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Legislative Update: Dec. 13, 2019 - Initiative To Increase Income Tax Withdrawn


Initiative to Increase Income Tax is Withdrawn After Fiscal Impact Report

The California School Boards Association (CSBA) withdrew its personal and corporate tax increase initiative on December 4, one day after the Legislative Analyst’s Office (LAO) reported that the measure could prompt taxpayers to change their behavior, resulting in less funding for many public services.

The initiative would have increased the personal income tax for those earning over $1 million, implementing a progressive rate for the additional tax. The additional tax was proposed as follows: 2 percent for income of $1 million to $2 million, and 3 percent for income above $2 million.

The measure also proposed to increase taxes on corporations on their profits above $1 million. For regular corporations, the additional tax would have been 5 percent. For S corporations, the additional tax would have been 3 percent.

Last week, the LAO issued its Fiscal Impact Estimate Report. In summary, the measure would have increased tax revenue on high-income earners and corporations by $10 billion to $15 billion annually. This increase in funding would have been directed into a new account for K-12 school and community colleges. The LAO also suggested this measure may have decreased funding by as much as $2 billion or more annually for other public services.

Proponents withdraw this measure in light of potential conflict with another initiative that is attempting to enact a split-roll for property tax. CSBA added their effort is merely being postponed to the next General Election ballot in 2022.


Analyst Suggest to Legislature to Temper Budget Expectations

The Legislative Analyst’s Office (LAO) recently released its 2020-21 Budget: California’s Fiscal Outlook report and noted a projected discretionary reserve balance of up to $7 billion. The ongoing surplus ranges from under $1 billion to $3 billion in various expenditure scenarios.

Estimates from the LAO’s Fiscal Outlook project that state budget reserves will also grow. Total reserves are expected to reach $26 billion, including $18.3 billion in the Budget Stabilization Account.

In a follow-up to that report, the LAO issued an analyst perspective citing California is enjoying a positive fiscal outlook with the economic expansion in its 11th year. However, with many financial firms bracing for turbulence or a downturn, the LAO recommends the Legislature limit any new ongoing spending to a maximum of $1 billion. That would essentially leave roughly $2 billion of the estimated $3 billion of ongoing surplus unappropriated.

Of the roughly $4 billion surplus for one-time funding, the LAO lists “worthy considerations” for expenditure, including supplemental pension payments. They also recommend those one-time payments occur late in the fiscal year to ensure flexibility if any stress on budget resources emerge.

Overall, since California has been prone to exaggerated market fluctuations compared to the United States, generally, the LAO recommends caution when it comes to allocating surplus funds in the 2020-21 Budget.


CalChamber-Led Coalition Files Legal Challenge to Incoming Law Banning Arbitration Agreements Made as Condition of Employment

Written By CalChamber

On December 6, a coalition of businesses led by the California Chamber of Commerce filed a lawsuit to stop a new California law that precludes employers from enforcing arbitration agreements made as a condition of employment—and making it a crime for businesses to do so, even if workers may opt-out of arbitration. The incoming law, the complaint states, is preempted by the Federal Arbitration Act (FAA) and should be declared invalid.

“It doesn’t make sense to place businesses at risk for criminal penalties for a practice that has been favored by California and federal law, and consistently upheld by the courts,” said Allan Zaremberg, president and CEO of the California Chamber of Commerce. “While it may not serve the best interests of the trial lawyers, expeditious resolution through the arbitration process serves the interests of employees and employers.”

AB 51

This past October, Governor Gavin Newsom signed into law AB 51 (Gonzalez; D-San Diego), which the CalChamber had identified as a job killer. Effective January 1, 2020, AB 51 forbids employers from offering and entering into arbitration agreements for with their workers, even if the workers may opt-out of arbitration. 

The law sets substantial civil enforcement mechanisms, providing possible avenues for investigation and enforcement action by California state departments, and for lawsuits by individuals. 

Especially problematic is that the law establishes the extraordinary burden of criminal penalties as well, making it a misdemeanor to violate any part of AB 51’s restrictions, which is punishable by imprisonment not exceeding six months, a fine not exceeding $1,000, or both. 

“It is absurd that the Legislature has rejected additional criminal penalties to deter car break-ins, but is willing to impose criminal penalties for using arbitration agreements,” Zaremberg said. 

Preempted by Federal Law

The Supreme Court has explained that the FAA preempts both any state rule that “discriminates on its face against arbitration” along with any rule “that covertly accomplishes the same objective by disfavoring contracts that . . . have the defining features of arbitration agreements.” (Kindred Nursing Centers Limited Partnership v. Clark, 137 S. Ct. 1421 (2017)). 

The FAA similarly preempts any state law, “lodging primary jurisdiction in another forum, whether judicial or administrative.” (Preston v. Ferrer). Moreover, the U.S. Supreme Court has held that the FAA preempts state law rules that disfavor arbitration in connection with the formation of a contract, as well as rules that disfavor the enforcement of arbitration agreements. Restrictions that single out arbitration agreements or derive their meaning from that fact that an agreement to arbitrate is at issue “flout the FAA’s command to place those agreements on equal footing with other contracts” and are therefore preempted, according to the complaint (Kindred Nursing Centers Limited Partnership v. Clark). 

Due to AB 51’s conflict with federal law, the coalition’s complaint requests that the Court declare AB 51 invalid and order state enforcers to not apply the law. 

Benefits of Arbitration

Businesses routinely enter into arbitration agreements with workers, either as a condition of employment or on an opt-out basis, so that both parties can make use of alternative dispute resolution procedures. The Supreme Court of the United States, the complaint states, observed in Circuit City Stores, Inc. v. Adams, “there are real benefits to the enforcement of arbitration provisions...Arbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts.”

The complaint points out that arbitration provides workers with a fair and effective means of resolving their disputes:

Arbitration procedures are fair—the vast majority of agreements and the leading arbitration providers require fair procedures. If an arbitration agreement prescribes unfair procedures, courts can and will refuse to enforce the agreement.

Arbitration offers workers simple procedures that they can navigate even without a lawyer. That simplicity matters because many workers who have disputes are unable to secure legal representation, and their inability to obtain a lawyer creates insurmountable obstacles to bringing claims in court.

Arbitration is faster than litigation in court. As a recent study released by the U.S. Chamber’s Institute for Legal Reform found, arbitration cases in which the employee brought the claim and prevailed took, on average, 569 days to complete, while cases in court required an average of 665 days. Moreover, employees did better in arbitration than in court—in cases decided by an arbitrator or court (rather than settled), employees who filed claims won three times as often in arbitration—32% compared to 11%—and recovered an average award of $520,630 in arbitration compared to $269,885 in court.

Arbitration also lowers the costs of dispute resolution, which creates savings that in part can be passed on to workers through higher wages and consumers through lower prices.

More Information

The coalition’s complaint, which seeks only declaratory and injunctive relief, was filed against California Attorney General Xavier Becerra, Labor Commissioner Lilia Garcia Brower, Labor and Workforce Development Agency Secretary Julie A. Su, and California Department of Fair Employment and Housing Director Kevin Kish in their official capacities in the U.S. District Court, Eastern District of California.

A copy of the complaint can be found at https://advocacy.calchamber.com/wp-content/uploads/2019/12/19-AT-1142-1-Complaint-and-civil-cover-sheet.pdf.


Health Care Bills Set to Return in 2020

According to a recent story published by POLITICO, several Democratic state lawmakers are planning to pursue some of the most controversial health care bills that failed or stalled in the Legislature this year. Among those measures are proposals that expand health coverage, address provider shortages and address “surprise billings.”

Some of the two-year bills faltered under health industry opposition, while others needed more time to negotiate a compromise. 

The following bills will reemerge next month, according to lawmakers who spoke to POLITICO. (Please note, the summaries below were written by POLITICO.)

Hospital seismic safety: Senator. Anthony Portantino (D-La Cañada Flintridge) will take up CA SB758 (19R), which would ease standards requiring hospitals by 2030 to remain standing and fully operational after an earthquake. The California Hospital Association sponsored the bill to change existing requirements, which have a projected cost of up to $143 billion, according to a 2019 RAND Corporation study.

CHA President and CEO Carmela Coyle said earlier that California's seismic safety mandates are outdated and prohibitively expensive. The measure cleared the Senate this year but failed to advance in the Assembly under intense opposition from the California Nurses Association and other unions, which argue that hospitals have long had time to plan for building safety upgrades.

Portantino told POLITICO this week that he hopes "extra time over the break will help us build consensus" to "get it done now rather than continuing to delay action." Potential changes could address differences over cost and safety.

Surprise ER bills: Assemblyman David Chiu (D-San Francisco) will continue pressing forward on CA AB1611 (19R), which is intended to protect patients from surprise emergency room charges. It cleared the Assembly this year but stalled in the Senate Health Committee. Chiu blamed the California Hospital Association for killing the measure.

He said that as Congress debates federal legislation to ban surprise medical bills, political pressure is growing to end the industry practice of billing out-of-network charges when patients visit in-network hospitals.

"We went in this year with eyes wide open about how challenging the conversation would be and the likelihood that it would not be a quick one," Chiu said in an interview. He said he is "closely monitoring" federal legislation but regardless, California must act.

"The dysfunctionality in Washington means we have to redouble our efforts in California," Chiu said.

California's existing surprise billing law, CA AB72 (15R), targeted surprise doctor billing but didn't address out-of-network hospital emergency room charges. Chiu said the law has "confirmed this is a policy approach that works" and serves as a framework for his approach to ER bills.

The California Medical Association, meanwhile, wants to revisit AB 72 to adjust how disputes over provider reimbursement rates are resolved. Doctors argue that the current system favors insurers in billing disputes.

Nurse practitioner authority: CMA is also fighting a proposal from Assemblyman Jim Wood (D-Santa Rosa) to expand the authority for nurse practitioners to practice medicine without physician oversight.

He told POLITICO that he plans to pursue CA AB890 (19R) on a fast timeline next month after the bill stalled this year under heavy doctor opposition.

Medi-Cal expansion to undocumented immigrants: Sen. Maria Elena Durazo (D-Los Angeles) narrowed CA SB29 (19R) to cover undocumented seniors age 65 and older after Gov. Gavin Newsom this year expanded the low-income health program to young adults up to age 26.

Durazo withdrew her bill from consideration on the final night of session this year in exchange for a commitment from the governor to continue working on the policy. She said Newsom promised to her at the end of the 2019 legislative session that he would expand Medi-Cal to undocumented seniors in the next budget.

But Durazo said she's still pursuing SB 29 in case he doesn't follow through and said she has no doubt that it would pass the Assembly.

“I don’t have any reason to think the governor won’t live up to his pledge," Durazo said in an interview.

Although she wants the governor to expand Medi-Cal to all undocumented immigrants, her focus is seniors “because they’re the most vulnerable.” "We’re all paying for it in a ridiculous way, so really we need to cover all uninsured Californians," Durazo said. "This is not just an immigration issue."

Assemblyman Joaquin Arambula (D-Fresno) has not committed to pursuing CA AB4 (19R) to expand Medi-Cal to all undocumented adults after the bill died in the Senate. Spokesperson Felicia Matlosz said he is still interested in expanding coverage to everyone.

Mental health care: A spokesperson for state Sen. Jim Beall (D-San Jose) said he will pursue a new version of CA SB10 (19R), which would require the state Department of Health Care Services to establish a mental health peer support program. Newsom vetoed the proposal this year.

Beall's proposal would help people with mental health and substance abuse disorders address underlying issues by working with trained peer support specialists with similar experiences. Such programs are used in 40 other states, according to Beall. SB 10 would have required the state to develop it for Medi-Cal.

Newsom said in his veto message that the Legislature should consider the proposal during the budget process because it has significant costs. He also said his administration, lawmakers and counties should consider including peer support as part of an overhaul of the entire behavioral health care delivery system.

Beall spokesperson Katharine Burnham said he will reintroduce the proposal in a new bill, perhaps with some tweaks.