California State Budget Woes and Those Job Killer Bills

As I write this article we are only 3 days away from the June 15 Constitutional Deadline for the California State Legislature to pass the 2024-2025 State Budget which the Governor must sign by July 1^st. When I wrote about the State Budget a year ago California had begun experiencing significant budget deficits after a series of tremendous budget surpluses during the Pandemic. The deficit had grown to $31.5 billion a year ago and was closed with a combination of revenue and spending delays with shifts and cuts.

We are now one year later and the budget deficit is even more pronounced. While some initial estimates had next fiscal year’s deficit at over $70 billion, the Governor’s initial Budge had the deficit at $38 billion. His May 10 his Revise stated it was $44.9 billion for 2024-2025.

Among the cuts and actions proposed are to eliminate 10,000 vacant state jobs, pause the expansion of subsidized childcare and cut the funding for climate change programs by billions of dollars. In April the Governor and State Legislature passed $17.3 billion in savings from budget cuts and will be using $4.2 billion from the state’s rainy day fund and budget reserves for the upcoming fiscal year.

The Governor’s May Revise showed that the deficit had increase by $7 billion and he proposed cutting another $8.2 billion in funding in 2024-25 including $3.6 billion less for programs fighting climate change.

The Governor and some legislators have stated that California’s current financial situation as a return to normal after the federal government provided trillions of dollars in funding to individuals, families, businesses and state governments during the COVID-19 pandemic, payouts that resulted in a historic surplus in California.

But those flush times could never continue, and the State appears to continue to refuse to address the core issue which is our state revenue is much too reliant on wealthy taxpayers. This results in surpluses when they are doing well, and deficits when their income and capital gain payments are lower. The Governor’s budget also admits that we will have an estimated $28.4-billion deficit in 2025-26.

Among the issues still to be decided are the details of a costly plan to hike pay for healthcare workers to at least $25 per hour.

Governor Newsom signed a bill last year that imposed a new industry minimum wage for California healthcare workers, but has voiced concerns about how fast the state can move on wages due to the deficit. His department estimated that the wage hikes could cost the state $2 billion.

The Legislature’s proposal highlights key differences between the governor and lawmakers in his own party over funding for some of his marquee policies, including homelessness and prison reform.

Lawmakers proposed an additional $1 billion in cuts to the Department of Corrections and Rehabilitation, which includes at least $12 million in reductions to the governor’s project to transform San Quentin. Newsom’s cuts included $80.6 million in savings from the newly announced deactivation of 46 housing units at 13 state prisons.

Democrats in the Legislature also want to spend $1 billion more than the governor on a sixth round of Homeless Housing, Assistance and Prevention grants to local governments to combat the homelessness crisis. At the same time, lawmakers proposed cutting $100 million in funding to clean up homeless encampments in the current budget year.

Also impacting this budget is the fact that this is an election year with 100 members of the 120 member State Legislature up for election.

In addition, the Legislature is considering placing as many as three bonds on the November ballot that would ask voters to approve borrowing money to pay for low-income housing, school construction projects and climate-related infrastructure for adapting to floods, fires and droughts. The prospects for these, or any other bonds, may be in jeopardy after the very narrow passage of Governor Newsom’s Proposition 1 last March for mental health facilities. With more than $20 million spent to support Proposition 1 and no vocal opposition, its narrow passage could have been a warning that the voters are concerned about the economy, deficits and want to slow down spending and bond funding.

JOB KILLER BILLS

Let me now provide some highlights of those bills which have found their place on the California Chamber of Commerce’s list of Job Killers Billst. As I have written about in the past, the list of Job Killers Bills has become an effective way for business groups and citizens to oppose legislation which will negatively affect the economy. Among the highlights of those bills this year are:

SB 1434 (Durazo; D-Los Angeles) Huge Increases to Unemployment Insurance Taxes. Increases UI taxes to fund UI benefit hikes of up to 55%, as well as providing for subsequent increases based on inflation. Also creates entirely new UI program to provide benefits to workers who do not qualify for traditional UI, to be funded by a new tax on California employers. In Senate Labor, Public Employment and Retirement Committee. Failed deadline.

SB 1345 (Smallwood-Cuevas; D-Los Angeles) Prohibits Consideration of Conviction History in Employment. Effectively prohibits most employers from considering conviction history of an applicant, existing employee, or contractor in employment or contracting decisions. In Senate Judiciary Committee. Failed deadline.

AB 2499 (Schiavo; D-Chatsworth) Leave Expansion. Significantly expands uncapped leave related to crimes and lowers threshold of applicability to employers with just five employees.

AB 2751 (Haney; D-San Francisco) Prohibition on Employee Communications During Certain Hours. Prohibits any employee working for an employer of any size from contacting another employee outside of their normal work hours except in very narrow circumstances and would subject employer to costly litigation for any dispute as to whether the communication was permissible. Held in Assembly Appropriations Committee, May 16, 2024.
 

SB 1154 (Hurtado; D-Sanger) California Preventing Algorithmic Collusion Act of 2024. Prohibits a person from using or distributing pricing algorithms that use, incorporate, or were trained on “nonpublic competitor data” which is wholly unnecessary given that collusion is already illegal under existing law. Worse yet, the bill actually creates substantial confusion and uncertainty for businesses as to what is a lawful pricing algorithm as opposed to price fixing due to vague and overbroad standards, imposes onerous reporting requirements, and grants the Attorney General (AG) authority to request these reports detailing a business’s use of pricing algorithms for any reason and without any regard to whether the business is alleged to have behaved anticompetitively or harmed consumers. The bill also allows the AG to share the report with a third party to decipher the information reported. When combined with the aggressive liability provisions and the inevitable costs imposed on all but the smallest of businesses, the bill invariably will have a sweeping, chilling effect on price competition among businesses across all industries. In Senate Judiciary Committee. Failed deadline.

ACA 16 (Bryan; D-Los Angeles) Environmental Rights. Has far-reaching negative consequences that would impair government operations, stunt development for new housing, infrastructure and clean energy project development and has strong potential to destabilize California’s economy.

SB 1497 (Menjivar; D-Los Angeles) Polluters Pay Climate Cost Recovery Act of 2024. Imposes an ill-defined tax on a broad set of entities that will increase costs for goods and services in California.

AB 2200 (Kalra; D-San Jose) Government-Run Health Care. Forces all Californians into a new untested state government health plan, with no ability to opt out while eliminating Medicare for California seniors and increasing taxes at least $250 billion a year on workers, income, jobs, goods and services. Held in Assembly Appropriations Committee, May 16, 2024.

AB 2230 (Bennett; D-Ventura) Worsens Housing Crisis. Substantially shuts down the production of housing in California by blocking the inflow of crucial capital that nearly all housing production relies on. The Cartwright Act already protects against price fixing so expanding it as contemplated by this bill is unnecessary and will have the unintended consequence of making any return on investment a crime. In Assembly Judiciary Committee. Failed deadline.

We will know in September what Job Killers bills pass and go to the Governor. As a reminder of the success of this program, here are the results from the past several years:

2023: 19 Job Killers identified, 7 sent to Governor Gavin Newsom, 4 signed, 3 vetoed.

• 2022: 19 Job Killers identified, 2 sent to Governor Newsom, 2 signed.
• 2021: 25 Job Killers identified, 2 sent to Governor Newsom, 1 signed, 1 vetoed.
• 2020: 19 Job Killers identified, 2 sent to Governor Newsom, 1 signed, 1 vetoed.