operation budget reserve.

It is likely that additional federal relief bills will provide additional funds to State and Local governments.

In addition to the Budget issues, what can we expect from the Legislature impacting job growth and the economy. One of the measurements you should find useful to use to track these issues is the California Chamber of Commerce’s annual Jobs Killing Bills. While it is too early to have a list for 2021, the Legislature somewhat surprisingly failed to pass 18 of the 19 Job Killer bills identified in 2020. Here are a few of these bills which were defeated:

-AB 1107 (Chu D-San Jose) Would have increased an employer’s payroll taxes to fund a 130% increase in unemployment payments.

-AB 1253 (Santiago D-Los Angeles) Would have increased the personal income tax rate, which is already the highest in the country to raise $6.8 billion.

-SB 55 (Jackson D-Santa Barbara) extended the time and costs to the California Environmental Quality Act (CEQA) process and would have given new legal arguments to opponents to delay or block housing and other projects.

You can expect the Legislature will once again have in 2021 numerous bills to increase taxes and provide more regulations on businesses joining a new Jobs Killer list. However, if 2020 is any indication, these efforts may continue to have difficulty getting passed as the Legislature and the Governor perform the delicate balancing act of getting businesses open and their employees back at work during the Pandemic while dealing with the demands for more services and governmental programs. Add to this equation the increasing pressure to have the State mandate the re-opening of schools and we should expect the roller coaster will not end soon.

Finally, two political events could impact the 2021 Legislative climate. The first is if the recall of Governor Newsom qualifies. This would result in a special election sometime later this year. In a recall the voter is asked two questions. First should the Governor be recalled. This is a simple majority election and if the majority says no then the Governor stays in office. However, if the majority votes to recall then the voters will select from most likely a very large group of candidates and the winner only has to receive a plurality of the votes. Whatever the result, the regular Gubernatorial election is next year and even if Governor Newsom is recalled, he could run again in that election.

Secondly, we will be redistricting all of our legislative seats this year for the 2022 election. This will be the second redistricting done by a Citizens Commission which is waiting for final census numbers later this year. It is expected that California will lose at least one, but maybe two Congressional seats which will potentially lead to incumbents running against each other. In addition, population shifts will result in many Legislators running in new areas. Communities like Santa Clarita need to stay focused on how this process impacts their representation over the next 10 years.

As Bette Davis said in the movie All About Eve, “"Fasten your seatbelts, it's going to be a bumpy night (in our case year!).