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The Nooner for Thursday, May 7, 2020, presented by SYASL Partners
REMINDER: The Sacramento Press Club is hosting a Facebook Live event at 4pm today "Covering the 2020 Presidential campaign during the COVID-19 pandemic." Moderator is the LAT's Mark Z. Barabak and folks who have spent time in California include NPR's Tamara Keith and Scott Detrow, NYT's Shane Goldmacher, Politico's Christopher Cadelago and David Siders, Axios's Margaret Talev, and the LAT's Melanie Mason. The online event is open to all. [Watch it at www.facebook.com/SacPressClub]
Well, hello there. I know that I'm just skimming the surface even while writing for over 6 hours this morning, and that's before the NewsomAtNoon presser when Stage 2A is expected to be announced.
I may have an afternoon/evening update depending on how the day goes. There is simply too much out there today. Grab your teddy bear. The news ain't pretty.
The west side of the Capitol is surrounded with fencing and CHP officers with another "Reopen California" protest planned for today, which is not permitted to congregate on Capitol grounds. Last Friday, 32 protestors were arrested in an unapproved protest that got nearly violent with officers.
Already before 11am, there is a truck driving around the Capitol making Governor Newsom look like Adolf Hitler.
Around the state, the mercury is rising, with a 95-degree high forecast in SacTown today to cook protestors pushed onto the asphalt. Remember, if you are listening to Nelly, although it's getting Hot in Herre and you are working from home, don't "take off all your clothes" if you have a Zoom meeting. Well, maybe your pants as long as you're careful not to stand.
LEGISLATIVE CALENDAR: The Senate and Assembly announced new calendars yesterday following the 45+ day shutdown in the height of policy committee hearings. Here are some upcoming significant changes:
CALIFORNIA WEEKLY UNEMPLOYMENT CLAIMS: This morning, the Department of Labor reported 3.169 million in new unemployment claims for the week ending May 2. Here are the numbers since the stay at home orders began the week ending March 20.
Initial unemployment claims for week ending:
Since the statewide order on March 19, 3,990,711 Californians have filed initial claims for unemployment. In February, California had 17,604,500 nonfarm payroll jobs employed. Tomorrow, we get the April unemployment nationally and the state data will follow in a couple of weeks.
Insured unemployment payments for week ending:
California’s government faces a $54.3-billion budget deficit through next summer according to an analysis released Thursday by advisors to Gov. Gavin Newsom, the deepest projected fiscal hole in state history.
The estimate accounts for both an alarming erosion of tax revenues and a growing need for health and human services programs. While it measures the gap between revenues and expenditures based on projections made by Newsom in January rather than existing funds, the assessment nonetheless reflects a record-shattering collapse of the state’s economy, one created in just a matter of weeks by the fast-moving COVID-19 pandemic.
“The COVID-19 pandemic has caused enormous hardship for families, businesses and governments across the world, the United States and California,” states the analysis released by the California Department of Finance. “It has endangered health, stressed the healthcare system, and caused devastating losses in family and business income.”
Newsom’s budget team forecasts a $41.2-billion drop in tax revenues compared to their estimates from just four months ago. Most of that — $32.2 billion — would appear in the fiscal year that begins in July. Current year tax revenues, according to the report, are expected to miss the mark by $9.7 billion, even though most of the state’s budget year had already passed by the time the virus became an immediate concern in March.
Expenses are also projected to skyrocket. The fiscal report released Thursday assumes some $13 billion in higher state costs due to the pandemic, with a combined $7 billion in higher-than-expected caseloads for programs such as Medi-Cal, which provides free healthcare, and CalWorks, the state’s welfare assistance program. As much as $6 billion in expenses are assumed to be the result of the state’s COVID-19 response.
My friend John Myers and I have been down this road before. Literally all night 07/23-24 in 2009, we were tweeting the all-night budget session to a crowd of maybe 25 Capitol folks that had discovered three-year-old Twitter. I shared tweeting responsibilities under the @ccleague account with Theresa Tena as we rotated naps. Tena was my fiscal policy director and later VP at the Community College League of California.
That 2009 budget paled in comparison to what we face in 2020.
That was the year before the majority vote for a state budget but also the year before the constitutional requirement for the Legislature to approve a balanced budget by June 15. If they don't legislators forfeit pay and per diem. On paper, it is "easier" now and there is "teeth" in the requirement.
However, with these numbers now out, the Legislature will be held to them and I can't figure out how this gets done. The $12 billion ballot measure to value most non-residential commercial and industrial property at assessed valuation than the Prop. 13 cap is almost certain to land on the November ballot (currently in signature validation). The campaign for the "split roll" measure, "Schools and Communities First," is holding a press conference right now with a new report to reframe the tax hike in light of the current crisis:
As cities, counties and the state face unprecedented shortfalls, this report shows how the property tax revenue generated by requiring the biggest corporations to pay their fair share would be distributed for the work of local governments – illustrating the fact that Schools & Communities First needs to be a part of California’s long-term solution our state is facing now. According to the report, Schools & Communities First would generate billions for local governments to invest in their most pressing needs, such as public health and first responders.
Listed on the Zoom are San Francisco Mayor London Breed, Stockton Mayor Michael Tubbs, Santa Clara County Supervisor Cindy Chavez, Los Angeles County Supervisor Sheila Kuehl, and Huron Mayor Rey León. For obvious reasons, I'm not on the 10:30 Zoom.
The Legislature legally can't count on that for its June 15 budget and, well, at all. At 53% polling before the negative campaign threatening jobs to leave California, independent analysts believe it's very unlikely to pass. We'll see if we get polling after today's reframe.
We've gone to the well for high-income earners with the previous voter-approved "temporary tax" that was made permanent (by the voters), among other supplementals.
Sales tax, the second-largest revenue source is already at 8.75% in many communities and as high as 9.5% in Los Angeles. With retail, restaurants, and hotels devastated by the shutdown, jacking up the sales tax will lead to a voter revolt in November. This morning, it was announced that the Nordstrom store at Arden Fair Mall in Sacramento will not reopen after the shutdown ends, reports the Bee. Lots of around the Capitol folks did their shopping there. The Nordstrom at the Galleria in Roseville is not expected to be impacted.
It's a huge blow to Arden Fair and the Sacramento County (it is just out of city limits, meaning sales tax goes to the county). The center anchor spot will be very hard in the to fill in me mall retail environment, which was already beleaguered before COVID-19.
Will a November voter revolt frighten legislators? I don't know. Most legislators are safe in their districts, but stranger things have happened.
I've been through three rounds of big budget cuts as a community college advocate in my 25 years up here. This is more than twice as bad, although we have the best reserves ever. However, the constitution limits how fast they can be used and that is a one-time solution. Local government and schools face the same challenge. Despite political rhetoric, few independent economists I have heard from expect a Roaring 20s upon a therapeutic or even a vaccine.
During those previous budget cutting rounds, I usually could see a way out. I can't with this one and look forward to what Governor Newsom proposes in his May 14 budget reboot, one week from today.
Anyway, if you don't have the dough for a Times subscription in these tough times, that's understandable. Our friends at CalMatters (also worthy of your support) has an article on the release of the budget projections as well.
lots more after the jump...
THE GREAT UNMASKING: Late yesterday, Governor Newsom released the $1 billion contract with a subsidiary of Chinese company BYD for N95 masks and it became clear why the governor's Administration had been hiding behind attorney-client privilege. The media and legislators had been demanding details for the last two weeks and the governor was asked at nearly every press conference about it.
The contract required BYD subsidiary Global Health Product Solutions LLC to obtain National Institute for Occupational Safety and Health certification for the masks by April 30. In an amendment to the agreement, which was finalized Wednesday, it pushes that date to May 31. It also requires the company to return $247,500,000 to the state for not meeting the original deadline.
Global Health Product Solutions must wire the money in the next two days, according to the contract.
“The state will not pay for any of these until they are certified by NIOSH,” said Brian Ferguson, Deputy Director for Crisis Communication & Public Affairs at CalOES. The N95 masks are still in China, but should arrive “within a handful of days” of certification.
That explains the delay in releasing the contract. It also gives insight to the frenetic pace that states have faced to source PPE. Rodd has a copy of the contract embedded in his story.
The $1 billion contract followed the canceled nearly $500 million one for masks with a three-day-old company run by two GOP consultants that I wrote about yesterday. CalMatters's Laurel Rosenhall follows up today, writing that federal investigators are looking in to that company.
THE DISSENTERS: During yesterday's NewsomAtNoon, the governor expressed frustration at the decisions by Sutter and Yuba counties to reopen faster and far beyond the expected announcesments today. Now, the health officer shared by the counties who has received by state officials and residents alike is expressing over the behavior of residents who are not following even his broader-than-the-state order. For the Bee, Tony Bizjak and Rosalio Ahumada report:
By Wednesday, local health officials said they too had become concerned by the number of people that were not adhering to the safety precautions in the county reopening order.
Those officials issued a written warning Wednesday to residents and businesses, saying a lack of social distancing and mask wearing in stores and restaurants could trigger a surge of coronavirus infections that might force the county to impose stricter orders.
“It has become clear a number of businesses are not enacting required protocols to ensure the safety of the community,” Yuba-Sutter Health Officer Dr. Phuong Luu wrote in a public warning Wednesday.
“Please understand the orders I issued last week purposefully began by reiterating the ongoing threat from COVID-19 that continues to confront the Yuba-Sutter region,” Luu said. “It is imperative to make all necessary adjustments to the way we conduct business in our community immediately so that we do not run the risk of seeing a resurgence and need to go back to stricter orders.”
A county spokesman said officials have gotten calls from residents concerned about unsafe business activities and were seeing reports in news media about troublesome behavior.
IMMIGRANTS: Yesterday, the California Supreme Court refused to block Governor Newsom's action of distributing $75 million to community-based organizations that are providing cash assistance to undocumented immigrants who are ineligible for federal assistance. The AP reports:
The program offers each adult $500 to be distributed through nonprofit groups in an effort to protect recipients from providing personal information that might cost them other benefits or increase their danger of being deported.
The state’s high court in a one-sentence order rejected the petition filed by the Center for American Liberty, which contended the program violates the state Constitution’s ban on giving gifts to organizations outside of the state’s exclusive control.
It was filed by attorney Harmeet Dhillon, who is also a Republican Party official, on behalf of two long-shot Republican candidates for the state Assembly.
A Los Angeles Superior Court on Tuesday similarly rejected a request from the conservative group Judicial Watch to stop the program. That complaint argued Newsom lacked explicit authority from state lawmakers to provide the money.
Dhillon's batting average in her cases against government during COVID-19 is not great although she is a great lawyer. This has become a cottage industry that someone is funding and she even has a special section of the firm website dedicated to all the cases.
The legal claims are almost all constitutional and thus subject to the same strict scrutiny analysis for fundamental rights that I've talked about in this space several times. There's no more compelling state interest than a public health emergency and the breadth of the orders are being determined by medical doctors.
Even if a sympathetic district judge is found, the Ninth Circuit would reverse, and the Supreme Court of the United States wouldn't touch it.
PENSION POLITICS: For CalMatters, Dan Walters looks at this week's California Supreme Court arguments over a pension reform law signed by Governor Jerry Brown that limited the ability of public employees to "spike" their pensions by increasing their final year compensation through overtime, unused sick leave, and the like. It was an odd social-distancing moment for the California Supreme Court, like its national counterpart as only two justices were present and others participated by video conference.
It's a classic case of whether pension benefits at the time of hiring are part of a "contract" and thus changing them would be an unconstitutional impairment of contract.
In their questioning, the justices gave few clues as to how they are leaning – and particularly whether they will decide the case narrowly, as Onishi seemed to be asking, or dig into the California rule, whose impregnability has been questioned by lower court decisions. If it’s the latter, the potential impact would be massive, no matter which way it went.
California’s pension systems are not in good financial condition. The biggest, the California Public Employees Retirement System (CalPERS), was only about 70 percent funded before the pandemic recession hit and the stock market began its wild gyrations. It had been demanding ever-higher payments from the state and local governments, including schools, to prevent further deterioration.
No one knows how long the recession will last or how serious it will be. However with major reductions in spending on education, health and welfare programs, police and fire protection and other big ticket items looming, pension costs will be in the political spotlight and the Supreme Court’s decision will be a factor in whether they can be legally reduced.
Here is the First Circuit Court of Appeal decision that was appealed to the California Supreme Court.
WORKERS COMP: Business groups appear to be of different minds over the executive order announced yesterday by Governor Newsom during his lunchtime presser.
In my email box, I have this statement from Lance Hastings, President of the California Manufacturers & Technology Association (CMTA):
“California manufacturers have implemented and continue to employ aggressive safety measures in their facilities so they can put people back to work safely and keep our ever-important supply chain operational. The State's 1.3 million manufacturing workers and their employers need protections during this crisis and we appreciate the difficult position that Gov. Newsom is in on this economy-wide issue. Ensuring the integrity of California's entire work comp system is critical and the Governor's Executive Order seems to strike a balance between getting all of the facts on the table for a work-related COVID19 claim and providing proper worker benefits during the 60-day policy period."
However, in the SacBee, Hannah Wiley writes:
The California Chamber of Commerce said in a statement the executive order will increase workers’ compensation insurance rates that will then “unnecessarily and significantly” harm employers.
“Imposing a legal presumption that any employee who contracts the coronavirus is covered by workers’ compensation benefits shifts the cost of this pandemic to employers,” the chamber said, adding that federal dollars should be used for assistance instead. “The private sector did not cause this crisis and it should not be the safety net used to pay for this crisis--that is the role of government.”
California Business Roundtable President Rob Lapsley said in a statement that medical professionals like doctors and nurses and first responders should receive workers’ compensation.
But, he added, Newsom’s decision bypassed the Legislature’s approval and will make it more challenging for employers to rehire their laid-off workers once businesses can reopen.
“This will ultimately impact communities of color who are the foundation of small business employees and business owners in California,” Lapsley said.
muni matters, Cakeday, and classifieds after the jump...
LA-LA LAND: The team at the LAT reports that, beginning Monday, masks will be required at LAX and on city buses.
The new requirement announced Wednesday evening by Mayor Eric Garcetti came hours after L.A. County officials laid out the first steps toward easing stay-at-home orders imposed almost two months ago. Those restrictions have been credited with slowing the spread of the coronavirus throughout Los Angeles and the region.
Florists, car dealers and various types of bricks-and-mortar stores — including those that sell toys, music, books, clothing and sporting goods — will be allowed to open for curbside pickup only starting Friday. In-store shopping will not be permitted.
“This list is less about what products are sold and more about the ability to maintain social distancing,” county Supervisor Kathryn Barger said.
CAKEDAY: Happy birthday to Jorge Escutia and Anna Song!