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The Nooner for Friday, June 5, 2020, presented by SYASL Partners
SPECIAL NOTE: As with other media properties (or whatever you call The Nooner), subscriptions are down and advertising is way down. For me, it's about $1,500 in classifieds/month and $1,200/month in display advertising. Only 8.5% of readers are subscribers.
Happy Friday! Although, yesterday really felt like Saturday. Of course, part of that was because I stayed away from the teevee news during the day so I didn't know which anchors were on throughout the day. Anyway, I slept the best last night in two weeks. Or, maybe it is because I switched to tea yesterday and which I continue on today. I feel very tied to my British roots -- without the pints.
What a change in weather today, with the Sacramento forecasted high dropping nearly 20 degrees to 84! Bring out the parkas!
PPIC SURVEY EVENT: Here is the video on yesterday's online event on the May PPIC Statewide Survey.
KAMALA: I missed it yesterday, because I don't care for Fallon, but on Wednesday night's Tonight Show, he had on Senator Kamala Harris. It's available on YouTube. Meanwhile, the Sabato's Crystal Ball team at the University of Virginia Center for Politics has come out with its initial rankings of the Democratic veepstakes with Harris on top. Here are the key advantages and disadvantages of her as a pick.
UNEMPLOYMENT: You likely woke up to the unexpectedly good jobs report from the Bureau of Labor Statistics or if you are a geek like me were up before the report came out at 5:30am. In the April 13-May 12 period ("May report"), nonfarm payroll jobs increased 2.5 million and the unemployment rate fell from 14.7% to 13.3%. These are the national numbers and California's numbers will be released on June 19. The participation rate (those able to work and saying they are interested in doing so) in May was 60.8%, up 0.6% from April, although May 2020 was still down by 2.1% from May 2.9%. So, 13.3% in May 2020 is understated compared to May 2019. I hope that makes sense.
The greatest increases were in leisure and hospitality, construction, education and health services, and retail trade as states reopened faster than projected, thus surprising economists. Leadiing the way was the subset of leisure and hospitality of food services and drinking places at 1.4 million, over half of total job gains for the month. Hotels (technically "accommodations") continued to decline, falling by 148,000. It is not surprising that the gains were the fastest in this sector as employees were more likely to be furloughed or laid off as opposed to those that could telework or even on paid leave.
California numbers for May will not be as rosy as the national numbers, as the state is slower to fully reopen, which is supported by 71% of California adults (67% of likely voters), according to the PPIC poll I wrote about yesterday. As noted above, the California numbers will be released on June 19 -- five days after the Legislature is required to send Governor Newsom a budget...
STATE BUDGET: Even before the unemployment numbers came out this morning at 5:30, I was thinking about how the Legislature and Governor Newsom fuse the huge differences in their budget plans. I was thinking that the Legislature doesn't want to impose the draconian cuts proposed in the Governor's May Revision because of the uncertainty of whether federal funds would be forthcoming to assist state and local governments. So, the Democratic leaders argue, punt to see if federal funds are received by September 1 and, if not, impose cuts, deferrals, and further withdrawals from state reserves on October 1.
With this morning's unemployment report, there is even a bigger argument to wait -- for two reasons.
First, calculating revenues for the state is done by some magic machine (team of people) in the Department of Finance and the Legislative Analyst's Office. Part of it is relying on many economic indicators (DOF | LAO) of the United States and California. It includes unemployment rate, personal income, and even the S&P 500 -- used to forecast the highly volatile capital gains revenue.
All three of these are completely unknown as of now. The LAO's optimistic scenario ("U-shaped recovery"), the number for the average S&P 500 of 2,624 is 21% below current trading for 2020 year-to-date. Now, some of those increases are due to a faster reopening but some is also because companies are shedding jobs permanently. The stock market doesn't measure the economy, but it does suggest capital gains revenue. Thus, it's a mixed-impact on state revenues -- hitting each of the "Big 3" revenue sources of personal income, sales, and corporation taxes.
More data will be needed before we have any idea of these revenues. I am not an economist, but do trust that the May Revision is worst case scenario and based on the a very tough point in time when the Department of Finance economists were asked to provide numbers in early May.
There are several different economic scenarios of recessions associated with the alphabet, like Sesame Street. There are the "L-shaped," which is the worst. There is the "U-shaped," which is the medium There is the "V-shaped" -- the best. Enter the pandemic, and there is the "W-shaped," which is what happens if there is a second wave of the virus.
The health experts have no idea what the impact of accelerated reopening (or the current mass protests) will do to COVID-19 case numbers and whether reopenings will have to be reversed. So, while it appears we are on a V-shaped recovery (at least nationally), there is a possibility of a W-shaped one, or even a V followed by an L, which would be the worst.
Enter the issue of federal assistance to state and local governments, both envisioned in the Governor's May Revision and the Legislature's alternative, albeit in different ways.
The headline this morning is that the employment numbers nationally are unexpectedly good. From a state and local government budget perspective though, they are likely mixed. The numbers make it much less likely that President Trump and the Senate will agree to federal assistance to state and local governments as the House has proposed in the HEROES Act, which would provide $500 billion to states and $375 billion to local governments.
So, the news is a mixed message. Economic recovery nationally is faster than expected but we won't know May numbers for California until after the June 15 legislative budget deadline. Even that won't tell us much in terms of 2020-21 overall state revenues.
While I was thinking that the Legislature and Governor Newsom were going to have some tough negotiations over the next week, I think Governor Newsom is going to be much more willing to accept the Legislature's approach. Sure, there are small details to be worked out, but the big picture won't be known for three months or more.
If the Legislature's plan is what they go with as proposed, in August the mix between updated economic outlook and possibility of federal funds can be considered and a "Baby Budget Bill" can stop the September 1 trigger. Something would have to be done before that trigger date -- unless they stay in a special session in September. I've also heard that the trigger mechanism is undone in August with continued uncertainty about revenues with a special post-election lame duck session after the election November.
Fasten your seatbelts...
...more after the jump.
STATE EMPLOYEES: In the Bee, Wes Venteicher reports that, while state offices reopened Wednesday, Governor Newsom's administration has asked most state agencies to target having 75% of employees where its possible to continue to telework.
A section of California code generally requires state offices to be open from 8 a.m. to 5 p.m., so departments “should have a minimum level of staffing to direct members of the public and conduct state business,” she said in the email.
[Human Resources Department Director Eraina] Ortega’s guidance comes three weeks after Newsom laid the groundwork for a future in which state government greatly expands telework — an idea that has been around for 30 years but never seriously adopted.
“The COVID-19 pandemic has forced a massive experiment in telework and allowed state managers, led by the Government Operations Agency, to rethink business processes,” Newsom’s May 14 budget proposal says. “This transformation will allow for expanded long-term telework strategies, increased modernization and delivery of government services online, reconfigured office space, reduced leased space, and when possible, flexible work schedules for employees.”
The "future of work" for state employees is mixed for Sacramento. It will mean less traffic, more available parking, and fewer vehicle miles meaning fewer emissions. However, it could be devastating for many small local businesses who count on state employees. In particular, coffee shops/stands, restaurants (including food trucks that routinely park next to agencies), and various others. These businesses have already been hit hard by the shutdown over the two-and-a-half months. I hope not, but fear that it is the final nail in the coffin for some.
WORKERS COMP: In the Chron, Mallory Moench reports on the workers compensation filings made by those who have gotten ill with COVID-19, believe it was acquired at work, but are facing a difficult burden of proof that it was indeed a workplace injury.
The coronavirus pandemic ushered in a new era of workers’ compensation claims in California, with the state creating a unique injury category for COVID-19, and politicians, including Gov. Gavin Newsom, pushing to change standards of proof for compensation. It can be murky legal territory to prove on-the-job injury — especially from a viral disease — but recent political action has made it easier.
Workers who win claims in the employer-funded compensation system get two-thirds of lost wages — up to $1,300 a week — for as long as two years, the costs of medical treatment for life, and sometimes permanent disability benefits.
The state created a COVID-19 injury category for claims in March, retroactive to December. Claims spiked as coronavirus cases rose and the shelter-in-place kept everyone except essential workers home: 2,251 workers filed in March and 2,677 in April. Numbers dropped in May, with only 85 claims in the first three weeks.
As workers filed more claims, state data shows fewer were denied — from a 60% denial rate in January down to 11% in May. But that was still a higher denial rate than total claims, hinting it may be harder to prove viral infection at work than a traditional workplace injury.
RUBBER BULLETS: In the Times, Patrick McGreevy writes that a group of California lawmakers intends to introduce legislation to provide clear standards when rubber bullets can be used in crowd control.
Four lawmakers proposed revising current policy on use of the projectiles in response to incidents reported throughout the country by those who have been protesting the death of George Floyd, who was killed when a Minneapolis police officer used his knee to pin Floyd’s neck to the ground.
Injured protesters include a Dallas man who said he lost his left eye after being hit by a so-called less-lethal projectile, according to the Dallas Morning News.
In California, protesters have been bloodied and bruised when hit with rubber bullets. This week, Los Angeles Mayor Eric Garcetti said he had directed the LAPD to minimize the use of projectiles when dealing with peaceful protesters.
PG&E: For AP, Cuneyt Dil reports that at yesterday's hearing of Senate Energy, Utilities and Communications on wildfire preparation amidst the COVID-19 outbreak, the California Public Utilities Commission's Rachel Peterson and PG&E vice president Debbie Powell acknowledged that a major electrical grid improvement to sufficiently minimize the impact of power shutoffs when done so to protect against electrical line-caused wildfires.
PG&E had committed to installing nearly 600 devices by September to break up distribution lines so fewer people lose power when the utility proactively cuts electricity to prevent wildfires, as it did for the first time last year. Commission officials said the utility has fallen behind on those installations, although a company representative later said the utility still plans to meet the goal.
That’s “the area where we’re furthest behind,” said PG&E Vice President Debbie Powell, who is working on wildfire safety programs.
CALIFORNIA GREEN NEW DEAL: For CapRadio, Ezra David Romero reports on the likely death for the year of AB 1839 (Bonta), a plan to tackle climate change with a focus on environmental, health and economic justice for low-income, immigrant and communities of color.
“I can't tell you it was going to be the law this year, but certainly COVID made it much more difficult,” said its lead author, Oakland Democratic Assembly member Rob Bonta.
With the legislature focusing on fewer bills because of a greatly reduced state budget, Assembly Bill 1839 didn’t get a hearing. Bonta says that meant the bill won’t continue on this year, but the ideas baked into it could remain.
FALL OUT OF THE GAP: In the Chron, Shwanika Narayan writes that America's largest mall owner Simon Property Group has sued San Francisco-based Gap Inc. for $66 million in unpaid rent in what will likely be one of many landlord-tenant fights in the commercial sector.
In April, Gap Inc. stopped paying rent for stores that were closed and will remain closed during the public health crisis. In doing so, the company said it saved about $115 million. The retailer said it’s negotiating lease terms with landlords and could close some stores permanently, and it did reopen some stores in May in areas that allowed it to resume operations.
The nonpayment of rent did not sit well with Simon Property, with CEO David Simon telling analysts on an earnings call last month that, “The bottom line is, we do have a contract and we do expect to get paid.” The news was first reported by the Real Deal. Simon Property Group did not immediately respond to The Chronicle’s request for comment.
“We remain committed to working directly with our landlords on mutually agreeable solutions and fair rent terms. We are pleased with the progress we’ve made with many landlords as we’re reopening stores across the country, moving forward together towards growth,” Gap said.
In addition to fights with relatively small footprint stores, mall owners are staring into the abyss as AMC Entertainment, the world's largest movie theater chain has suggested that it might not survive the impacts of COVID-19. Meanwhile, anchor retailers from JC Penney to Nordstrom are also closing stores.
cakeday and classifieds after the jump...
CAKEDAY: Happy birthday to Nicole Curran, Assembly member Evan Low, and Carol Robb!