Well this legislative year is in the books…almost. In what could have been a disastrous year from a business perspective, things weren’t nearly as bad as they could have been. But that doesn’t mean it was good either! California definitely continued on its anti-business trend; but, it just didn’t go off the deep end!
As we went into the legislative session for 2019, we were looking at numbers in the Assembly of 61 Democrats, 18 Republicans and 1 vacancy. That’s not just a majority, it’s a supermajority! Similarly in the Senate, California has 29 Democrats and 11 Republicans. Again, a supermajority, and not a good sign for business. So with that in mind, let’s look at how we fared. Keep in mind there were over 2,600 bills introduced this year. Let’s look at the most pertinent.
AB 5: (Gonzalez): Worker status: employees and independent contractors.
This bill would state the intent of the Legislature to codify the decision in the Dynamex case and clarify its application. The bill would provide that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation or business. This bill contains numerous exceptions to the Dynamex test, however no exception was made for owner-operator truck drivers that serve the agricultural industry, which is where our biggest concern lies. It could mean that any of the truck drivers you contract with would now become your employees. This bill passed the Assembly 61-16, and the Senate 29-11, and was signed by the Governor.
AB 916 (Muratsuchi): Pesticide use: glyphosate.
This bill would have, until January 1, 2025, prohibited a city, county, charter city, city and county, or a special district, as defined, from using any pesticide that contains the active ingredient glyphosate. The concern here was the precedent that would have been set. Thankfully, this bill was held in the Senate Agriculture Committee and did not pass this year.
AB 1054 (Holden): Public utilities: wildfires and employee protection.
AB 1054 requires Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDC&E) to make $5 billion in safety investments, otherwise known as “system hardening”. This $5 billion is spent without the normal return on equity that the utilities normally receive, saving ratepayers hundreds of millions of dollars. This legislation also clarifies an issue whereby it allows cost recovery if the costs and expenses are determined just and reasonable based on reasonable conduct by the utility. The legislation requires the utility to bear the burden to demonstrate, based upon a preponderance of the evidence, that its conduct was reasonable. Going forward AB 1054 creates the “Wildfire Fund” which would be used to pay eligible claims related to a covered wildfire. Utility shareholders will contribute $7.5 billion initially and an additional $3 billion over 10 years to the wildfire fund. On the other side, ratepayers will be assessed a non-bypassable energy usage charge of $0.005 per kWh for 15 years. While this charge is new, ratepayers will not see a difference on their bills, because it will simply continue an already existing charge created during the energy crisis several years ago that was scheduled to end in 2020 or so. AB 1054 requires PG&E to resolve all pre-bankruptcy claims and achieve a California Public Utilities Commission (CPUC) approved reorganization plan that is neutral to ratepayers. Therefore, PG&E shareholders would be responsible for all liability claims from the 2017 and 2018 wildfires, which is currently estimated to be close to $30 billion! This bill passed the Assembly 63-10, and the Senate 31-7, and was signed by the Governor July 12, 2019.
AB 1080 (Gonzalez) and SB 54 (Allen): Solid waste: packaging and products.
This bill would enact the California Circular Economy and Pollution Reduction Act, which would impose a comprehensive regulatory scheme on producers, retailers, and wholesalers of single-use packaging and priority single-use products to be administered by CalRecycle. As part of that regulatory scheme, the bill would require CalRecycle, before January 1, 2024, to adopt regulations that require producers (1) to source reduce, to the maximum extent feasible, single-use packaging and priority single-use products, and (2) to ensure that all single-use packaging and priority single-use products that are manufactured on or after January 1, 2030, and that are offered for sale, sold, distributed, or imported in or into California are recyclable or compostable. These bills are very impactful to the agricultural industry, and an area we worked hard on this past session. Both of these bills were held on the floor, but we fully expect these to be taken up in the 2020 session.
SB 1 (Atkins): California Environmental, Public Health, and Workers Defense Act of 2019.
Arguably, this is the most controversial bill and would require specified agencies to monitor federal action and adopt federal regulatory standards through emergency regulations that existed before January 19, 2017 if a change at the federal level resulted in a less stringent standard. It would apply the California Endangered Species Act to the operations of the Central Valley Project, which caused the gravest concern, especially regarding the impact it may have on future water issues, including the unimpaired flow requirements and the Voluntary Agreements being developed to address them. The bill passed out of the Assembly 48-22, and out of the Senate 26-14. Thankfully, the Governor vetoed this bill on September 27th.
SB 86 (Durazo) and SB 458 (Durazo): Public health: pesticide: chlorpyrifos.
These two bills are the result of the ongoing pressure to eliminate the use of chlorpyrifos. SB 86 would prohibit the use of a pesticide that contains the active ingredient chlorpyrifos. SB 458 would prohibit the use of a pesticide that contains the active ingredient chlorpyrifos, but would make this provision effective unless and until the director adopts control measures for chlorpyrifos and the Director of Environmental Health Hazard Assessment and the chairperson of the State Air Resources Board determine, by clear and convincing evidence, that those control measures will not result in neurodevelopmental or other harm to children after taking into account the potential effects of consuming food or water contaminated with chlorpyrifos that was used in compliance with those control measures, and will not negatively impact sensitive receptors. Both bills were held in committee, primarily because the Administration moved forward with a two year phase-out of Chlorpyrifos.
SB 200 (Monning): Drinking water.
There has been a lot of discussion over the past few years to address drinking water, including the possibility of the state implementing a fertilizer tax or water fee to pay for the cleanup. This bill establishes the Safe and Affordable Drinking Water Fund in the State Treasury to help water systems provide an adequate and affordable supply of safe drinking water in both the near and long terms. The bill authorizes the state board to provide for the deposit into the fund of certain moneys and would continuously appropriate the moneys in the fund to the state board for grants, loans, contracts, or services to assist eligible recipients. The passage of this bill eliminated the need for the fertilizer tax and water assessment. The bill passed the Assembly 68-0, the Senate 38-1, and was signed by the Governor July 24, 2019.
SB 468 (Jackson): Taxation: tax expenditures: California Tax Expenditure Review Board.
This bill would establish in state government a new California Tax Expenditure Review Board as an independent advisory body to comprehensively assess major tax expenditures, as defined, and make recommendations to the Legislature. The bill would require the board to be composed of five members, as specified, who would serve without compensation. This bill passed the Assembly 53-21, and the Senate 28-10 and is headed to the Governor. Our biggest concern here is maintaining the ag sales tax exemption.
Budget Act of 2018
Summary: The final budget totaled $215 billion, and on June 13, the Assembly and Senate approved the budget sending it to the Governor for his signature. The final agreement included $100 million for Safe Drinking Water from the Greenhouse Gas Fund and a continuous appropriation of five percent of the Greenhouse Gas Fund with a cap of $130 million beginning in the 2020-2021 budget cycle. The Legislature and Governor also agreed to an allocation of $65 million to ag diesel engine replacements and $34 million for dairy methane reduction projects from the Greenhouse Gas Fund. This is a significant hit to the FARMER funding program, which is a priority for the ag industry; therefore, we are pushing the administration and the legislature to not only restore this funding in 2020, but increase it and lock it in for at least three years.
So while independent contractors are in question, we hope to sidestep a disaster when it comes to the voluntary agreements related to water, should the Governor follow through on his promise to veto SB 1. We avoided a limited ban on glyphosate, paying for all of PG&E’s liability from the wildfires, paying a fertilizer tax, and still got significant funding for tractor replacement. All in all, it could have been far worse.