But the governor’s proposed $170.7 billion budget ($122.6 billion general fund) for the 2016-17 fiscal year would lead to repeating that mistake when the next recession hits.

Revenues will plunge $55 billion over three years if an average recession hits next year according to the budget summary. That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. If the Legislature instead spends that $4 billion on new or ongoing programs, the deficit would balloon to $43 billion – larger than occurred during the Great Recession.

Recession Expected

California is in the seventh year of economic expansion. That makes it two years overdue for a recession, which has occurred every five years on average, according to Keely Bosler, chief deputy director of the California Department of Finance.

“While there is significant uncertainty in forecasts, there is one thing that is quite certain: and that is history,” Bosler told the Senate Budget and Fiscal Review Committee Jan. 19. “It’s this boom-and-bust cycle that this budget really aims to avoid going forward.” But she acknowledged that “the budget in the state of California does remain precariously balanced over the long term.”

Her cautionary words were echoed by committee Vice Chairman Sen. Jim Nielsen, R-Tehama.

“We must keep in mind that though times are a little bit better, some parts of our economy have not improved,” he said. “And therefore we must exercise constraint and not get overly ambitious. And that will be what governs our progress in the budget. Let’s not get overly ambitious, and let’s not let government get out of control.”

Examine the Department of Finance 2016 Budget Slides here

But Democratic legislators are eager to spend some of the budget surplus on ongoing social programs, particularly for the developmentally disabled, instead of socking it away in the state’s rainy day fund – despite the likelihood that doing so could once again bust the budget.

“It shouldn’t surprise any of us that a recession is at hand. The question is when, not if,” said committee Chairman Sen. Mark Leno, D-San Francisco. “At the same time, an additional $2 billion set aside in the rainy day fund above and beyond what voters told us they’d like to see in it – that I think will be at least part of the playing field of our debate.

“What is appropriate for continuing payment of debt and for reserves, at the same time recognizing that so many Californians who have been hurt at the time of the recession have not seen much recovery or reinvestment in the programs for which they rely for their quality of life?” Sen. Leno asked.

Rainy Day Fund

Proposition 2, passed in 2014, requires that $2.6 billion in this year’s budget be placed in the rainy day fund. Brown has proposed adding an extra $2 billion to the fund. That would bring the total to $8 billion (with previous funding), equating to two-thirds of the constitutional target of 10 percent of general fund revenues, according to Bosler.

But legislative analyst Mac Taylor warned the committee that, while it’s good to beef up state reserves, the Legislature would be unnecessarily tying its hands by going along with Brown’s extra $2 billion in the rainy day fund, which is known formally as the Budget Stabilization Account.

“We would caution you not to put extra money into the BSA,” Taylor said. “Once you put it in the BSA, it’s governed by the rules in the BSA. You can only take out half the monies, if you have a downturn, in the BSA. You might imagine a situation when you might want to take out more in the first year.”

Also up for grabs by the Legislature for whatever purpose it chooses is $1.1 billion from a tax on managed care organizations, an expenditure that Brown left unspecified, according to Taylor. In addition, he told the lawmakers that they could decide to siphon off some or all of the $2.5 billion Brown has proposed to spend on infrastructure, including $1.5 billion for state facilities.

Infrastructure Spending

“When it comes to one-time spending, the governor has focused on infrastructure,” said Taylor. “We think that’s a very positive thing. But keep in mind you have other one-time things that you can spend on. We have very high-cost pension and health retiree liabilities that are accruing costs at 7½ percent a year. So you may want to make additional payments to help fund those and pay those liabilities off. There’s no right choice.”

If the lawmakers do decide to spend the money on infrastructure, they should exercise more control on how it’s spent, instead of leaving it to the administration, Taylor said.

“You don’t want to lose control,” he said. “I think you’ve already lost way too much authority for capital outlay projects. You have given it to both university systems and the administration. Stop doing that. I think you should be exerting a lot more control over capital outlay projects.”

But Leno was more concerned about providing enough “human infrastructure” to help the state’s neediest residents.

Social Services Budgeting

“What I’m hearing is regarding developmentally disabled services that housing units are being lost, facilities are being closed,” Leno said. “Employees at the community-based organizations that supply services are leaving because the employees can find much better jobs than the $13-$14 per hour that some are being paid after 20, 25 years of service. What happens to that infrastructure?”

Taylor responded that there’s been a large growth in spending on the developmentally disabled due to the large increases in caseload. “But you can have just about every program and area of the budget come and tell you that they need a lot more,” he said.

Spending on regional centers for the developmentally disabled has grown by 24 percent in recent years, according to Bosler. “This is well beyond caseload and inflation,” she said. Contributing to the higher costs is California’s aging population, which requires more services and support, along with the rise in autism.

But Leno wasn’t satisfied, saying that the cuts made to social services during the Great Recession have yet to be fully restored.

“Do we want to suggest that even in these boom times that this is our new normal?” he asked. “Or do we have a goal of getting back to where we were at least in adjusted dollars to the 2008 level at some point? If not now, then the question is when. It certainly won’t happen during the next downturn, and quite likely we will have to make additional cuts. We continue to create a new normal level funding which is ever, ever lower.”

Power Over the Budget

Nielsen called the budgeting process itself into question, asserting that it gives too much power over spending to the governor.

“We’ve abdicated our authority over the budget,” he said. “I believe that we are almost making the Legislature irrelevant. Maybe we go through the exercise and pound our chest and try to think we’re important. And this has been a steady erosion over a long period of time.”

Taylor responded that budgetary authority is hard to get back after being given away. He cited the state’s ballot measures as contributing to the problem.

“Almost every initiative that has increased a tax in the last 20 years has dedicated the funds for particular purposes,” he said. “From a budgeting perspective, that’s just a terrible development. No matter how well meaning or how well purposed they may have been in the first year that that measure was passed, that’s not what budgeting is about. It’s about changing priorities, as you know, and being able to make decisions.”

Legislative budget committees plan to hold numerous hearings in the coming months to gain more insight into and provide input on the budget before the governor’s planned budget revision with updated revenue and expenditure figures in May.

Correction: Due to a reporter error, an earlier version of this article mistakenly reported that Assemblywoman Catharine Baker supports the extension of Prop. 30 taxes. Baker does not, in fact, support the proposed extensions. 

Steve Glazer – bald, bespectacled and mild-mannered – doesn’t look like a revolutionary. But the politically moderate Democratic state senator from Orinda hopes to be in the vanguard of a centrist coalition in Sacramento that challenges the Legislature’s entrenched partisan divide and loosens labor unions’ grip on power.

“[When] I ran, a big part of it was to break down the power that exists in Sacramento,” said Glazer at a town hall meeting in San Ramon on Nov. 30. “There is no center anymore. It’s a polarized place, from the left and from the right. It’s unhealthy, it’s very unhealthy.”

“Everybody is afraid to try to occupy that center because you lose,” Glazer continued. “So, part of the reason that I got into this was to try to break it down, and say, ‘Look, I run, I lose, it’s OK.’ But it’s an unhealthy process.”

Glazer’s candidacy in a May special election sent alarm bells to Sacramento’s biggest power player, organized labor, which spent more than $2.7 million attempting to elect union-friendly Assemblywoman Susan Bonilla.

In that campaign a union front group played a dirty trick in an attempt to siphon votes from Glazer. Posing as an Asian-American business group, they sent mailers touting another Republican candidate, Michaela Hertle, but failed to mention she had dropped out of the race too late to have her name removed from the ballot.

“Maverick” status

Glazer touted his political maverick status to the standing-room-only crowd in the Amador Rancho Center, site of the recent town hall meeting.

“In my first week in office – the pro tem in the Senate [Kevin de León] is the top guy – I voted against four of his bills in my first week,” he said. “People said to me, ‘Steve, the Chamber of Commerce supported them.’ In the first week I voted against two of their top priorities on the floor of the Senate.”

He added, prompting laughter, “I can’t find anybody that’s really that happy with me.”

A question about why things don’t seem to get done in Sacramento prompted Glazer to elaborate on his view of Sacramento’s polarized, unhealthy atmosphere:

“Some of it is intractable and difficult to solve,” he said. “It’s because these interest groups are so powerful. When you have a choice to be made as an elected leader between what you might think is better for your community or the powers in Sacramento, what does that really mean?

 

“It means campaign contributions. It means the organizers that come into communities, they don’t live there, and influence the decisions that are made in that local community. It affects independent expenditure campaigns.”

For two months last spring those IE groups flooded mailboxes daily with mailers featuring Glazer’s face. Half praised him as a fiscal conservative and maverick willing to buck the special interests in Sacramento. The other half denounced him as a tool of business interests, including tobacco companies.

Score Card

Several legislative report cards affirm that Glazer is one of the most fiscally conservative, pro-business Democratic legislators in Sacramento.

The Howard Jarvis Taxpayers Association gave him a “D,” which sounds bad, except that every other Senate Democrat but one (Sen. Richard Roth, D-Riverside) received an ‘F.’ Glazer voted with the HJTA 57.6 percent of 16 bills.

The California Taxpayers Association scored Glazer as voting with taxpayers only 50 percent of the time on targeted legislation. But that still made him the third most taxpayer friendly Democrat in the Senate.

Glazer did better on business legislation, according to the California Chamber of Commerce. He voted with business interests on 11 of 13 bills, which is the highest score among Senate Democrats. Most Democrats voted the Chamber’s way only three or four times on those bills.

After casting more than 1,300 votes in his six months in office, Glazer said one of things he’s most proud of is his 100 percent voting score from the California League of Cities. It was based on votes on 15 bills mostly dealing with local control but also with marijuana, economic development and affordable housing.

Local Control

As part of his crusade for more local control, Glazer is cosponsoring Senate Bill 799. It would raise a state-imposed cap on local school districts’ reserve funds. The union-backed cap was designed to free up school district funds for increased employee compensation, according to the Contra Costa Times.

“The whole school district cap issue happened because all the power was in Sacramento,” said Glazer. “Think about it. It’s not just about we here engaged locally concerned about your local control, your local choices.”

He continued, “They, excuse my language, they – how do I use better language? [audience laughter] – they stepped on every school district in the state. Every legislator made the choice to step on every school district in their district to create an artificial cap because of that power, that grip that exists in Sacramento on school policy. It’s very unhealthy, but it’s a great example.”

Several attempts to remove the cap failed this year, but six Democratic senators who voted for the reserve fund cap have signed onto Glazer’s bill.

Bipartisan Cooperation

In an example of the bipartisan cooperation Glazer is hoping to increase in Sacramento, the town hall was co-hosted by Republican Assemblywoman Catharine Baker. She recently celebrated her first anniversary in office after fighting a similarly expensive, divisive election campaign against a union-backed Democrat.

She received 51.6 percent of the votes in a district with 32 percent registered Republicans, and is the only Republican state lawmaker in the Bay Area.

Baker is more fiscally conservative than Glazer. She received a “B” from Jarvis and a 100 percent score from CalTax.

No one in the Assembly, including all of the Democrats, scored higher than Baker’s 86 percent on the League of Cities report card. She received the same score as Glazer from the Chamber.

All of that commonality, including overlapping districts, has engendered a mutual respect society with each legislator praising the other at the town hall and urging a new way of doing things in Sacramento. In Glazer’s words:

“It’s the center we are trying to build and occupy. Both of us here, we see the value of bipartnership, in partnering, in building that center so it will be more reflective of what we are here to represent.”

 

“We wish every place was like San Ramon, but it’s not. But we are trying to break it down. We are creating a cluster here that’s very unusual in the state. A Democrat supporting a Republican, a Republican supporting a Democrat.

 

“So we are creating a cluster here of independently minded representatives that is unique in California. It’s part of the excitement of what we do. We are trying to recruit to find more members like that who want to join our centrist party.”

Baker is moving a companion measure to lift the school district reserve cap, Assembly Bill 1048, through the Assembly.

Californians exceeded the state’s 25 percent water conservation mandate in October for the fourth month in a row. That might be good news for a parched state, but it’s also drying up the coffers of many water districts, some of which have raised rates to help make up the loss.

Ratepayers are in essence being punished for obeying the state order to conserve water – something they thought would save them money. That has officials like John Laird, secretary of the California Natural Resources Agency, scrambling to explain.

“In some places people see costs go up, and think they conserved and did a great job, and yet the fixed costs are the same. And it is very confusing,” Laird acknowledged at a Nov. 17 hearing by the Select Committee on Water Consumption and Alternative Resources.

“It flies in the face of the public’s general view that if you pay more you should get more, as opposed to you might have to pay more to get what you get now,” Laird continued. “As opposed to if the system collapses because there’s no investment you might have to pay more to get a lot less. And that is a very hard concept to explain to the rate-paying public in a way that they get it.”

Water and Power Departments’ Budgetary Woes

Los Angelenos have reduced water use by 18 percent, according to the Los Angeles Department of Water and Power, which has resulted in a $110.7 million hit to the agency’s budget. LADWP is now proposing a $57.6 million rate hike to recoup a little over half of its losses.

Other districts that have passed or are considering conservation-related rate hikes include the Contra Costa Water District, the East Bay Municipal Utility District and the San Diego Public Utilities Department, according to Reuters.

“It doesn’t seem intuitive that I’m using less water, but I’m paying more,” said Assemblyman Rich Gordon, D- Menlo Park, who chairs the committee. “How do you explain that to the public?”

Mark Cowin, director of the California Department of Water Resources responded, “I would agree that getting this message across that we’re going to expect ratepayers, and taxpayers for that matter, to pay more to hopefully not lose more than they would have otherwise, it’s a tough message,”

He cited the proposed $15 billion Delta pipelines project, known as the California WaterFix, which is expected to be funded largely through rate hikes.

“Why would we expect water users in southern California, the Bay Area and the Central Valley to pay more to get the same amount of supply they are now?” said Cowin. “Well, we have to make the case that sustainability is worth the price we are asking people to pay for.”

Climate change can actually help state officials make that case to the public, he said.

Messaging to the Public

“I think we have as good an opportunity now as we ever have,” Cowin said. “We’re in this unique opportunity right now where we’re messaging to the public: keep conserving water because we might have a fifth year of drought, plus prepare for a potential Godzilla El Nino flood event. That really is what we are looking at as the new normal for California extremes.”

Cowin continued, “So we have got to be able to message better that global climate change leads to these extremes, [which] means that the typical inexpensive sources of water are a thing of the past. And more expensive options are a part of the future.

“We’ve been lucky for decades or generations that we’ve had relatively inexpensive water throughout California, some more expensive than others. But, moving forward, water is going to be more expensive and we’re going to have to pay for it.”

Increasing Water Use Efficiency

One way to keep costs down is to use water more efficiently. Currently, much of California’s treated wastewater ends up dumped in rivers and streams. California should follow Israel’s model and instead spread that treated effluent on farms and orchards, said Eilon Adar, a professor at Ben-Gurion University of the Negev, via Skype.

“Water is still being used in non-responsible ways,” he said. “You waste water. Cities in the Bay Area, they produce a lot of effluence that cannot be used in the Bay Area. However, if diverted about 150 miles to the south there are places in California that can appreciate this water.”

The state definitely can do more with recycled wastewater, said Peter Gleick, president of the Pacific Institute. Only about 13 percent of California’s wastewater – 600,000 acre-feet – is currently recycled. He believes the state will meet its targets of annually producing 1 million acre-feet of recycled wastewater by 2020 and 2 million acre-feet by 2030.

“That’s an enormous amount of water,” Gleick said. “That’s water that we already have, that we already capture and treat and throw away into the ocean. Let’s put that to use.”

Gleick said he’s also concerned about “massive over-pumping of the groundwater. There’s been this long-term inexorable drop in groundwater. Groundwater is a resource, but we’re over-tapping it. And that’s unsustainable, and we know that that’s a problem.”

He continued, “There’s been enormous progress in capturing water use efficiently and developing local supplies. We are, however, still living beyond our means. We are taking too much water from our rivers and streams and especially in our aquifers. Even in wet years we over-pump our aquifers. That is unsustainable.”

On the plus side, nearly doubling the amount of groundwater pumping has helped the state’s $54 billion agricultural industry weather the drought, according to Jay Lund, director of the Center for Watershed Science at UC Davis. About 70 percent of the lost surface water was made up by groundwater.

As a result, despite four years of drought, state agriculture has lost only about 4 percent in net revenue and about 10,000 jobs, he said.

“It’s amazing to have this drought with this relatively small effect,” Lund said. “We will always have drought in California. It’s like the East Coast having hurricanes.”

He agreed with Cowin that weather extremes like drought have the benefit of reminding the public about the state’s ongoing water needs.

“Droughts bring attention to where water management is not keeping pace,” said Lund. A Dutch engineer told him “in the Netherlands they need to have a threatening flood every generation to remind them that they have water problems. California is a dry place susceptible to floods. It’s useful for us … to see droughts and floods from time to time.”

The committee plans to hold a hearing in December in Los Angeles on desalination and one in January in Sacramento on recycling and reclamation issues.

“Sometimes you have to eat the elephant one bite at a time,” Reed told the Contra Costa Taxpayers Association at an Oct. 30 luncheon. “So these are bites out of this elephant that’s $350 billion big.”

Reed and former San Diego City Councilman Carl DeMaio have submitted two initiatives that would limit pension plan benefits for government employees hired after Dec. 31, 2018.

Third Time the Charm?

Reed and DeMaio are hoping the third time is the charm. Previous pension reform efforts last year and in June were canceled due to concerns about ballot descriptions by Attorney General Kamala Harris.

The first initiative, The Voter Empowerment Act of 2016, requires voter approval before governmental agencies can enroll new employees in pension plans and increase their pension benefits. Voters also must approve if an agency wants to pay more than half of the total cost of retirement benefits for new hires.

In addition, the initiative would prevent retirement boards from imposing fees or other punishments on governments that don’t allow new employees to participate in a pension plan. The California Public Employees Retirement System requires its member agencies to pay three-to-five times the cost of their unfunded liability in order to opt out of the system, according to Reed.

These changes are needed, according to the initiative, because “state and local governments face elimination or reduction of essential services because of costly, unsustainable retirement benefits granted to government employees. Almost all of these benefits were granted without the consent of voters.”

The other initiative, “The Government Pension Cap Act of 2016,” limits government contributions for new employees at 11 percent of base compensation; 13 percent for new safety employees. It also requires voter approval before an agency can pay more than half of the total cost of retirement benefits for new employees.

“We are trying to empower the voters,” said Reed. “Either of these two initiatives would have a significant impact on the cost of new employees.”

Those costs are increasing rapidly, according to Reed. In the next five years, state and local governments will need to increase contributions by 50 percent to CalPERS. This is resulting in less state funding for universities, courts, roads, social services, parks and recreation, Reed said.

Price of Pensions

School districts have it even worse. Their contributions to the California State Teachers Retirement System will more than double in five years.

“Where the money goes determines the priorities of the state,” Reed said. “And we are putting our money, I believe, into the wrong priorities.”

Failure to correct those priorities will result in more jurisdictions going bankrupt like Stockton, Vallejo and San Bernardino, he said.

“The people in those cities suffered; the employees working in those cities suffered,” he said. “And we need to avoid that. And so, giving local governments some things they can do to deal with their problems has been the focus of the initiatives.”

A successful pension reform initiative campaign will require $25 million, in addition to the $2-3 million for signature gathering, Reed said. He anticipates raising much of it from Silicon Valley executives wanting to avoid future tax hikes as well as from pension reform advocates around the country.

If they are successful, California will begin making a dent in its unfunded retirement benefits liability, he said.

“Although we acknowledge this will not solve the $350 billion problem,” he said, “if these initiatives were passed, we could save money on new employees that will allow us to help pay down that $350 billion of unfunded liabilities. This is not a solution to those unfunded liabilities, but it would be helpful.”

Potential Savings

The savings could be significant, according to a state Legislative Analyst’s Office analysis of Reed’s June initiative, which also was called the Voter Empowerment Act of 2016. It’s similar to the current VEA, but also allows voters to decide compensation for current employees.

“It is likely that [pension] benefits would be reduced or eliminated in many jurisdictions,” the LAO said. “These changes would reduce governmental employer costs significantly in the future.”

Critics of Initiatives Speak Out

Naturally, the public employee unions are opposed to benefit reductions for their current and future members. Three people handed out leaflets outside of the luncheon at Back Forty Texas BBQ in Pleasant Hill that were critical of Reed, DeMaio and their initiatives.

“These two former politicians are currently championing a State-wide initiative approach to destroy retirement security for all new employees that would chose [sic] to work in the public sector, including law enforcement, firefighters and teachers,” said Mike DeBord, a committee co-chairman of the California Retired County Employees Association, in an essay titled “Pension Reformers Continue Their Long List of Failures.”

In another piece, “Proponents Still Trying to Undermine Retirement Security,” DeBord said that the “initiatives would amend the state constitution and erode retirement security for public employees, targeting new hires. If any are approved by the voters, they would likely be subject to many costly and lengthy legal challenges.”

Vested Rights

But the luncheon’s other speaker, Contra Costa Times columnist Dan Borenstein, believes Reed’s initiatives don’t take a large enough bite out of the $350 billion elephant. He wants Reed to challenge state judicial rulings specifying that pension benefits for current employees can be increased but not decreased.

“It’s a one-way ratchet,” said Borenstein. “Someone likened it to a mouse trap.”

Pension reforms would not affect benefits that have already been accrued; only accrual rates for future work would be affected, he said. Borenstein said he’s aware of the political headwinds that an initiative challenging vested rights would face, but he asked Reed to take on that more substantial fight.

“Aside from politics, why not challenge the vested rights question?” Borenstein asked. “And if you don’t, how much are you really accomplishing?”

But given California’s political climate, Reed said the focus has been on getting an easily understandable and supportable initiative on the ballot.

“Something that’s hard to misconstrue,” Reed said. “Although this is a political campaign – truth is never really a limitation of any political campaign in California. So we know they’ll be misconstrued. But we want people to be able to pick it up and decide for themselves.”

The legislative analyst will begin a financial analysis of the initiatives probably on Nov. 9, according to Reed, with the attorney general filing titles and summaries by the end of the month.

After that, “we’ll do some polling, try to decide what to do,” said Reed. “And hopefully we’ll be in a position where we’ll actually have these in front of the voters in November of 2016.”

CalPERS’ proposed Funding Risk Mitigation Policy would slightly lower its expected investment return, also known as the discount rate, in good investment years.

Specifically, it would reduce the discount rate by 0.05 percentage point when the investment return is at least 4 percentage points above the discount rate. Currently the discount rate is 7.5 percent, so the investment rate threshold would be 11.5 percent.

An alternative under consideration would lower the discount rate when investment returns are 2 percentage points above the discount rate.

The problem with the 11.5 percent threshold, according to critics, is that it would result in CalPERS not doing enough to lower its investment risk. In only half of the past 10 years were investment returns above 11.5 percent. Returns were just 6.5 percent last year, and they were 2.4 percent in the first half of this year.

As a result, it could take 25-plus years, perhaps never, for CalPERS to lower its discount rate to 6.5 percent, Eric Stern, a DOF budget analyst told the CalPERS board on Oct. 20. “We do feel that the strategy to lower risk only in exceptionally good years really continues to expose the fund to too much risk over the coming decades,” he said.

Taxpayer Dollars at Stake

Millions of taxpayer dollars are potentially at stake. Investment earnings account for two-thirds of CalPERS’ income. More than 3,000 government employers provide 21 percent of the system’s income. The remaining 12 percent comes from CalPERS’ 1.72 million members, nearly a million of whom are no longer active.

When the expected rate of return on investment is lowered, the difference must be made up by contributions from state and local governments, school districts and current government employees. That would likely result in less funding for other government services and/or the need for tax hikes.

Despite that, in order to be more fiscally responsible, CalPERS should reduce its discount rate to 6.5 percent, according to Stern.

“We are really looking for stability, predictability, some more certainty with our contribution rates,” he said. “Acknowledging that investment returns are likely to be lower at some point in the future and have some significant dips, means that local governments are going to need to start paying more money now to pay for those promised benefits.

“We need to implement these changes now, sooner rather than later, instead of waiting for those future investment returns that we can’t really even count on. It would create more stable rates for governments and allow governments to plan for these higher costs in the future. Instead of delaying the impact and leaving the state and other employers to even higher rate shocks in the future.”

Danger of Recession

A recession, which is due according to some economists, could hit CalPERS’ $292 billion investment portfolio hard. Sixty-three percent of its investments are in growth assets, mostly stocks. These have the potential for good returns such as CalPERS’ 16.2 percent gain in 2013, as well as bad returns like its 27.1 percent loss in 2008. Much of the rest is invested in less risky assets such as bonds and real estate.

Stern acknowledged that the CalPERS board appears set to adopt the proposed policy to reduce risk only in very good investment years. But he asked the board to reconsider and instead phase in a lowering of the discount rate to 6.5 percent over the next five years, regardless of the investment returns during that time.

Richard Costigan, who was chairing the Finance and Administration Committee meeting, acknowledged that the Department of Finance’s concerns are legitimate, given market volatility and the aging of CalPERS’ membership resulting in increased pension payouts.

“At the end of the day, where Finance would like us to go I do think is the right place to go,” he said. “I don’t think we’re going to get there. Long-term the market has done exceptionally well. But when you look at the short term snapshots … our workforce is getting older, we are getting less people.”

But the discussion indicated that it’s unlikely the board will grant Stern’s request. In fact, board member Ron Lind pointed out that the board has never set a 6.5 percent discount rate target.

Mitigating Risk Going Forward

Much of the discussion concerned board member Bill Slaton’s suggestion to lower the threshold trigger to 2 percentage points above the discount rate. That equates to investment returns of at least 9.5 percent, which have been achieved in seven of the last 10 years.

“I have been an advocate for a more, you can use the term ‘aggressive,’ but I would like to say just more structured, small increments that employers could tolerate, but at the same time moving quicker to reducing our risk,” said Slaton.

“I think we face a tremendous amount of risk going forward. We’ve spent the last year and a half talking about that risk, talking about an aging workforce, talking about the ratio difference in active [employees] versus retirees. We’ve obviously spent a lot of time on market volatility. We’ve experienced that recently.”

He continued, “I think [2 percentage points above discount] is a modest enough change. I think it’s not going to have a radical impact over time on employers. But I think it sends a message that the priority here is risk mitigation.”

He was backed by board member Richard Gillihan. “I think we are missing an opportunity in putting off the day of reckoning,” he said. “And it may come back and bite us.”

Also supportive is Dana Hollinger, who said, “I would prefer something with more certainty. Because I think going forward we’re in for some challenging times. My goal has always been to mitigate risk and make sure that these benefits are sustainable.”

Minimizing Damage to Municipalities

But other board members prefer the 4 percent threshold, worried about the financial hit to governments and their employees. “We can’t ignore the fact that over the last several years employers have noticed large rate increases they are still dealing with,” said Lind.

Theresa Taylor is also on board with the 4 percent threshold. “There are public agencies that don’t have the money to move forward on a policy to reduce our risk right now,” she said.

“I agree we need to reduce our risk,” Taylor continued. “I think it’s very important that we are working to reduce the risk. But it’s also important that we don’t hurt taxpayers and municipalities by doing it so that too much is being taken away from the municipalities that are already struggling with their rates increasing.”

J.J. Jelincic may be the hardest line supporter of the status quo, arguing for keeping the discount rate at 7.5 percent in perpetuity. “I understand that we’re under a lot of pressure to reduce our assumed rate of return because people think it’s too high,” he said. “Much of that pressure is coming from people who are opposed to defined benefit plans and people who buy Knight-Ridder newspapers.

“This may be the best idea since sliced bread, but our job is to balance risk. Over the long-term I think 7½ percent is probably doable – this year, next year probably not. But we don’t run the system for this year or next year.”

Slaton countered that it may not be doable, pointing out CalPERS’s retirement plan is only 75 percent funded. “If we had another [market crash] event similar to the event we had in 2008, then we reach a point where we can’t recover,” he said. “It is an asymmetric curve in regard to downside versus upside. The impact of the downside is much more intense and we need to be focused on it.”

Costigan agreed to place both the 2 and 4 percent threshold options on the Nov. 17 agenda when the policy comes back for a second reading. The board plans to adopt the policy by the end of the year.

Brown also said the problem is so complex that it’s likely no one knows how to solve it.

Emissions Targeted

The governor conveyed his warning at the California Air Resources Board’s Oct. 1 workshop, “California Climate Change Scoping Plan: 2030 Target.”

The 2030 target reduces California’s greenhouse gas emissions to 40 percent below 1990 levels in the next 15 years. Brown also designated a 2050 target: emission reduction to 80 percent below the 1990 level.

The 2030 target is “the most aggressive benchmark enacted by any government in North America to reduce dangerous carbon emissions over the next decade and a half,” said Brown in an April 29 statement.

The governor began his remarks at the workshop with an admission of ignorance on climate change science.

“I come today because this is a topic that is not easy to grasp,” he said. “It’s complicated. The more you dig into controlling air pollution or measuring greenhouse gas emissions or attempting to understand the [climate] models that examine and attempt to predict how world climate patterns will change over time, it definitely is a very complicated science that we mere lay people just get little glimpses of.”

That complexity makes it easy for climate change skeptics to disseminate misinformation, according to Brown.

“It allows people who have bad motives or soft minds to then raise doubts that are not based on science or facts, but are able to be communicated without people reacting with total ridicule,” he said. “And it takes enough knowledge that it’s hard to be in this conversation at any level of depth.

Relying on Climate Scientists

Brown said we should rely on climate change scientists who “have clearly stated that human beings and the industrial activity of our modern lives is affecting climate by building up heat-trapping gases, and that the effects over time will be catastrophic.”

“When and how all of that unfolds is something that cannot be said on a precise date,” he continued. “But we know with a high degree of confidence that we are facing an existential threat to our well being and the well being of the generations that come afterwards.”

Brown acknowledged that the public has thus far been largely indifferent to the climate change issue, ranking it well below crime and jobs among issues they are most concerned about. That indifference or ambivalence may be due to the omnipresence of fossil fuels in the quality of our lives.

“What we are looking at is making a shift in the way life shows up,” Brown said. “We are who we are because of oil, coal and natural gas. Fossil fuels is what makes it. I assume that most of the people here are here because fossil fuels got you here, clothed you, medicated or whatever way you are functioning as a modern person, you are dependent on fossil fuels.

“So when we say we are going to reduce [emissions by] 10 percent, 20 percent, 40 percent, we are setting forth a huge challenge that is very easy to state. But anybody who has any understanding of what is implied by what is being called for, realizes this cannot be done lightly or without a mobilization globally that we have never seen before outside of time of war.”

Potential Economic Meltdown

Brown, citing a Sept. 29 speech by the Governor of the Bank of England Mark Carney, warned there is a potential for a global economic meltdown when energy companies are forbidden from using up to a third of their fossil fuel resources.

“Once it becomes conventional wisdom, once we get it that climate change is going to be catastrophic and that becomes clear and vast majorities of people at all levels of society agree with that, it may be too late because we’ll be too far down the road,” he said.

“If the oil and gas companies are undermined, the financial system itself can be undermined. We can’t wait until everybody gets it. We have to start now.”

Brown said the state’s current annual output of 460 million tons of carbon dioxide-equivalent emissions must be reduced to 431 million tons by 2020 and down to 260 million tons by 2030.

“To go from 460 where we are to 260, that takes heroic effort, scientific breakthroughs, massive investments, a lot of cooperation and a political understanding that does not exist today,” he said. “So this is not stuff for amateurs. This is quite challenging.”

“It’s a political problem,” Brown continued, “but also it’s a technical problem. And it’s going to require a lot of breakthrough, a lot of research and billions, tens of billions of dollars, invested by many, many different sources.”

It will also require Californians driving a lot less, he said, by living closer to where they work and telecommuting. “Californians drive over 330 billion miles a year – 32 million vehicles of various kinds moving around on almost entirely fossil fuel,” he said. “We’re going to reduce and take fossil fuels out of our lives and out of the economy.

“And we’re going to creep our prosperity and ability to keep inventing and improving the quality of everybody’s life. And not only here, but we’re going to do it all over the world. And we’re going to add a couple billion people besides and probably another billion cars.”

Changing Lifestyles

The governor admitted, “How the hell we do that, probably nobody knows. But the people who have the best understanding and the best capability to do things [are] right here.”

Brown acknowledged that it will be a big challenge convincing people to change their lifestyles. He also admitted that even getting the conversation started is tough:

In my world of politics this is … a dark reality that you just can’t even talk about. Because it’s too obscure, too complicated, it’s not high in the polls, “don’t bother me now.” But if that mood persists … it will be too late then, and there will be a real catastrophe.

People don’t like to think that something horrible could happen. We all like our happy time news in the morning. But you got to see it, and then we have to take steps to make sure it doesn’t happen.

This is about taking the steps to deal with fuels, the investment in biofuels, [energy] efficiency in appliances and buildings, across the whole range of how our modern civilization works, within the limited reach that the Air Resources Board has confidence and the legal authority to do, which is quite a lot. Everything that can be done will be done. California will do what it has to do.

Leading the Way

Brown believes California is setting an example other states and countries will follow.

“People know about California, people are watching what’s going on, and there’s a lot of goodwill to get us to the goal,” he said. “Of course, it’s going to take a lot more than goodwill. It’s going to take billions, trillions of dollars. And it’s going to take commitment all over the world.”

Brown’s pep talk received a standing ovation. After the applause died down, CARB Chairwoman Mary Nichols said, “You can see why I get up raring to go to work every morning.”

Facing Opposition

No one at the workshop questioned whether California’s efforts will do much to prevent the planet’s climate from changing, and whether the cost will be worth it.

But state Sen. Andy Vidak, R-Hanford, issued a statement on Oct. 7 in opposition to Brown signing into law Senate Bill 350, which mandates an increase in renewable energy among other emission reduction actions:

The district I represent is still reeling from the Great Recession and the devastating years-long drought. Too many people in rural and inland communities are impoverished; standing in food lines because they can’t find work to make ends meet.

Senate Bill 350 is a devastating measure that will force already-struggling families deeper into poverty by drastically increasing energy costs that are already some of the highest in the nation.

It’s wrong when parents have to choose between the necessities of keeping the lights on and feeding their children. The governor’s signature on SB350 kicks folks while they are down. It is a selfish gesture designed to fluff up his “legacy” and pander to coastal elites’ “environmental” self-righteousness.”

The impact on most Californians from the state’s climate change regulations has been minimal thus far. The state has been averaging a 1 percent reduction in greenhouse gas emissions annually. That pace is projected to continue through 2020, and is enough to meet the 2020 reduction goal.

But residents and businesses will be hit harder after that. Emissions will need to be reduced by at least 5.2 percent annually from 2020 to 2030 in order to meet the 2030 target.

“This gives an indication of the challenge of the work that we have ahead of us in the scoping plan to develop an approach, to develop a set of measures that can contribute to and achieve this ambitious greenhouse gas reduction level for 2030,” said ARB Assistant Executive Officer Michael Gibbs.

An analysis of the economic impacts of the climate change regulations will be conducted as a part of the scoping plan. No cost estimates were provided at the workshop, but several officials in addition to Brown said that billions of dollars in increased funding will be required.

“Investment in [energy] efficiency [in buildings] will need to be quadrupled or quintupled from today’s levels in order to reach the scale necessary to meet the 2030 and 2050 goals,” said Patrick Saxton, representing the California Energy Commission. “Clearly this is much more than ratepayers and taxpayers can fund on their own.”

Regional workshops on the scoping plan will be held this fall; the Air Resources Board will receive an update on Nov. 19. The draft plan is scheduled to be released in spring 2016. The final plan is expected to be approved in fall 2016.

A state audit report in December 2014 chronicled the California Department of Health Care Services’ years of dental neglect of California’s low-income and disabled residents, including more than 5 million children. “Health Care Services’ information shortcomings and ineffective actions are putting children enrolled in Medi-Cal – child beneficiaries – at higher risk of dental disease,” the report said.

More than 12.5 million low-income and disabled Californians receive health coverage from Medi-Cal. The program has a $94 billion budget; $1.3 billion of which goes to Denti-Cal.

Lack of Denti-Cal Providers

The biggest problem for Denti-Cal patients, particularly those in rural areas, is lack of access to a dentist. Fifty-five percent of California counties may have “an insufficient number of dental providers willing to accept new Medi-Cal patients,” the audit said. That includes five counties, which may not have any Denti-Cal providers, and 11 other counties that have Denti-Cal providers but they are not accepting new Denti-Cal patients.

The reason is that dentists lose money treating Denti-Cal patients. California’s reimbursement rates for 10 common dental procedures averaged $21.60 in 2012, according to the audit. That’s only 35 percent of the national average of $61.96 in 2011. California has not raised its dental reimbursement rates since 2000.

The result has been a depressed level of dental care for low-income California residents compared to the rest of the nation. Only 44 percent of the 5.1 million children enrolled in Denti-Cal received dental care through the program in 2012-13, the audit said. The national average utilization rate was 47.6 percent of patients, ranging from a low of 23.7 percent in Ohio to a high of 63.4 percent in Texas.

Little Hoover Commission examines program

Denti-Cal’s problems were the focus of a Sept. 24 hearing by the state watchdog agency the Little Hoover Commission. The commission took up the issue at the request of Sen. Richard Pan, D-Sacramento, who is a pediatrician, and Assemblyman Jim Wood, D-North Coast, who is a retired dentist. “Millions of low-income Californians on Denti-Cal are suffering because the promise of dental coverage by the state is not being fulfilled by Denti-Cal,” they said in an April 6 letter to the Commission.

Pan kicked off the four-hour hearing noting that one third of Californians are covered by Medi-Cal, and pointing out that tooth decay is preventable with regular dental care. “Unfortunately, every indication is that the Denti-Cal program has been neglected for decades – it is broken,” said Pan.

He’s made phone calls on behalf of Medi-Cal patients having trouble finding a dentist. “I shared their frustration when I … couldn’t reach a dentist to get them dental care,” he said.

The problem has been going on for years. In 2008 only one-fifth of the children in Sacramento County’s Denti-Cal program actually received dental care, Pan said. “It was clear that DHCS did not seem to exercise very much oversight or knew what was happening – or not happening actually – to our children in that time.”

DHCS has not, as required by law, annually reviewed its reimbursement rates “to ensure the reasonable access to dental services by Medi-Cal beneficiaries,” the audit said. The department also has not complied with its pledge to annually compare Denti-Cal’s performance with results from national and statewide surveys. Denti-Cal “thought another division was responsible for completing the dental metrics in the monitoring plan,” the audit said.

Blame placed on low reimbursement rates

Pan, along with several other industry experts testifying at the hearing, said that reimbursement rates need to be increased to make it worthwhile for dentists to take on the extra work. Reimbursement is so low that some dentists find it is less burdensome to directly provide charity care to poor patients rather than going through Denti-Cal and dealing with its paperwork and other bureaucratic hurdles.

“When you have payment rates that do not adequately cover practice expenses, there’s pressure on providers then to make that up – if they are going to be viable – to perform high volumes and particularly more highly paid services and procedures,” Pan said. “The department then responds, when they see this higher volume, to create even more barriers to payment, which drives out more providers. And basically who are you left with? People who have figured out how to work the system to do high volumes just to keep the practice viable.”

Similar testimony was provided by numerous dental professionals. All of which put the woman representing the Denti-Cal program – Rene Mollow, DHCS deputy director of Health Care Benefits and Eligibility – on the hotseat.

“I first do want to acknowledge the challenges that we’ve had in the program and to represent the commitment … in working through and making sure we do improve the management and administration of the program,” said Mollow. “I think, based upon responses that we have made to the state auditor, we have demonstrated our commitment to making the improvements.”

She said there’s been a lot of discussion on reimbursement rates. She also acknowledged that the problems are more extensive, including cumbersome paperwork requirements. For example, the Denti-Cal application for dentists is 40 pages long. Denti-Cal preauthorization, based on documentation including x-rays, is often required before some procedures are allowed to be performed. Several professionals also complained about the ratcheting up of anesthesiology regulations.

But Mollow sought to put a positive spin on the situation.

“We pride ourselves on ensuring program integrity while also ensuring access to services and maintain the viability of the program given the expenditures of the program and the population that we do serve,” she said. “We do recognize the challenges with the administrative processing in terms of claims and provider enrollment. We are looking at ways to do some streamlining.”

Pressure for specific solutions

Commissioner David Beier asked Mollow about the audit. “Did you view that as a three-alarm or four-alarm fire that required an urgent response?” he said.

Mollow responded, “Yes, the audit raised concerns. But the findings of the audit were things we were already working on. So these were things based upon the administrative simplification, issues with provider enrollment, all of the things people were raising to us as concerns.”

Beier wanted to hear more specifics about corrective measures. “In your testimony there’s a lot of ‘looking ats’ and ‘considering,’” he said. “What are the major changes that have been implemented in almost a year since the audit?”

Mollow responded, “We’ve looked at improving upon our contract oversight and management of the fiscal intermediary. We have required the provision of the beneficiary and provider outreach plans. We are now working with stakeholder review of those plans. We are working with stakeholders on beneficiary and provider performance metrics. We have a very robust process in place.”

Influx of new patients

Also robust is the number of new patients coming into the Medi-Cal program due to changes in federal and state laws that expand coverage. An additional 2.7 million Denti-Cal patients – perhaps as many as 6.4 million – are expected to be added in the coming years. “[That] make[s] us question whether California will have enough available dental providers to meet the needs of Medi-Cal beneficiaries,” the audit said.

Sen. Anthony Cannella, R-Ceres, who is also a Little Hoover commissioner, was unconvinced by Mollow’s assurances that the department is on top of the problems.

“I just think that it doesn’t seem like we are taking this as serious as we should when we have people with real needs,” he said. “And these have real consequences. Children that have problems with their teeth, it’s a stigma that they carry for the rest of their lives. So we are creating more and more problems that I think can be solved pretty easily.”

Commission Chairman Pedro Nava quizzed Mollow about why her department hasn’t fixed the problems or sought help from the Legislature. Mollow responded that changes must first go through the regulatory process. That didn’t satisfy Nava.

“As a former legislator, this is where I would say to the department, ‘Where the hell you been?’” he said. “In a nice way. The push to make the change should come from the department. Because the last thing you want is an uneducated legislator deciding they want to fix it. Because then there’s unintended consequences that the Little Hoover Commission has to come back in and look at five years later.

“One of the things that ought to happen when you leave here is to meet and talk about your legislative package and come up with a bipartisan legislative proposal. Without some movement on the legislative front, you don’t want us coming back and asking, ‘How come you ain’t done it yet?’”

The commission plans to release a report to the Legislature on the Denti-Cal problems and recommendations for solutions.

Senate Bill 331, a bill sponsored by government employee unions that is on Gov. Jerry Brown’s desk, is touted as increasing transparency in contracting by certain local governments.

But critics say the bill’s provisions are actually intended to punish agencies that have adopted ordinances increasing transparency in collective bargaining negotiations with employee unions.

Targeting COIN

The bill only applies to counties, cities and special districts that have adopted a Civic Openness in Negotiating ordinance. According to the bill’s Senate legislative analysis, COIN ordinances typically require agencies engaged in labor negotiations to:

• Hire an independent negotiator.
• Obtain an independent analysis of the costs of contract proposals.
• Disclose within 24 hours any offers and counteroffers made during the negotiations.
• Disclose communications that elected officials have with representatives of employee unions.
• Disclose a proposed contract before it’s placed on an agenda for approval.

“The COIN ordinances’ proponents argue that the local requirements are necessary because the secrecy that shields labor contract negotiations results in labor agreements being approved by elected officials without sufficient opportunities for the public scrutiny,” the analyst said.

Versions of the COIN ordinance have been adopted by Orange County, the cities of Costa Mesa, Fullerton and Beverly Hills, and the East Bay Municipal Utility District. Although that’s just five local agencies out of thousands in California, it may be five too many for SB331’s backers.

“The opposite of what its title [Civic Reporting Openness in Negotiations Efficiency Act] implies, SB331 is a cynical piece of legislation designed to punish local agencies that adopt COIN ordinances, or even less stringent ordinances requiring public disclosure of benefit and long-term costs of labor contracts,” said the public law group Renne Sloan Holtzman Sakai LLP on its website. “Under the legislation, agencies that adopt almost any measure promoting a better understanding of their labor costs must accept onerous requirements for all public contracts over $250,000.”

Those requirements force COIN ordinance agencies to apply similar transparency measures to all $250-000-plus contracts.

“The breadth of contracts covered by SB331 is also ridiculously extreme,” Renne Sloan said, “including ‘accounting, financing, hardware and software maintenance, health care, human resources, human services, information technology, telecommunications, janitorial maintenance, legal services, lobbying, marketing, office equipment maintenance, passenger vehicle maintenance property leasing, public relations, public safety, social services, transportation, or waste removal.”

For every $250,000-plus contract – regardless of how mundane or routine – the agency would have to provide a report listing offers, counteroffers, names of those involved and other negotiation details. The report must be filed at least 30 days before each contract is considered by an agency and at least 60 days before the agency votes on it. The agency must consider the contract for at least two meetings before voting.

The only way an agency can avoid the requirements is by suspending, repealing or revoking its COIN ordinance.

The bill’s author Sen. Tony Mendoza, D-Artesia, on the Senate floor Sept. 10, portrayed it as simply a measure to increase governmental accountability and fairness. “I think we are all in favor of transparency,” he said. “Let’s make it equitable and make all contracts in open meetings and have them transparent – not just labor or just business [contracts].”

Encouraging Transparency

The only senator to speak against it was John Moorlach, R-Costa Mesa, who introduced Orange County’s COIN ordinance when he was a supervisor.

“A few days ago the LA Times had an editorial that encouraged municipalities to adopt COIN, civic openness in negotiations,” he said. “So here we are with a few municipalities, cities that have adopted COIN. And now we want to make it very cumbersome for them.

 

“Basically, most negotiations for collective bargaining in counties, cities are done in closed session, closed doors. And then the results are released, and a few days later they are voted on without any input from the public. COIN is just encouraging transparency. And we should not be penalizing it.

 

“We have a lot of funny things that come out of bargaining in closed session. And that’s why a lot of our cities and counties, and even the state, are in pretty poor fiscal shape. And no wonder we keep asking for tax hikes.”

Mendoza’s transparency argument in favor of SB331 was echoed by Jennifer Muir, the-assistant general manager (now general manager) for the Orange County Employees Association, at the July 1 Assembly Local Government Committee hearing.

“There have been a number of efforts in recent years to promote transparency in government, and those efforts are laudable,” she said. “We believe transparency should not be limited to a jurisdiction’s public workforce. And instead should be applied evenly to areas where taxpayer money is being spent.”

Bill Causes Rift in O.C. Sheriff’s Department

The debate on the bill pitted the Orange County sheriff’s 2,800-member rank-and-file against the sheriff’s department management.

Tom Dominguez, president of the Association of Orange County Deputy Sheriffs, said, “SB331 represents a critical step toward assuring transparency in public contracts. Transparency is not truly transparent if it is being selectively directed at a single group or entity. Private sector contracts worth millions of dollars are routinely approved by elected officials with little or no public scrutiny.”

Dominguez continued, “SB331 will give the public a window into how taxpayer money is being spent on private sector contracts. And ensure these precious dollars are being spent serving the public.”

But Don Barnes, an Orange County assistant sheriff representing Sheriff Sandra Hutchens, countered that the bill could put lives at risk.

“While the Sheriff’s Department welcomes transparency, this bill will detrimentally impact those we serve, as well as our employees in providing those services, due to the unnecessary restrictions and costs caused by the mandates of the bill,” he said.

“If SB331 were made law, critical public safety contracts would be delayed. Specialized contracts with the crime lab, often with sole-source vendors due to the specialized nature of the equipment, would be adversely affected by the passage of the bill.”

Another risk, Barnes said, is that the county could be sued if delays in procurement of goods prevent the county from meeting its mandated welfare requirements for county jail inmates.

“While proponents of the legislation point to openness and transparency – a value that we share and a worthy goal – the additional burdens and cost increases associated with SB331 will inevitably and unnecessarily strain staff’s time, burden budgets that are already stretched too thin and result in unintended consequences affecting the delivery of public safety services to the residents and visitors of Orange County,” he said. “This is not an anti-union position; this is a continuity of operations issue that I’m stressing for public safety.”

Orange County COIN Struck Down in Court

Democrats on the committee were not persuaded.

“Having a certain incapacity much like O.C.’s in the past, it’s amazing to me that cities and counties and districts that decide they want to outsource public services because of a claim of reducing costs, somehow want to increase the costs for negotiating with their own employees, while giving an unfair advantage of course to those services that are outsourced by suggesting there’s no need for equal transparency,” said Assemblywoman Lorena Gonzalez, D-San Diego. “Frankly, what’s good for the goose is good for the gander.”

If Brown signs the SB331, it will be the second major transparency setback for Orange County this year. The county’s COIN ordinance was struck down by a Public Employment Relations Board administrative law judge on June 16. The judge ruled that the county, before adopting the ordinance, should have provided “notice and an opportunity for the union to meet and confer over that adoption or its effects.”

Renne Sloan warned that the ruling “may further discourage local agencies from adopting similar measures to make negotiations more transparent and responsive to the public’s interests and welfare.”

Gov. Jerry Brown has signed one of them, Assembly Bill 359, which requires the purchaser of a grocery store to retain the store’s current employees for at least 90 days.

The Chamber continues to campaign against the other two bills, hoping for a Brown veto.

Assembly Bill 465  would make it illegal for businesses to require job applicants, as a condition of employment, to waive their right to have a future employment dispute adjudicated by the state labor commissioner or in civil court.

Senate Bill 406 increases family leave benefits by expanding the definition of a family to include more extended family members.

Expanding Definition of Family

Currently eligible employees are allowed by law to leave work for 12 weeks each year, without pay and with their job guaranteed upon return for reasons of illness, after the birth of a child or to care for a sick child, spouse or parent.

The definition of a child under the California Family Rights Act includes a biological, adopted, foster or stepchild, a legal ward, or a child of a person performing the role of a parent, who is either under the age of 18 or is an adult-dependent child.

SB406 would expand this definition to include the son or daughter of a domestic partner. The bill also would remove the provision regarding age and dependent status of the child.

The definition of a parent includes the employee’s biological, foster or adoptive parent, stepparent, legal guardian or other person who has performed the role of a parent when the employee was a child.

SB406 retains that definition and expands allowed leave to include care for a sick sibling, grandparent, grandchild, domestic partner and parent-in-law.

The other leave expansion provided by SB406 applies to businesses that employ both parents of a newborn child. It allows each parent to take 12 weeks off to bond with that child for a total of 24 weeks between them. Current law limits parents to a total of 12 weeks of leave between them.

To be eligible for the leave benefit, employees must have worked at least 1,250 hours for the employer in the previous year. The law would only apply to businesses with 50 or more employees.

The bill’s supporters say that it’s a matter of fairness, updating the 24-year-old CFRA regulations to better reflect the changing reality of today’s extended families.

Concerns of Chamber

But the Chamber and a coalition of businesses in a Sept. 11 memo to state senators called SB406 a “job killer” because “it will mandate employers to provide up to 24 weeks of protected leave, that can be taken each day in as small of increments of one-hour, with a threat of litigation and punitive damages for any unintentional misstep.”

Twenty-four weeks of leave could be taken by splitting it between 12 weeks through CFRA’s expanded provisions and then another 12 weeks through the federal Family and Medical Leave Act, according to the Chamber.

Businesses are also concerned that the family leave expansion will lead to increased litigation.

“CFRA includes a private right of action with the opportunity to obtain compensatory damages, injunctive relief, declaratory relief, punitive damages, and attorney’s fees,” the Chamber said. “This private right of action creates costly litigation for employers, even when employers take reasonable steps to address abuse under CFRA.”

The Chamber cited several examples. In one case an employee, while on 12-week medical leave for a back injury, was found to be working at a restaurant that he owned. After the employer fired him, the employee sued. “Although the employer ultimately prevailed, the employer had to pay for litigation for over six years,” the Chamber said.

In another case, an employee sued unsuccessfully after he was fired for golfing and doing side work while taking time off to care for his father who had undergone ankle surgery. Other cases include an employee who submitted false medical certification to justify his leave, and another who claimed his leave rights were violated although he had been provided more than 14 months of leave.

During the debate on the bill before the Assembly Labor and Employment Committee on June 24, CalChamber legislative advocate Jennifer Barrera said there’s no need for state legislation dealing with personal situations best left between employers and employees.

“’I can give you one week here and another couple there,’” she said as an example of how a business might protect itself from being shortchanged while still accommodating an employee’s leave request. “It’s a balance how to accommodate both needs.”

A Hobson’s choice

But the bill’s author, Sen. Hannah-Beth Jackson, D-Santa Barbara, doesn’t believe such accommodations are always made and that there need to be safeguards in place to protect employees. Nearly 40 percent of eligible employees do not apply for family leave because they fear losing their job or facing other negative consequences, she said, citing a 2011 Field poll.

“The choice – caring for a loved one, bonding with a new child or keeping my job – it’s a Hobson’s choice, in my opinion,” Jackson said. “And certainly one that does not reflect a society that tries to emphasize the importance of family and community.

 

“This bill … will have a profound effect on California workers who have to face a difficult choice between putting food on the table or caring for a loved one. Many of us have not had to risk losing our job to care for a loved one with a serious illness, but life happens.

 

“And we want to ensure that Californians can keep their jobs and keep contributing to the economy while taking on the added burden and responsibility, and for many the opportunity, to provide that care and nurturing for loved ones who are in need.”

Testifying in favor of the bill was Lisa Bautista, a registered nurse who said her employer did not allow her to take time off to help care for her ailing 91-year-old grandmother.

“I was in disbelief,” she said. “She’s my grandmother and I consider my immediate family. When I was forced to choose my job, it was heartbreaking for me and difficult for my mother and aunts. Had I been able to take care of her, I would have felt more at peace and didn’t feel like I abandoned her. My brother has serious health issues and I would like to take care of him when the time arises.”

SB406 passed the Legislature largely along party lines. There was no debate in the Senate, but both sides weighed in on the Assembly floor on Sept. 11.

Slippery Slope

Assemblyman Donald Wagner, R-Irvine, is concerned that the bill’s expansion of the definition of family is part of a pattern of legislation that starts out as a commonsense measure and metastasizes into runaway benefits that hurt businesses.

“We always just take the next step and the next step and the step after that,” he said. “And that’s where you get businesses fleeing California. That’s where you get rules and regulations that are job killers, like the Chamber has said this bill is.

“It’s time to say stop. It’s time to give our employers breathing room so that they grow themselves and provide the further jobs and the further opportunities that at the end of the day don’t benefit the employers but actually benefit the employees by giving them good productive jobs.”

Assemblywoman Lorena Gonzalez, D-San Diego, countered, “The other side often wants to talk about family values. In my community, family values often mean it’s not a traditional family. I’m a single mom. If my child was sick I have to continue to work to pay the bills. But my parents have always been there.

“This is a natural progression of this law. It is not an expansion that will cost employers more. It makes sense. If you are pro-family, there is no way you can vote against this law.”

As of Sept. 17 Brown had not announced whether he will sign or veto SB406.

A

But opponents say it will have the opposite effect.

Proposition I would forbid the city from issuing permits for 18 months for the demolition, conversion or construction of Mission District housing projects with five or more units. It places a similar ban on certain Mission commercial properties, including wholesalers and auto repair shops – unless the business is replaced with a 100 percent affordable housing project.

The measure’s proponents are concerned that long-time residents can no longer afford to stay in San Francisco as rents and housing prices skyrocket.

Evictions on the Rise

There were 2,120 eviction notices filed in San Francisco from March 2014 through February 2015, according to the latest San Francisco Rent Board Annual Eviction Report. That represents a 67 percent increase from 2010. In 16 percent of the latest evictions, tenants were replaced by building owners or their relatives, up from 9 percent in 2010.

Supervisor Eric Mar, speaking at the June 2 Board of Supervisors meeting in which a moratorium ordinance was debated, said he is concerned that too many minorities are being pushed out of the Mission District.

Seven of the 11 supervisors voted for the moratorium, falling short of the nine votes needed to pass. After the moratorium failed before the board, activists gathered enough signatures to place it on the ballot.

During the debate, Mar warned that if the moratorium is not put into effect, “we will see an ethnically cleansed, racially cleansed Mission District that Latino and Chicano people are pushed out of, low-income families and seniors are pushed out of as well.”

It would be a repeat of the displacement of Filipinos from the city’s Manila Town in the 1970s, he said, and of blacks from the Fillmore District in the 1950s and ‘60s due to urban renewal.

“I call this ethnic cleansing because we know that in the past decades the African American population has been pushed out with unchecked out-migration that’s left us with the lowest number of African Americans of any large city in the country,” said Mar.

“We are facing the same cleansing with Latinos and Chicanos, and we have to learn from those mistakes. This is about saving the Mission District, saving San Francisco and saving the heart and soul of our city.”

‘Shooting ourselves in the foot’

But the supervisors who voted against the moratorium argued that it would actually result in the opposite of its intended effect by further limiting housing supply and driving up prices. The city would forego certain fees on new development that boost affordable housing.

“Whether or not we like it, market-rate housing right now in San Francisco is directly tied to the production of affordable housing,” said Supervisor Mark Farrell. “By stopping market-rate construction, the facts are that you are directly taking away from one of the primary resources the city has, over $100 million in the next few years, to create affordable housing in our city.

“We are literally going to be shooting ourselves in the foot.”

Farrell blames the city’s regulatory policies for causing the housing crisis.

“It’s the consequences of the policies that we have had for decades here in San Francisco,” he said. “From my perspective, it’s simply not building enough housing to deal with the crisis that we have in front of us today. This crisis didn’t start just a few weeks ago; our housing crisis started quite a while ago.”

The city’s population was 852,469 last year – a 5.9 percent increase since 2010. During the same period the number of housing units increased at less than half that rate, 2.5 percent, according to census data. The Mission District has added about 100 units annually in that time.

The Mission, which is a short bus or BART ride from jobs in the financial district and Giants games at AT&T Park, is known for its ethnic restaurants and lively music and arts scene.

It’s “arguably the area to watch,” according to the San Francisco Association of Realtors, and “one of San Francisco’s most promising, up-and-coming areas to invest in real estate.”

Housing Prices Exploding

As with all of San Francisco, housing prices and rents have exploded in the Mission District in recent years. The median price of a Mission District home was $1.3 million as of March 31. That’s nearly double the $700,111 median price five years ago, according to a legislative analyst’s report.

The average rent for a two-bedroom apartment in the Mission District is $4,500 per month, according to Supervisor David Campos, whose district includes the Mission.

The median household income in the Mission District is $60,156, according to the realtors association. If that household were living in an average two-bedroom apartment in the Mission, it would have just over $6,000 for all other expenses, including food, utilities and health care, over the course of a year.

“Middle and working class people, the very people who have made the Mission what it is today, are having a hard time staying in this community,” Campos said. “They can no longer afford to live here. Housing is no longer affordable to the very people who made the community the unique and wonderful place that it is.

“People are terrified – terrified that the culture and the diversity of this neighborhood will be lost forever.”

The board room, the hallway outside the chambers and an overflow room were packed with Mission residents and anti-displacement activists, who frequently disrupted the meeting with applause, hissing and chanting. The public comments portion of the meeting lasted seven hours.

Initiative on the Ballot

Proposition I states that the moratorium could be extended an extra year with a majority vote of the supervisors. It also requires development of a plan to ensure that at least half of new housing in the Mission is affordable for low, moderate and middle-income households. As part of that plan, Campos has said he would want the city to increase fees on developers and target for affordable housing the remaining 13 sites in the Mission where buildings with 40 or more units can be built.

Developers of housing projects with 10 or more units are required to reserve 12 percent of their units for affordable housing or pay in-lieu fees for the city to build affordable housing projects. There are currently 1,574 units slated to be built in the Mission District, according to AnMarie Rodgers, a senior policy advisor in the San Francisco Planning Department. If built, those projects would bring the equivalent of 189 new affordable housing units to the market, or $2 million in fees.

In addition to providing affordable housing, the fees on new development also help pay for other city projects. The moratorium would eliminate nearly $125 million in funding slated for improvements in Mission area rapid transit, an aquatic center, park, playgrounds and a recreation center, according to Rodgers.

Several measures are underway to increase affordable housing in San Francisco.

Affordable Housing Measures

Last year voters passed Proposition K, which makes it city policy to help construct or rehabilitate at least 30,000 homes by 2020.

More than half must be affordable for middle-class households, or 120-150 percent of the area median income. The median income is $61,160 for a family of four.

At least a third must be affordable for low-income households, or 50-80 percent of median, and moderate-income, 80-120 percent of median.

Proposition A, a $310 million affordable housing bond measure, is on this November’s ballot.

Mayor Ed Lee is working to recapture $500 million of the city’s dissolved redevelopment funds. That would increase the affordable housing budget to $1.6 billion over the next six years, according to Olson Lee, director of the Mayor’s Office of Housing and Community Development.

The mayor’s staff is also looking at administrative measures to speed up approval of affordable housing projects. The administration is considering incentives such as allowing higher density or taller buildings in exchange for more affordable units.

Proposition I appears to have a good chance to pass if a poll taken in February is accurate. It showed 65 percent support for a ballot measure halting new project approvals in the Mission District for one year, according to the San Francisco Examiner. Only 26 percent were opposed.