A rowdy, muckraking financial blog that has repeatedly raised later-corroborated concerns about how the California Public Employees’ Retirement System operates has gotten traction with one of its new allegations.

The Naked Capitalism blog’s report that CalPERS CEO Marcie Frost had misled the giant pension fund about her education prompted state Treasurer John Chiang to seek an independent investigation.

Naked Capitalism blogger Susan Webber offered evidence that Frost – who does not have a college degree – allegedly told a consultant who evaluated her job application before her hiring in 2016 that she was enrolled in a degree program at Evergreen State College in Olympia, Washington. The Sacramento Bee reported that she hadn’t taken any classes at the college since 2010. Before coming to CalPERS, Frost led Washington’s Department of Retirement Services, which oversees more than a dozen defined-benefit state pension funds.

In May, Webber’s reporting led CalPERS to oust Chief Financial Officer Charles Asubonten for making misleading claims about his employment history before he was hired.

With CalPERS’ new mess, a potentially big problem for Frost is that while she might be able to dismiss questions about whether she was honest over her education as the result of a misunderstanding, Naked Capitalism’s recent reports actually raise bigger concerns.

Accuracy of death-benefits claim questioned

For one example, Naked Capitalism writer Yves Smith last week wrote a persuasive analysis that argued that CalPERS had cherry-picked among data in claiming it was doing a better job processing death benefits in 45 days or less.

“CalPERS used an obviously cooked-up basis of comparison. Rather than take the same time period in successive years, CalPERS instead chose a set number of cases to examine (300 each) before and after a suspiciously arbitrary-looking cutoff date, February 12. Under questioning, the presenters admitted the ‘before’ cases included ones submitted in November and December,” Smith wrote.

“Why does this matter? The beginning of November through end of January is certain to be the worst time of year in terms of efficiency for a government agency. First, you have a high density of holidays compared to the rest of the year (Veterans’ Day, Thanksgiving, Christmas, Martin Luther King Day). Output suffers due to distractions like holiday shopping, more interaction with family members, and even getting out of the mood to work. Second, many employees also take vacation days around these holidays (and recall that CalPERS employees have generous vacation allowances). So there was also almost certainly reduced manpower to process claims during this period.”

There is no sign that Chiang or others with oversight authority are looking at this allegation. Last week, the CalPERS board made its feelings known about Frost, voting to raise her pay by 4 percent to $330,720 and to give her an $84,873 bonus.

Board officials suspicious of blog’s motives

A Sacramento Bee story last week about Naked Capitalism’s critiques of CalPERS gave space to CalPERS’ officials’ claims that there is something suspicious or perhaps partisan about an East Coast-based blog paying so much attention to a pension system across the nation.

In comments that the Bee reported were intended for Webber, CalPERS Vice President Rob Feckner said, “You’re not from California. Why would you be involved in a California election for that board? Why is it so important to you to get someone elected in that board?” Webber has been sharply critical of Feckner and other board members who have close relationships with Frost.

Naked Capitalism’s tart response: “CalPERS likes to relish its status as the biggest, highest profile public pension fund, but when it gets bad press, its stance is that it’s a parochial organization and why isn’t it left alone?” wrote Yves Smith.

No one familiar with the blog would consider it obsessed with CalPERS. The website’s roster of authors with Wall Street or banking backgrounds is long and their targets are widely varied. The site’s index cites nearly 5,000 stories about the global finance industry versus 98 about CalPERS.

The poll was based on 691 registered voters, as well as 517 voters likely to vote in the primary. The top two vote-getters in the primary, regardless of party affiliation, will advance to the Nov. 6 general election.

Newsom, the current lieutenant governor, received 21 percent of the vote, with former Los Angeles Mayor Antonio Villaraigosa and Republican businessman John Cox contending for second place with 11 percent and 10 percent of the vote, respectively; well within the margin of error of plus or minus 4 percentage points.

Of potential interest to the battle for second place could be President Trump’s recent decision to endorse Cox. While it could potentially mobilize Republican support, it could just as easily backfire and turn away moderates.

California Treasurer John Chiang, who was hoping to become the state’s first Asian-American governor, and Huntington Beach State Assemblyman Travis Allen, who has brashly courted Trump supporters, stand at 6 percent and 5 percent, respectively.

When it comes to issues that could swing voters in congressional races, the Trump administration’s tax overhaul and attempts to repeal the Affordable Care Act hold the most cache. Almost half of poll respondents opposed the December tax overhaul, with 52 percent being less likely to re-elect their representative if they supported the changes. And six out of 10 residents support the ACA; similarly, 54 percent would be less likely to vote for a representative trying to repeal Obamacare.

This often comes in the form of divestment, by which the funds are encouraged – or even required – to sell their assets in industries that are viewed negatively by the people who push these efforts. These efforts tend to work against the goals of the funds’ professional investment staff, which are charged with getting high investment returns to fund pensions for the systems’ retirees. Both funds have a fiduciary responsibility to maximize their return on taxpayer dollars.

Yet estimates from a consulting firm suggest that CalPERS has lost approximately $8 billion in returns because of previous efforts to divest from coal-related and tobacco industries. That’s become a particularly contentious issue as funding levels have fallen to 68 percent for CalPERS and 64 percent for CalSTRS. That means they have only around two-thirds of the assets needed to make good on all the current and future pension promises made to government retirees.

Despite the troubling numbers, there’s a new push for divestment from some politicians. Following the October massacre in Las Vegas, by which a gunman murdered 59 people at a country music concert, state Treasurer John Chiang has called for the teachers’ fund to sell its assets in weapons firms and sporting-goods companies that sell any guns that are illegal in California.

“Neither taxpayer funds nor the pension contributions of any of the teachers we represent, including the three California teachers slain in Las Vegas should be invested in the purveyors of military-style assault weapons,” said Chiang, a 2018 candidate for governor and member of both pension boards. Chiang also told the Sacramento Bee that he plans on making a similar request to the CalPERS board.

The newspaper also noted that both funds “this year have faced calls to divest from companies that do business with the controversial Dakota Access Pipeline,” which would transport oil underground from North Dakota oilfields to Illinois. It has prompted protests from a variety of environmental and Native American activists.

Critics of these proposals say they are largely symbolic and would do little to influence gun sales or the pipelines. Divestment from these relatively small industries wouldn’t have much impact on the massive funds’ financial returns, either.

On Oct. 30, 12 members of California’s Democratic congressional delegation sent a letter to CalPERS chief executive officer Marcie Frost urging the pension fund to divest from a fund that has acquired a hotel owned by Donald Trump’s organization. This move is more directly political than many divestment efforts, which tend to focus on the social implications of investing in the pipeline, weapons manufacturers, coal-related industries and tobacco companies.

Divestment advocates sometimes argue that these controversial products may be poor long-term investments. For instance, the Public Divestiture of Thermal Coal Companies Act of 2015 and similar efforts by the state insurance commissioner were based in part on the notion that these coal-related companies may face diminishing values as the world shifts away from carbon-based fuels – a point rebutted by those who note that the current price of the stocks already reflects that risk.

But the Trump-related divestment call, led by U.S. Rep. Ted Lieu of Torrance, is designed to target the president. The members of Congress expressed their disappointment that CalPERS “has not divested its interest” in that fund “nor has taken any actions to ensure that its fees are not being transferred to President Trump,” according to their letter. They criticized CalPERS for taking a “wait-and-see” approach toward the matter.

These members of Congress claim that this CalPERS investment could be in violation of the Domestic Emoluments Clause of the U.S. Constitution, which states that “no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.” This would be an unusual interpretation of an arcane clause.

Meanwhile, the pension funds have been expanding other divestment and socially motivated investment efforts. Last December, the CalPERS investment staff “recommended that the board remove its 16-year ban on tobacco investments in light of an increasing demand to improve investment returns and pay benefits,” according to a Reuters report. But instead of removing the ban, the board “voted to remain divested and to expand the ban to externally managed portfolios and affiliated funds.”

And last year CalPERS adopted a five year Environmental, Social and Governance plan that focuses on socially responsible investing. The fund has long used its financial clout to push companies it invests in to promote, for instance, board diversity and other social goals.

Whatever their chances for approval, the latest efforts are not out of the ordinary. But they will rekindle the long-running debate between political and financial goals, and whether the former imperils the latter given both funds’ large unfunded liabilities.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

The 2018 governor’s race got off to an informal start last week with candidate forums in Anaheim and San Francisco.

Former San Francisco mayor Gavin Newsom leads all gubernatorial candidates in polling and fundraising. A September Berkeley IGS survey showed he had support from 26 percent of likely voters, followed by Republican businessman John Cox with 11 percent. In campaign finance filings from July, Newsom had $5.3 million in donations this year, state Treasurer John Chiang $2.6 million, Villaraigosa $2.3 million and former state Superintendent of Public Instruction Delaine Eastin just over $300,000. His fundraising advantage is even bigger when available funds from previous years are included, an August Los Angeles Times analysis noted.

In the San Francisco forum moderated by Chronicle editorial-page editor John Diaz, Newsom showed why he was recently endorsed by the California Teachers Association. He declined to discuss the specifics of the Vergara v. California case, which pose difficult questions for social justice activists. In the lawsuit, a Los Angeles Superior Court judge found in 2014 that the state’s teacher job-protection laws were unconstitutional because they had led to schools in poor minority communities being much more likely to have ineffective teachers and much more likely to face major layoffs in years with budget cuts. An appellate court threw out the trial court ruling.

Villaraigosa was the only Democratic candidate in the forums to support the Vergara plaintiffs, saying it had long been evident in Los Angeles that tenure and seniority laws hurt schools with heavy concentrations of English-language learners.

Newsom declared that the issues in the Vergara matter had been “litigated” and said that if tenure and seniority changes were needed, they could be collectively bargained. “In other words: They would not happen,” Diaz wrote tartly in his Chronicle column about the forum.

Worries about cost of single-payer dismissed as ‘specious’

On health care, all four Democrats support the concept of a single-payer system, the biggest issue of the California Nurses Association, which endorsed Newsom nearly a year ago. But while Villaraigosa and Chiang have said California needs to figure out how to pay for such a system, Newsom says concerns about cost are “the most specious argument” against a state health-care-for-all system. Senate Bill 562, a bill committing the state to single-payer, passed the Senate earlier this year but stalled in the Assembly after estimates that its annual cost could be $400 billion – more than double the entire state budget.

If Newsom and Villaraigosa finish first and second in the June “top two” primary and give voters a choice between two Democrats in November 2018 – as happened in California’s 2016 U.S. Senate race – teacher tenure/seniority laws and how to adopt and pay for single-payer could dominate the general election fight.

In the forums, there was little difference between the two men on other top issues. Both agreed with the need to build millions of new housing units, to resist Trump administration immigration policies and to provide much more money to public schools.

There is a possibility other prominent Democrats might get in the race. The filing deadline for the June 5 primary isn’t until March 9, and there has been speculation that Los Angeles Mayor Eric Garcetti might jump in. But Sunday, Garcetti said on Twitter that he was definitely not going to run for governor.

But the housing package – a spate of measures that increase funding for subsidized housing programs and reduce regulations for building certain high-density projects – is unlikely to halt debate about housing policy as home prices remain high.

For instance, median home prices in the Bay Area topped $740,000 last month and topped $700,000 in Orange County – breaking records and raising concerns about a new housing “bubble.” Statewide, median housing prices have topped $469,000, which is driving down homeownership rates and keeping the state’s cost-of-living-based poverty rates above 20 percent.

Virtually everyone, left and right, agrees that the state is facing a crisis. Candidates for the 2018 gubernatorial election, which is starting to heat up, are likely to make housing a core component of their campaigns. So far, Republican candidates John Cox, a San Diego-area businessman, and Assemblyman Travis Allen, a Huntington Beach conservative, have largely called for reducing housing regulations, but have not offered detailed plans.

Democrat John Chiang, currently the state treasurer, has touted his efforts to promote affordable housing programs. Former Los Angeles Mayor Antonio Villaraigosa has focused on bringing back government-directed redevelopment-style low-income housing programs. The partisan approaches are not surprising – and not particularly detailed, at least not yet.

The big surprise so far is that Democratic candidate Gavin Newsom, the current lieutenant governor and leader in the major public-opinion polls, has released a fairly thorough housing blueprint. It suggests that housing will be a top priority in his high-profile campaign – and his proposals embrace the main concepts touted by Democrats and Republicans alike.

“Simply put, we’re experiencing a housing affordability crisis, driven by a simple economic argument,” Newsom argued in a new post on the Medium web site. “California is leading the national recovery but it’s producing far more jobs than homes.” Here’s where the plan makes headlines: He’s calling for the development of 3.5 million new housing units by 2025, which would mean a near quadrupling of the state’s annual housing production.

That’s not an unreasonable number. In the last dozen years, “California has only produced 308 housing units for every 1,000 new residents,” he explained. Given continued population growth, “it’s obvious we’re not on pace to meet that demand.”

Typical of a Democratic official, Newsom called for more funding for affordable housing, including support for the $4 billion housing bond that is going on the November 2018 ballot. It was part of the Legislature’s housing package. Newsom also called for increasing the state’s funding of affordable-housing tax credits from $85 million to $500 million.

Taking a similar line as Chiang and Villaraigosa, Newsom called for replacing local housing programs that had previously been funded through the state’s controversial redevelopment agencies, which were shut down by Gov. Jerry Brown during the 2011 budget act, as a means to help the state plug its then-gaping budget hole. The agencies had siphoned around 13 percent of the state’s general fund budget to subsidize economic-development projects including housing.

But the real news is Newsom’s focus on “regulatory reform and creating new financial incentives for local jurisdictions that produce housing while penalizing those that fall flat.” Under the old redevelopment system, cities did indeed subsidize low-income housing. But the tax-increment financing scheme, by which cities were incentivized to permit tax-generating retail complexes, led to the overall underdevelopment of housing projects, according to various state analyses.

Those problems still exist. “Cities have a perverse incentive not to build housing because retail generates more lucrative sales tax revenue,” Newsom wrote. “The bigger the box, the better, because cities can then use the sales tax for core public services.” He doesn’t offer many details, but Newsom wants to revamp the tax system to “financially reward cities that produce housing and punish those that fail.” He’s reviving the old debate about the “fiscalization of land use,” but there’s little doubt that local incentives have a major impact on housing permits.

Echoing Gov. Brown, Newsom notes that solving the problem will take more than “throwing money” at it. He calls for “implementing regulatory reform and creating new financial incentives for local jurisdictions” – issues that will bolster conservatives who want to see more market-based housing.

Indeed, California builders have argued that they are more than capable of meeting the needs – if only government regulations and local land-use controls were loosened enough to enable them to build more. His plan will annoy conservatives, though, as he also calls for stronger tenant protections as the state streamlines the permitting process.

Most significantly, the Newsom plan – with its myriad details and mixture of elements from right, center and left – is sure to focus the early campaign on this significant issue. An energized housing debate should warm the hearts of all Californians who are concerned that housing prices are soaring beyond the reach of most California families.

Steven Greenhut is a Sacramento-based writer. Write to him at stevengreenhut@gmail.com.

An unprecedented state law meant to create 401(k)-style retirement accounts for millions of private-sector workers in California now faces a daunting obstacle to ever being implemented: one of the most powerful federal laws on the books.

Under the state law establishing the California Secure Choice Retirement Savings Program, after it is phased in, all companies with five or more workers which do not have retirement benefits eventually would have to withhold 3 percent of worker pay and send it to the state government, with the funds to be invested in safe financial instruments such as U.S. treasuries. Workers could opt out.

The proposal was championed by state Senate President Kevin de León (pictured), D-Los Angeles, with strong support from state Treasurer John Chiang. They depicted it as crucial to helping 7 million Californians working in jobs without retirement benefits to prepare for retirement.

But the Republican-controlled Congress recently passed, and President Trump subsequently signed, a law overturning an order issued last August by the Obama administration’s Department of Labor that exempted Secure Choice-type programs from the Employee Retirement Income Security Act (ERISA), a landmark 1974 law that established strict standards for retirement plans and their management. This erased legal concerns raised by pension lawyers aware of ERISA’s intricacies.

Yet at a news conference last week, de León and Chiang downplayed the significance of the lost ERISA exemption. They said they had only sought the federal action in response to concerns raised by the California Chamber of Commerce and the California Manufacturers and Technology Association – not because of a concern that Secure Choice would be subject to ERISA.

That’s not the conclusion one would be likely to gather after reading the language of Senate Bill 1234, the de León bill establishing Secure Choice that was signed by Gov. Jerry Brown in September. It makes specific reference to the ERISA exemption: “The United States Department of Labor has finalized a regulation setting forth a safe harbor for savings arrangements established by states for nongovernmental employees for the purposes of the federal Employee Retirement Income Security Act.”

And it says the Secure Choice governing board “shall not implement the program … if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act” – which it now appears to be.

ERISA expert notes scope of landmark 1974 law

However, de León and Chiang cited a 2016 opinion from the K&L Gates law firm that sees no ERISA compliance problem. But the opinion is based on an earlier version of the bill – not the measure that passed and seemed built on the assumption that Secure Choice was only legal with the ERISA exemption.

In a March analysis released as the bill to overturn the exemption was advancing through Congress, the National Public Pension Coalition’s program manager, Tyler Bond, suggested courts might rescue Secure Choice-type laws by deciding ERISA doesn’t apply. But Bond’s background is as a communications specialist, not the law.

Michael A. McKuin, a Palm Desert lawyer who specializes in ERISA, notes on his website the long history of courts broadly interpreting ERISA’s scope because of the law’s sweeping language: “The provisions of … this chapter shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

McKuin writes: “In determining whether a plan is governed by ERISA, courts have generally followed the approach of the Eleventh Circuit in Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc). Under the Dillingham test, an ERISA plan exists if a reasonable person can ascertain: (1) the intended benefits, (2) intended beneficiaries, (3) the source of financing, and (4) the procedures for receiving benefits. … The purported plan need not be formal or written to qualify as an ERISA benefit plan, but rather, the court must look to the ‘surrounding circumstances’ to see if the four factors have been met.”

“As a practical matter, it does not take much to satisfy the test and Courts will generally find the existence of an ERISA plan even where no such plan is wanted by anyone,” McKuin writes – unless the plan has the “safe harbor” specifically mentioned in SB 1234’s ballot language.

As Gov. Jerry Brown’s administration turns toward tidying up California’s complex and still-unsettled marijuana laws, the massive market for money made from the plant’s products has begun to attract attention from financial services companies that want to take advantage without taking on too much risk. 

“Though federally prohibited, marijuana is now legal in some form in 28 states and Washington, D.C. But most banks remain loath to accept pot business accounts out of fear of federal money laundering laws that can consider such deposits as illegal transactions,” the Sacramento Bee reported. “Efforts in 2014 by the United States Treasury Department to ease rules for financial institutions wanting to service state-licensed marijuana businesses largely failed to diminish the uncertainty.”

From meetings to markets

“Now California officials, led by state Treasurer John Chiang, are hosting an ongoing series of ‘Cannabis Banking Working Group’ meetings that look to identify policies under which ‘the cannabis industry may fully avail itself of banking services … that every other business in California enjoys,’ Chiang said,” according to the paper. “California’s marijuana industry, valued at more than $6 billion, is expected to produce as much as $1 billion in state taxes after 2018, when recreational pot dispensaries open to the general public. But a lack of accessible financial services – including the ability to deposit funds or handle credit card transactions – continue to be the norm for marijuana businesses.”

Businesses and bankers have been leery of the gap between state and federal marijuana law. “Federal crimes often conjure images of ‘interstate’ activity, but with regard to marijuana, the Supreme Court has clearly spoken that even purely intrastate marijuana is subject to federal criminal regulation,” as California Lawyer recalled. “In Gonzales v. Raich, the Supreme Court held that because of its ‘aggregate’ effect on the interstate market, even purely intrastate activity is subject to regulation under the commerce clause of the Constitution.” At the same time, the White House and Attorney General’s office have continued to suggest that enforcement of federal marijuana law could be strengthened from where the Obama administration left it. 

Reconciling rules

The proposed changes would streamline environmental policies, standardize the more liberal of the state’s licensing regimes, formalize background check and disclosure requirements for cannabis-based business owners, and eliminate a provision that would have required continuous California residency for those affected by the rules since the first day of 2015.

Accrediting workers

At the same time, the cannabis industry has seen its workers brought into the state’s regulatory mainstream. So-called budtenders at the River City Phoenix dispensary in North Sacramento have become among the state’s first state-certified cannabis pharmacy technicians, a certificate program “spearheaded by the United Food and Commercial Workers union, which represents 1.3 million members and began reaching out to dispensary workers about four years ago,” according to the Los Angeles Times. “The apprenticeship program is yet another measure of how cannabis is professionalizing at a breakneck pace. Another sign: the unionization of the cannabis workforce. The UFCW, which represents workers at River City Phoenix, has organized thousands of them in eight states.”

Los Angeles Mayor Eric Garcetti’s landslide re-election win Tuesday led to inevitable

Lt. Gov. Gavin Newsom, with his high profile and access to the deep-pockets of Bay Area and Silicon Valley donors, is considered the front-runner in the race by the state media. But narratives suggesting why other likely candidates might win are easy to grasp.

State Treasurer John Chiang’s campaign is likely to be treated as a coming-out party for Asian-Americans in California politics. Some coverage has suggested he could harvest contributions from across the nation from wealthy Chinese-American residents, much as Armenian-Americans backed former Gov. George Deukmejian and Greek-Americans backed former Treasurer Phil Angelides during their careers. Chiang has won easily in his three previous bids for statewide office.

Former Los Angeles Mayor Antonio Villaraigosa’s candidacy can build off the idea that it’s time for a Mexican-American governor and that it’s time for a Southern Californian to hold the state’s top political job. Villaraigosa has also sounded willing to run as a Sacramento outsider critical of how minorities fare in public education. Last year, he expressed alarm over how funds meant to help English-language learners and foster students under 2013’s Local Control Funding Formula were being diverted to teacher raises and general uses.

This could earn him the enmity of the powerful California Teachers Association and the California Federation of Teachers. But it could also earn him support from rich Democrats in Los Angeles and Silicon Valley who are deeply frustrated with what they see as teachers-come-first policies in public schools.

But Garcetti is partly of Latino descent and can also play the Los Angeles card. He is also close with such Los Angeles education reformers as Eli Broad.

Did Newsom learn from errors in first governor’s bid?

Other candidates could get in because of the perception that Newsom might not be a strong front-runner or even a particularly skilled candidate for statewide office.

In 2009, Newsom was vying with then-Attorney General Jerry Brown for the 2010 Democratic gubernatorial nomination. In October of that year, veteran Sacramento journalist Daniel Weintraub penned an analysis for the New York Times that depicted Newsom as an attractive candidate who faced an “uphill battle” against Brown but who had advantages of his own, starting with Brown’s “history of being on all sides of important issues.”

Yet by month’s end, Newsom was out of the race, saying running for governor would take him away from his young family too much.

Afterwards, political analysts generally dismissed Newsom’s explanation as being what spurred his withdrawal from the governor’s race. Instead, they cited poor fundraising, staff squabbling and Newsom’s months of indecision in settling on what would be the central theme of his campaign: presenting himself as an outsider and Brown as the ultimate insider, or touting his record as mayor and national reputation as a leader of the push for same-sex marriage.

“With enough money and political support behind him, he might have made a run at Brown, not from the left or the right but from the future,” a CalBuzz port-mortem on Newsom’s campaign noted.

“But there’s the paradox: Newsom thought that propounding a new ideas message meant he could avoid the old politics necessity to focus on fundraising and building alliances. As a political matter, it was a fatal flaw.”

Newsom easily won election as lieutenant governor in 2010 and re-election in 2014 against unformidable opponents. The 2018 governor’s race could show what – or whether – he learned from his first run for the state’s highest office.

San Diego Mayor Kevin Faulconer and Ashley Swearengin, the termed-out mayor of Fresno, placed just behind Democratic Lt. Gov. Gavin Newsom in a poll of registered voters taken prior to last week’s presidential election, conducted by The Field Poll and the Institute of Governmental Studies at UC Berkeley. 

Newsom drew 23 percent to Faulconer’s 16 percent and Swearengin’s 11 percent, with six prominent Democrats trailing in the single digits. Although anything can change in politics, Faulconer said early this year that he won’t run for governor, and Tim Clark, a political consultant to Swearengin, told CalWatchdog on Tuesday he didn’t “expect her to run.”

Why it matters

Having been shut out of the U.S. Senate race after the June primary, thanks in part to the state’s relatively new system where the top two candidates advance regardless of party, Republicans will need to field a strong candidate at the top of the ticket in 2018 to help with fundraising and turnout for down ballot races and to show they can still compete in statewide elections. 

In addition to legislative races, where Republicans will either be fighting off a Democratic supermajority by the narrowest of margins or trying to add a little bit of a buffer — the few races from last week that the Democratic supermajority hinges on have not yet been decided as the votes are still being counted — the 2018 gubernatorial election will elect statewide officers.

CA GOP Chairman Jim Brulte told CalWatchdog on Tuesday that the party was still focused on the outcome of last week’s election, but added the party was beginning to turn to 2018. 

“I believe we will have strong candidates for a number of statewide offices,” Brulte said. 

Challenges for Republicans

Both parties have struggled with a decline in voter registration for years, although the trend has been much more severe for Republicans, dropping from 36.4 percent of the electorate in 1996 to 26 percent late last month. Democrats in that time declined from 47.9 percent to 44.9 percent, but enjoyed a surge in registration over this campaign cycle that led to a slight uptick.

Whichever Republican candidates decide to jump into the race, they will be starting way behind Newsom and state Treasurer John Chiang, who have both been running and fundraising for awhile. As of September, Newsom had $6.3 million in his campaign account, while Chiang had $2.2 million as of August.

Both Faulconer and Swearengin benefited heavily in the poll from party identification — both dropped to single digits when polled on just name ID alone. But it’s still very early in the race, said John J. Pitney, Jr., a Roy P. Crocker professor of politics at Claremont McKenna College. 

“These results reflect name recognition and partisan identification more than serious evaluation of the candidates,” Pitney said. “The good news for Republicans is that, although Faulconer and Swearengin are not running ahead, they have a chance of making the top two. The bad news is that the Democrats will be able to run well-funded campaigns.”

Money plays the odds 

Pitney pointed to the 2014 Republican gubernatorial candidate, Neel Kashkari, who struggled with fundraising despite having contacts throughout the business and financial community from his time as an investment banker and top Treasury Department official.

In 2014, Kashkari raised only slightly more than Newsom has now two years out, largely due to being seen as not having a strong shot of winning (although he was running against a popular incumbent, Gov. Jerry Brown).

“Look at Kashkari,” Pitney said. “He had extensive contacts in the business/financial community, but could not fill his warchest because nobody thought he could win.”

Other candidates

Antonio Villaraigosa, the former mayor of Los Angeles, and Delaine Eastin, the former state superintendent of public instruction, have both announced their intentions to run. Eastin was not included in Tuesday’s poll, while Villaraigosa drew 6 percent. Chiang was near the bottom at 2 percent.  

John Stumpf abruptly resigned Wednesday as CEO and chairman of the scandal-torn San Francisco-based banking giant Wells Fargo.

But much more fallout is expected over the revelation last month that Wells Fargo had fired 5,300 employees for fraudulently signing up customers for 2 million new services and accounts. The bank’s agreement to pay $185 million to the Consumer Financial Protection Bureau hasn’t remotely satisfied its critics.

In Calabasas on Tuesday, the state Assembly Banking Committee held a hearing in which witnesses denounced Wells Fargo for its actions. The criticism continued even after Wells Fargo executive David Galasso told the committee that Wells Fargo would go beyond the $185 million settlement in compensating customers who were victims.

Banking Committee Chairman Matt Dababneh, D-Encino, said he was considering introducing a bill in the Assembly targeting laws and regulations that allow banks to compel disgruntled customers to go to arbitration in just about every circumstance.

Wells Fargo has already used such state and federal laws to get several related individual lawsuits thrown out and sees the rules as a potent tool against expected class-action lawsuits in which former Wells Fargo customers say their credit ratings were damaged by the bogus accounts and services established in their names.

In Washington, meanwhile, senators of both parties have been pressuring the Justice Department to open a full-blown criminal investigation of the company and its top executives — and not settle for a large fine.

Under formal Justice Department policy, the decision to start such a criminal probe partly depends on ”the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.” Given that the 2 million phony accounts were being set up from 2009 to earlier this year — and that executives were aware of the problem for at least three years — the pervasiveness standard is seen as highly relevant to the Wells Fargo case. Under federal law, corporations bear responsibility for the criminal behavior of their employees if it arises in the workplace.

“If it was one person or even 100, you might argue that it’s a rogue contingent,” University of Virginia law process Brandon L. Garrett, author of ”Too Big to Jail,” told The New York Times. ”But you can’t seriously argue that 5,000 people have gone rogue. That’s systemic behavior. People above them had to have noticed. … Fines aren’t working. We’re not going to see deterrence until we see some high-­level individual cases.”

Wells Fargo scandal an issue in presidential campaign

The Wells Fargo scandal has also become an issue on the presidential campaign trail. Like Dababneh, Democratic nominee Hillary Clinton has denounced laws that compel arbitration in banking disputes.

There is also additional fallout at the state and local level. California Treasurer John Chiang and Illinois Treasurer Michael Frerichs separately announced that their states would limit use of Wells Fargo on an interim basis.

In Chicago, Mayor Rahm Emanuel’s administration announced that it was selling all its Wells Fargo securities — about $25 million worth. Last week, the Chicago City Council took a first step toward banning any city dealings with the California bank.

These lost customers don’t mean much to a company with $90 billion in sales and $23 billion in net profits in 2015. But in an era of anger over the perception that big banks paid a small price for their role in creating the Great Recession, disinvesting in and banning Wells Fargo could become a proxy way for elected officials to take a stand against Wall Street — even if the company is based in California.