Legislative Update: Jan. 10, 2020 - Governor Releases 2020-21 State Budget

Governor Gavin Newsom Releases Proposed 2020-21 State Budget

Governor Gavin Newsom today submitted his 2020-21 State Budget proposal to the State Legislature which makes responsible investments in the state’s economic future while tackling head-on persistent challenges facing the state. 

California is continuing to build a strong economic foundation to anticipate potential risks. The Budget continues to grow the reserves in the Rainy Day Fund and assumes an additional transfer of nearly $2 billion in 2020-21 and an additional $1.4 billion over the remainder of the three-year forecast period. The Rainy Day Fund balance is projected to be $18 billion in 2020-21 and $19.4 billion by 2023-24. The Budget also: 

•     Maintains $900 million in the Safety Net Reserve.

•     Sets aside $110 million more in the Public School System Stabilization Account, bringing its total balance to $487 million.

•     Reserves $1.6 billion in the Special Fund for Economic Uncertainties to address emergencies and other unforeseen events. Overall, the Budget has $21 billion set aside in reserves.

The Governor is proposing to tackle the state’s affordability crisis, which continues to threaten working families who are burdened by the rising costs of health care and prescription drugs, and the sky-high costs of housing and rent. Last year, the state passed historic measures to expand access to health care subsidies for the middle class, approved the strongest renter protection law in the nation, and provided $1 billion in tax relief for working families through the expanded Earned Income Tax Credit (EITC), while investing in affordable housing production efforts.

The Administration has announced a new CalRx generic drug program making California the first state to create its own generic drug label and making the state’s generic prescription drugs available for sale to all Californians. The Budget transforms Medi-Cal to a more consistent and seamless system by reducing complexity and increasing flexibility and establishes a single market for drug pricing within the state.

The 2019-20 Budget Act included nearly $1 billion to enhance the state's emergency response capabilities. The 2020-21 Budget builds on this foundation with investments that further strengthen California’s ability to prevent and respond to fires and provide the state’s first responders with additional capabilities and support. The 2020-21 Budget enhances the Department of Forestry and Fire Protection’s operational capabilities by adding funding for new firefighters during peak fire season, increasing the number of year-round engines, and providing further relief coverage to support state firefighters’ health and wellness. This Budget also increases the use of technology by obtaining Light Detection and Ranging (LiDAR) data to better inform resources management and hazard assessment decisions, and establishes a new Wildfire Forecast and Threat Intelligence Integration Center to analyze data on wildfire risk.

The 2019-20 Budget Act expanded Paid Family Leave from six to eight weeks, moving two-thirds towards the goal of six months of paid family leave for two parents to bond with a new child. The 2020-21 Budget builds on that expansion by proposing to extend job protections to more employees, thereby expanding the number of families that can take advantage of this benefit.

As California enters a new decade, it must prepare for the jobs and economy of tomorrow. Rapid advancements in technology, automation, and artificial intelligence are reshaping the economy and the nature of work; and the state needs to better align data, policy and program analysis for the state's workforce training programs. The 2020-21 Budget includes funding to establish a new Department of Better Jobs and Higher Wages to consolidate the workforce functions currently dispersed across the Labor and Workforce Development Agency. It also funds the next $1 increase in the state’s minimum wage, bringing it to $13 per hour for most employees as of January 1, 2020. The Budget also proposes to reduce the minimum franchise tax for new small businesses, removing a barrier to entrepreneurship and job creation. Finally, the Budget allocates $53 billion to the state's infrastructure over the next five years, focusing on investments that underpin economic activity and create a sustainable and resilient California.

The full budget summary can be found here: http://ebudget.ca.gov/FullBudgetSummary.pdf.


Many Developments Emerge as Implementation of AB 5 Moves Forward

The much-anticipated rollout of AB 5, which codified the “ABC test” for determining worker classification, was confronted with some obstacles as it was approaching its implementation date. Uber, Lyft, and Postmates had already committed $90 million toward an initiative effort in response to the passage of AB 5 back in September 2019. Uber and Postmates, joined by two drivers, doubled down by filing a lawsuit in federal court alleging that AB 5 is unconstitutional. 

The lawsuit claims AB 5 violates parts of the United States Constitution that includes the Equal Protection and Due Process Clauses of the 14th Amendment, the 9th Amendment, and the Contracts Clause of Article I, as well as various parts of the California Constitution. The plaintiffs assert they are primarily technology companies that create, operate, and provide access to apps that facilitate the connection of consumers and independent service providers for the fulfillment of services. A major point in the suit is that the “targeting of app-based workers and platforms and treating them disparately from traditional workers violates the Equal Protection Clauses of the United States and California Constitutions.” 

There are at least two other pending lawsuits against AB 5, including one from the California Trucking Association based upon federal FAAA preemption and one by freelance writers based upon the arbitrary 35 article limitation for writers. 

The development of the lawsuit brought by the California Trucking Association saw a federal judge issue a temporary restraining order blocking the enforcement of AB 5 provisions upon truck drivers. This restraining order was based on a 1994 federal statute that prohibits states from making laws that affect the price, route, or service of freight-hauling motor carriers. 

Following up on many of the issues left unresolved, Assemblymember Lorena Gonzalez introduced AB 1850. Although the bill is in a placeholder form, known as a “spot” bill, actual language that will be amended into the bill is unknown but expected to include more exemptions that were brought up late in the Legislative Session last year. 

In his proposal for the 2020-21 State Budget, Governor Gavin Newsom announced that he set aside roughly $22 million to enforce the new worker classification law. The proposed allocation would largely help regulate the statute. The Department of Industrial Relations would get $17.5 million to deal with more people seeking to access workers’ compensation and to adjudicate more labor law violation claims; $3.4 million would go to train Employment Development Department staff and bolster hearings and investigations; and the California Department of Justice would get $780,000. 

As issues continue to arise, there will be continued efforts to add exemptions to the “ABC test” this legislative year. We will continue to bring you regular updates on this matter.


Senate Committee Grills PUC and Telecoms Over Service Outages

As California continues to grapple with wildfires on an annual basis, energy companies continue to seek ways to mitigate their impact. Preventive efforts have resulted in prescribing protocol known as Public Safety Power Shutoff (PSPS), where utilities take an active step to deenergize power lines during weather-related circumstances that heighten the possibility of fire.

The Senate Energy, Utilities, and Communications Committee conducted an oversight hearing as these PSPS events have led to unforeseen or unplanned consequences of limited or restricting communication access. During the hearing, it was noted the recent PSPS events have cut off the ability for emergency teams to effectively relay important information, such as road closures or locations of safety stations, to people escaping disaster zones.

Marybel Batjer, Chair of the Public Utilities Commission (PUC), and other commissioners validated concern of legislators and made clear the PUC has to ensure the reliability of the telecommunications infrastructure. Batjer noted that a significant source of the problem last year with accessing telecommunications systems came as a result of a lack by utility companies informing telecoms of where and when PSPS events would occur. That made it practically impossible for both telecom companies and emergency servicers to know where to deploy resources, such as backup generators and cell towers.

As reported by Politico, “AT&T and Verizon received the most attention during the hearing, with Commissioner Cliff Rechtschaffen referencing an April PUC report that found that the companies' service quality in California deteriorated over the past decade, driven by "persistent disinvestment," a focus on just on higher-income communities and a "failure" to upgrade infrastructure to withstand weather conditions.”

Overall, panelists agreed everyone needs to move beyond finger-pointing to address proper emergency response and avoid unnecessary service outages. Moreover, the PUC continues to work with utility companies to develop regulations for PSPS processes and ensure only necessary shutoffs occur and that power is restored within 24 hours for those affected communities.


But Wait, There’s More…

NAIC Profitability Figures. On December 30, the National Association of Insurance Commissioners (NAIC) released its Report on Profitability By Line By State in 2018. Per the report, the California workers’ compensation insurance line continued to perform historically well and earned a 14.3 percent return on net worth for the calendar year of 2018. As would be expected, the homeowners’ multi-peril business continues to be plagued with catastrophic losses. The return on net worth for that line in California was a negative 58.1 percent. Workers’ compensation outperformed the overall national numbers but only slightly. The homeowners’ national line saw a negative return on net worth for the second straight year, clearly driven by the California experience.

WCAB Rules of Practice Become Effective. The Workers’ Compensation Appeals Board (WCAB) announced on Thursday, January 2, that its new Rules of Practice and Procedure became effective January 1, 2020. Because of the limited applicability of the Administrative Procedures Act (APA) to the rulemaking process of the Board, the rules were submitted to the Office of Administrative Law and forwarded to the Secretary of State with little if any notice by the interested stakeholders. There were considerable concerns expressed about the rules, in particular, the Board’s granting of party status to lien claimants and language regarding “significant” panel decisions. The Board ignored most comments.

JLAC Reviews QME Audit Report. The Joint Legislative Audit Committee (JLAC) met January 7 to conduct a lengthy oversight hearing into the recent audit of the Division of Workers’ Compensation (DWC) into the management of the qualified medical evaluator (QME) program. QMEs evaluate injured workers when there is a dispute over whether a claim is compensable, the nature and extent of permanent disability, or the need for continuing medical treatment. The audit focused on four problem areas: (1) the continued drop in the number of QMEs, (2) the disciplinary process for QMEs, (3) the failure to revise the medical-legal fee schedule (MLFS), and (4) the failure of the DWC to monitor and improve the quality of QME reports. The Administrative Director of the DWC, George Parisotto, advised the Committee that the DWC was implementing the recommendations and stakeholders were holding ongoing meetings to revise the fee schedule. There was, however, a question of whether the drop in the number of QMEs was, in fact, creating the access problems claimed by the State Auditor and the California Applicant Attorneys Association (CAAA). Both the DWC and the California Workers’ Compensation Institute (CWCI) suggested that the method of selecting QMEs had more to do with the delays than the drop in the number of QMEs in the system.

The Chair of JLAC, Assemblymember Rudy Salas (D-Bakersfield), is also the author of Assembly Bill 1832 (Salas), which would greatly increase the medical-legal fee schedule. Introduced late in the session last year, it is not expected that the bill will be taken up by the Assembly Insurance Committee before the January 24 deadline. The subject matter of the bill, and other issues raised by the audit regarding the QME process, however, will likely be revisited in legislation yet to be introduced. 



Commissioner Lara Appoints Members to the Curriculum Board and the CIGA Board of Governors

Insurance Commissioner Ricardo Lara has appointed the newest members to the Curriculum Board and the California Insurance Guarantee Association (CIGA) Board of Governors that work to protect the interests of California consumers. 

The Curriculum Board oversees the development of prelicensing and continuing education curriculum for agents and brokers to uphold professional standards that protect consumers. This includes a list of preapproved courses of study as well as courses of study for professional designations. This Board also develops standards for providers and instructors who provide courses and other training to licensed agents and brokers.

Neal Bordenave, President & CEO of RiskPro Insurance Services, Inc., Jesse Dogillo, owner of Bay Area Financial and Insurance Services, and Mimi Yoon-Lee, Assistant Vice President for Investment Advisor Training at Lincoln Financial Network, have been appointed as the newest members of the Curriculum Board. The Commissioner noted their knowledge and expertise are intended to further the goal of ensuring a robust program of study to properly prepare licensees for the insurance business while protecting California consumers.

The CIGA Board of Governors oversees the guarantee association’s general operations and management in order to protect policyholders in the event of an insurance company insolvency. Established in 1969 by the Governor and California State Legislature, CIGA comprises all insurance companies licensed to sell homeowners, workers’ compensation, automobile, and other specified lines of insurance in California.

Richard De La Mora, Senior Vice President & Counsel, Head of Personal Lines and Strategy at Farmers Group, Inc., has been appointed as a new representative to the CIGA Board of Governors, which has the role of protecting California consumers from loss in the event that an insurer becomes insolvent.

The next Curriculum Board meeting will be held on Thursday, February 20, 2020, at the Department. The next CIGA Board of Governors meeting will be held on Wednesday, February 5, 2020. 


Legislative Update

Monday, January 6, marked the end of recess and the beginning of the second year of the Legislative Session. This week resulted in 90 new bill introductions, not including resolutions. Many of the introductions are placeholders and substantive language will be added prior to committee hearings.  

Energy & Utilities

AB 1915 (Chu D) Electrical corporations: deenergization events. If the Public Utilities Commission approves a wildfire mitigation plan that authorizes an electrical corporation to deenergize portions of the electrical grid, this bill would require the commission to adopt rules setting forth the circumstances under which a deenergization event may be undertaken and continued in effect and the appropriate geographic range of a deenergization event. Following a deenergization event, the bill would require the commission to determine whether the electrical corporation complied with the rules, and also determine if the entire duration and geographic range of the deenergization event were reasonable, as specified.

AB 1916 (Chu D) Deenergization: notification: languages. This bill would require an electrical corporation, by July 1, 2021, to conduct a survey of its customers asking each customer the language in which the customer prefers to receive direct communications from the electrical corporation and to list any medical needs that would require accommodation during a deenergization event. The bill would require the electrical corporation to provide direct communications and updates regarding the intentional deenergization of the electrical corporation’s distribution and transmission system to each affected customer in the preferred language of that customer.

SB 794 (Jackson D) Emergency services: telecommunications. Current law authorizes each county, including a city and county, to enter into an agreement to access the contact information of resident account holders through the records of a public utility or other agency responsible for water service, waste and recycling services, or other property-related services for the sole purpose of enrolling county residents in a county-operated public emergency warning system. Current law requires any county that enters into such an agreement to include procedures to enable any resident to opt-out of the warning system and a process to terminate the receiving agency’s access to the resident’s contact information. Current law prohibits the use of the information gathered for any purpose other than for emergency notification. This bill would expand these provisions to authorize a city to enter into an agreement to access the contact information of resident accountholders through the records of a public utility, as specified.

SB 801 (Glazer D) Electrical corporations: wildfire mitigation plans: deenergization: public safety protocol. This bill would require an electrical corporation to deploy backup electrical resources or provide financial assistance for backup electrical resources to a customer receiving a medical baseline allowance if the customer meets those conditions.

SB 802 (Glazer D) Emergency backup generators: health facilities: permit operating condition exclusion. This bill would require an air district to adopt a rule or revise its existing rules, consistent with federal law, to allow a health facility that has received a permit from the district to construct and operate an emergency backup generator to use that emergency backup generator during a deenergization event without having that usage count toward any time limitation on actual usage and routine testing and maintenance included as a condition for issuance of that permit. By requiring air districts to adopt or revise its rules, the bill would impose a state-mandated local program.

Labor & Employment

AB 1844 (Chu D) Paid sick leave: behavioral health conditions. Current law requires employers to provide their employees with paid sick leave that is accrued at a specified rate. Current law authorizes an employee to request a paid sick day for prescribed purposes, including diagnosis, care, or treatment of an existing health condition of, or preventive care for, an employee or an employee’s family member. This bill would expand the prescribed purposes to also include diagnosis, care, or treatment of an existing behavioral health condition of, or preventive care for, an employee or an employee’s family member.

AB 1850 (Gonzalez D) Employee classification. This bill would declare the intent of the Legislature to enact legislation that would further clarify the application of the California Supreme Court’s decision in Dynamex and recently enacted requirements under the Labor Code.

SB 806 (Grove R) Worker status: independent contractors: alarm services industry. Existing law exempts specified occupations and business relationships from the application of Dynamex and those provisions. Current law instead provides that these exempt relationships are governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. This bill would make nonsubstantive changes to these Labor Code provisions.


AB 1852 (Daly D) Property insurance. Current law requires the Insurance Commissioner to establish the California Home Insurance Finder on the Department of Insurance internet website to connect homeowners in need of insurance assistance to an insurance agent or broker for residential property insurance. This bill would require a notice of nonrenewal for a residential property insurance policy expiring on or after January 1, 2021, to be accompanied by a document that includes specified information, including an explanation of how the California Home Insurance Finder can help a person find a homeowners’ insurance policy and information about FAIR Plan policies.


SB 793 (Hill D) Flavored tobacco products. This bill would prohibit a tobacco retailer from selling, offering for sale, or possessing with the intent to sell or offer for sale, a flavored tobacco product, as defined. The bill would make a violation of this prohibition an infraction punishable by a fine of $250 for each violation. The bill would state the intent of the Legislature that these provisions not be construed to preempt or prohibit the adoption and implementation of local ordinances related to the prohibition on the sale of flavored tobacco products. The bill would state that its provisions are severable.


AB 1839 (Bonta D) Climate change: California Green New Deal. Current law establishes various environmental and economic policies. This bill would create the California Green New Deal Council with a specified membership appointed by the Governor. The bill would require the California Green New Deal Council to submit a specified report to the Legislature no later than January 1, 2022. The bill also would make various findings and declarations.

AB 1840 (Ting D) Recycling: reports. This bill would require the Department of Resources Recycling and Recovery, on or before January 1, 2022, to make recommendations to the Legislature on how to improve the California Beverage Container Recycling and Litter Reduction Act to increase recycling of beverage container materials within the state and increase consumer redemption convenience.

AB 1860 (Santiago D) Hazardous waste: facilities: permits. Current law, as part of the hazardous waste control laws, requires a facility handling hazardous waste to obtain a hazardous waste facilities permit from the Department of Toxic Substances Control. Current law requires an application for a hazardous waste facilities permit or other grants of authorization to use and operate a hazardous waste facility to include a disclosure statement, as specified. This bill would make a nonsubstantive change to the provision requiring the application to include a disclosure statement.


SB 800 (Dodd D) Horse racing: safety. This bill would state the intent of the Legislature to enact legislation that will address horse racing safety.