California Legislation Update - Mike Belote

Summary

In this California legislative update, Michael Belot discusses the state's legislative process, budget challenges, and housing policy debates. He highlights the state's revenue issues, including temporary tax measures affecting large taxpayers, and the ongoing struggle between state housing mandates and local control. Belot also previews the upcoming November elections and the potential impact of various tax-related initiatives on state and local governance.

Takeaways

• 🗓️ The legislative process is moving quickly with only six and a half weeks left of activity for the 2023-2024 legislative year in California.
• 🏛️ The state budget is a significant issue, with a large deficit requiring both spending cuts and new revenue sources.
• 💼 Business and legislative leaders have reached a deal on the Private Attorney General Act (PAGA), which is expected to improve California's business climate.
• 🏢 There is a major struggle between state and local control, particularly in the area of housing policy, with cities considering becoming charter cities to retain more control.
• 🏫 Public education and higher education funding are key issues that the state budget must address.
• 🏦 The state is considering temporary measures to address the budget deficit, such as pausing net operating loss carryovers and limiting R&D tax credits for large tech and biotech companies.
• 🏦 The state's economy is doing well, but there is still a multi-year deficit projection, suggesting potential structural problems with the budget.
• 🏛️ The legislature is working on 'Budget bills Jr' to make the hard decisions needed to balance the budget by the fiscal year's start on July 1.
• 🗳️ The November general election will not change the deeply blue political landscape of California, but it will feature a variety of significant ballot initiatives.
• 🗳️ Three separate initiatives on taxation are on the November ballot, which could have substantial impacts on local and state government and the architectural profession.
• ✍️ The governor will have until the end of September to sign or veto the bills passed during the legislative session.

Q & A

Who is the speaker in the video script?

The speaker is Michael Belot, the immediate past president of California Advocates.

What is the primary purpose of the video script?

The primary purpose is to provide an update on the California legislative process and discuss various issues related to it, including budget, housing, and taxation.

What is the significance of June 18th in the context of the legislative process mentioned in the script?

June 18th is a critical point in the legislative process where deals come together or fall apart, and it is when the legislature is 'putting for dough,' meaning making important decisions.

How much time is left of legislative activity in the 2023-2024 legislative year as of June 18th?

As of June 18th, there are only six and a half weeks left of legislative activity in the 2023-2024 legislative year.

What is the deadline for the state budget to be enacted?

The state budget must be enacted by June 15th, after which legislators forfeit their pay if it is not passed.

What is the fiscal year start date according to the script?

The fiscal year starts on July 1st.

What is the current economic situation in California as described in the script?

Despite a strong economy with capital gains being reported, stock markets at an all-time high, and low unemployment, California is still in a deficit position.

What is the ongoing struggle between the state and cities regarding housing policy?

The struggle is about who gets to decide housing policy, with the state wanting to drive housing creation and cities wanting to retain local control.

What is the significance of Charter cities in the context of state housing policy?

Charter cities are considering becoming Charter cities to avoid state housing policy laws, leading to a debate on local control versus state policy.

What are the three separate initiatives on taxation that are mentioned in the script?

The initiatives include lowering the vote threshold for local tax and bonded indebtedness, raising all tax thresholds to 2/3 and subjecting legislative tax increases to popular vote, and a creative proposal that any proposal to raise a vote threshold for taxes must pass by the threshold it proposes.

What is the expected outcome of the initiatives on taxation if they are approved?

The initiatives could have a substantial impact on local and state government, potentially leading to more infrastructure spending, changes in tax thresholds, and the need for legislative tax increases to be subject to popular vote.

What is the deadline for the legislature to act on the Private Attorney General Act (PAGA) reform to avoid it appearing on the ballot?

The legislature must act on the PAGA reform by June 27th for the proponents to take their initiative off the ballot.

What is the speaker's opinion on the PAGA reform deal?

The speaker believes that the PAGA reform is a major change in California law and will allow California to claim that its business climate has taken a step for the better.

Outlines

00:00

🗓️ Legislative Update and Process Overview

The speaker, Mike Belot, provides an update on the California legislative process as of June 18th, emphasizing the urgency of the situation with only six and a half weeks left in the legislative year. He compares the legislative process to a construction project, highlighting the importance of deadlines and the final stages where deals are made or broken. He notes the legislative session will end on August 31st, with no bills carrying over to the next year. The speaker also touches on the state budget, which must be balanced by June 15th, and the ongoing negotiations for the 'Budget bills Jr' to address significant issues like public education and prison closures.

05:00

🏦 State Budget Challenges and Revenue Strategies

This paragraph delves into the complexities of the state budget, which is facing a significant deficit of $30-50 billion. The speaker explains that the budget was balanced last week but with many tough questions remaining. He discusses the role of revenue in constructing the budget, mentioning temporary measures such as pausing net operating loss carryovers for three years and limiting research and development tax credits for large tech and biotech companies. These measures are seen as the state asking large taxpayers to provide no-interest loans to help with the deficit. The speaker also expresses concern about the state's long-term budgetary health despite a strong economy.

10:03

🏠 Housing Policy and Local Control Conflicts

The speaker addresses the contentious issue of housing policy in California, where there is a major struggle between the state's desire to increase housing creation and cities' desire to maintain local control. A recent court decision has complicated matters by ruling that some state housing policies do not apply to charter cities, leading to more cities considering becoming charter cities. The conflict centers on who should determine housing policy, with the state insisting on a uniform policy and local governments arguing for their constitutional right to local control.

15:05

🗳️ Upcoming Elections and Initiatives Impacting Business and Taxation

The final paragraph discusses the upcoming general election and the potential impact of various initiatives on business and taxation. The speaker mentions that despite the election, California's deep blue political landscape will not change significantly, and major issues like the budget and housing will continue into the next year. He also highlights three separate initiatives on the November ballot that could alter tax thresholds and the process for tax increases, which could have substantial effects on local and state governments and the architectural profession. The speaker concludes by reflecting on his long-standing collaboration with the organization and expresses his pleasure in working with them.

Keywords

💡California Legislative Update

A California Legislative Update refers to a briefing or report on the current status of legislation within the state of California. In the video, this term sets the context for the discussion of ongoing legislative processes and policies. It is a central theme as the speaker, Michael Belot, provides insights into the legislative activities and their implications for various stakeholders.

💡AIA Cal

AIA Cal, or the American Institute of Architects California Council, is a professional organization representing architects in California. The speaker mentions AIA Cal to highlight the organization's long-standing relationship with legislative advocacy, indicating its importance in influencing and shaping architectural policies in the state.

💡Legislative Process

The legislative process refers to the steps a bill goes through to become law. The speaker uses this term to describe the progression of bills from introduction to becoming enacted legislation, emphasizing the deadlines and the urgency of decision-making in the current legislative session.

💡State Budget

The state budget is the financial plan outlining the government's revenue and expenditures. In the script, the state budget is a critical issue under discussion, with the speaker mentioning the need for a balanced budget and the challenges of addressing a significant deficit.

💡Revenue

Revenue in this context refers to the income generated by the state, which is used to fund various programs and services. The speaker discusses the state's revenue situation, noting a significant deficit and the strategies being considered to address it, such as temporary capital infusions and tax policy changes.

💡Housing Policy

Housing policy encompasses the regulations and guidelines set by the government to address housing needs and development. The speaker highlights the ongoing struggle between state-level housing creation goals and local control, particularly in the context of Charter cities, which is a significant issue in the current legislative climate.

💡Charter Cities

Charter cities are cities in California that have a charter from the state, granting them certain rights and powers. The speaker discusses the implications of charter status in the context of housing policy, where some cities are considering becoming charter cities to retain more local control over housing decisions.

💡Taxation Initiatives

Taxation initiatives refer to proposed changes to tax laws or the introduction of new taxes, often put forth as ballot measures. The speaker mentions three separate initiatives on the November ballot that could significantly impact taxation in California, affecting everything from local infrastructure spending to the state's approach to tax increases.

💡Private Attorney General Act (PAGA)

The Private Attorney General Act is a California law that allows employees to sue on behalf of the state for labor law violations. The speaker discusses a potential reform to PAGA, which has been a contentious issue for businesses, as it can lead to costly lawsuits even if the business ultimately prevails.

💡General Election

The general election refers to the regularly scheduled election where government officials are elected. The speaker anticipates the upcoming general election in November and discusses its implications for the state's political landscape, noting that despite the election, significant issues like the budget and housing policy are likely to continue into the next legislative session.

Highlights

Introduction of the California legislative update with Michael Belot, the immediate past president of California Advocates.

Discussion on the legislative process's progression from deadline to deadline, akin to a construction project or mortgage application.

The analogy of driving for show and putting for dough in golf to describe the importance of the legislative process's final stages.

The legislative process's current phase, with only six and a half weeks left of the 2023-2024 legislative year.

The state budget's requirement for a simple majority vote and the implications for legislators' pay if the budget is not enacted by June 15.

The ongoing negotiations between the legislature and the governor's office on the state budget, known as 'Budget bills Jr.'

The significant revenue shortfall in the state budget, estimated between $30 to $50 billion.

The state's approach to addressing the deficit by temporarily pausing net operating loss carryovers and limiting R&D tax credits for large companies.

Concerns about the structural problems in the state budget that may require addressing in the coming years.

The ongoing struggle between the state's desire for housing creation and cities' desire to retain local control.

The impact of recent court rulings on state housing policy laws and the potential for more cities to become Charter cities.

The end of the legislative session on August 31st and the historical practice of 'stopping the clock' to continue work.

The governor's upcoming decision-making period on the approximately 1,000 bills that will land on his desk.

The upcoming November general election and its implications for the state's deeply blue political landscape.

The announcement of a deal on reforming the Private Attorney General Act (PAGA) to take it off the ballot.

The presence of three separate initiatives on taxation on the November ballot and their potential impact on local and state government.

The complexity of the taxation initiatives and the likelihood of legal challenges following the election.

Closing remarks expressing the pleasure of working with the organization for approximately 50 years.

Transcripts

hello everyone and welcome thank you for

joining us for this California

legislative update today you'll hear

from code advocacy and legislation

experts within the architectural

profession Michael belot the immediate

past president of California

Advocates well thank you Sarah uh I'm

Mike belot as you've noted been my

privilege and our firm's privilege to

represent AIA Cal for decades uh and so

we go back uh but we a long way but we

so value our relationship with the

organization and we have worked in

wonderful collaboration with your

leadership over the years with Paul and

now with Nikki uh but also with your

legislative people with Mark and now

Scott who's doing a terrific job for the

association and profession I'm told it

is my job to just give a sense of where

things are in the legislative process

here on uh what is it June

18th if I might mix my metaphors just a

little bit

uh the legislative process moves from

deadline to deadline not unlike a

construction project or a mortgage

application uh and to and to further uh

layer metaphor upon metaphor in golf a

game I absolutely do not excel at

there's an old saying that you drive for

show and you putt for dough meaning uh

that the the drive may look great on TV

but it's the pets that matter and inches

matter and in our world days uh and

words matter and we are coming to that

point in the legislative process where

we're putting for dough now where deals

come together or fall apart before my uh

10 or 15 minutes up I'll talk about a

deal which has apparently come together

today uh which I think is uh noteworthy

uh for all of us as business

people so here we are uh on June 18th

there are only six and a half weeks left

of legislative activity in the entire

2-year 2023 2024 legislative year the

legislature will work until July 3rd uh

whereupon they will enter into the

summer recess for a month and they will

come back August 4th until uh they must

adjourn at midnight August 31st under

our state constitution that will end the

session the two years are up no bill

will carry over from this year to next

year we'll start a brand new legislative

session in December and I'll get to that

uh in a few

minutes so this this is for all the

marbles this is when the hard decisions

get made legislative and human uh nature

being what it is the hard decisions get

put off uh till late and we're late now

so you are now beginning to hear about

hard issues being

debated and the the the first one uh

well let me say there's only uh really

two and a half weeks left of policy

hearings on bills

uh all the policy committees will have

heard their bills by the time the summer

recess begins on the 4th of July so the

legislature is scrambling deadline to

deadline to hear 14 15600 bills uh

basically this month but at the same

time the overarching issue of the state

budget is still pending uh some years

ago the legislature uh presented to the

voters an option which they took to go

from a 23 majority vote uh requirement

to adopt a state budget to a majority so

a simple majority can now pass the state

budget which then must be signed by the

governor and to uh entice voters to vote

for the measure uh there was Provisions

put in the initiative which caused

legislators to Forfeit their their pay

if a budget is not enacted by June 15

for that reason June 15th is the is the

budget date and of course legislators

meet that deadline every year and it may

it became easier to meet it when it

became a majority

vote but nothing says it has to be the

one and final budget it simply means

that the legislature must adopt a budget

which is balanced so the debits and the

credits equal at the bottom of the page

which they did last week on Thursday but

everyone knew that some of the hard

questions still remain and so the

legislature is now working with the

governor's office on what they call

Budget bills Jr that is budget acts that

follow and have the real hard decisions

made uh in them uh by the beginning of

the fiscal year July 1 so there are big

big issues pending now uh and things uh

that really matter to the state and to

all of us as Citizens like uh public

education and higher education it's

state support for that uh like should we

close prisons which pits uh uh Criminal

Justice Reform Advocates against the law

enforcement community and I'll talk

about that because also has an election

component to it so sometime between now

and uh July 1 the legislature will pass

another budget uh act which answers some

of these hard questions the governor

will sign it and we will commence our

fiscal year on July

1 one of the things though that is um uh

major of course in constructing a budget

is revenue and this year the budget was

a wash in red in to the tune of

somewhere between 30 and 50 billion

dollar with a

B uh which obviously cannot be closed

entirely with cuts or with new Revenue

you got to have both uh in the new

Revenue

category

uh many many many billions of dollars

are being generated not with structural

changes to the tax laws but with

temporary infusions of capital in

particular uh a pause in the ability on

your tax return a business tax return to

report a net operating loss carryover uh

it's not like the net operating loss

goes away but for three years tax years

24 25 and

26 uh there will be a pause and those

can be picked up again in tax year

2027 another uh big tax issue though

especially to large Tech Pharma

biotech uh companies is a limitation on

research and development tax credits

that alone is worth five or six billion

reportedly and the those two will be

severely limited for three years and

then picked up again on a refundable

basis and I won't go into the details of

that uh in tax year

2027 so basically what the state is

doing is asking uh large taxpayers to

float uh noin interest loans to the

state for the next few years to help get

through this uh deficit position

uh what I would worry about uh where I

voting on a budget or constructing it is

this regardless of what we see in the

debate uh at the federal level and the

presidential debate uh where one person

is claiming the economy is Rosy and

another claiming that it's a shambles in

fact at least in California the economy

is doing very well uh capital gains

continue to be reported the stock

markets at an alltime high unemployment

is low by General metrics the economy is

doing very well and we're still in a

deficit position it's true that we don't

have quite the IPOs that might have been

occurring a few years ago and those will

come back I'm sure but for right now we

have a multi- uh year deficit projection

in spite of a very strong economy so

it's possible that we have structural

problems with the budget that will need

to be addressed in the coming years or

else we could be in a budget deficit

position for quite some time so right

now the budget uh continues to be an

issue and will for another week and a

half uh and tax uh policy is a big part

of the solution but another issue which

I know is near and dear to archit Tex is

the housing situation and what we are

seeing and I've seen uh announcements as

recently as this morning is an a major

epic struggle between State uh desire to

drive housing creation and

cities uh desire to retain local control

and regardless of where you fall on that

that that battle is Major and is playing

out right now a court recently held that

some of the state housing policy laws do

not apply to Charter cities and more

cities are considering becoming Charter

cities as a result of that we have about

500 cities in California and

approximately a hundred are Charter

cities but the ultimate question is

who's going to decide housing policy and

the legislature and Governor are

insistent that we have a state policy

and that locals will abide by it or be

penalized for failing to do so and

locals are fighting back and saying we

are the people closest to the voters we

have uh the constitutional right to

local control especially if we are a

charter City and that battle is playing

out at we speak and it is a fascinating

legal practical housing uh

battle so uh at midnight August

31st uh we will gavel down the two uh

the two-year 2023 2024 session you might

find it interesting that in years past

uh they literally used to stop the clock

in the uh chambers of the assembly and

Senate and pretend that it had not

become midnight so that they could

continue to do work uh however when

smartphones got developed and people

could take pictures with timestamps on

them they realized that they can't very

well call 4 a.m. uh 11:59 p.m. and so

now they actually gavel the session down

at midnight and we're done for the

twoyear uh

session what happens next of course the

governor gets uh uh o uh this year

September to sign or veto the perhaps

1,000 bills which will land on his desk

you might find it interesting that all

governors get an individualized

presentation on every single bill it's

not like there's a pile that he just

does by acclamation or consent he

actually gets a presentation and all

Governor have uh on each bill uh and

he'll sign perhaps 80 to 85% of them

vetos this year are likely to be over

issues of cost no surprise if if the

money isn't there and the bill cost

money it has a far higher likelihood of

being vetoed this year than in a year uh

of of uh surpluses of course that's

September he has until the end of

September to sign or veto these thousand

bills or so that he's going to get after

that the November general election uh

and what a general election it is going

to be here's what will not change

California will remain a deeply blue

Bluer Than uh Nikki's uh sweater uh far

Bluer Than That uh we will remain

approximately 2/3 to 3/4 Democrat in

both the assembly and

Senate uh we're not going to solve the

budget situation in the election we will

continue into that next next year we're

not going to solve the Ultimate answers

on housing and and that sort of thing uh

but we are going to start a brand new

session on the first Monday in

December but also on the ballot are a

dizzying array of initiatives and I'd

like to take just a moment to talk about

uh two

subjects first what will not appear on

the ballot well big business

associations had joined together and

qualified a measure on reforming the

private attorney general act or

paga uh on employment law if any of you

have had The Misfortune as business

people to be named in a paga employment

law suit uh you know what a daunting uh

reality that presents you with uh that

you could spend so much money defending

it uh you'll feel like you lost even if

you won uh today the governor and

legislative leaders announced that a

deal had been reached on paga to take

that off of the ballot our law now now

allows uh proponents to take their

measure off of the ballot if the

legislature acts to their satisfaction

that must be done by June 27th so next

week they have to have passed a bill to

reform the private attorney general act

whereupon the proponents will take their

Initiative off of the ballot and when

your sample ballot arrives it will not

be on there but that is a major change

in California law and speaking

editorially I think it's something that

will allow California to claim correctly

that their business climate has taken a

step for the better and I apologize for

being editorial but paga is a big deal

but a second deal that is critically

important and will touch Architects is

Taxation and there are three not one not

two but three separate initiatives on

taxation on the November ballot the

first would lower the vote threshold for

local tax and bonded indebtedness from

2third to

55% you'd be amazed how many measures at

the local level passed by or get a vote

of higher than 55 but less than 2third

so by lowering the vote threshold for

local tax and bonds you will cause more

to pass thereby creating more

infrastructure spending and that sort of

thing the second one though is put on by

the Cali Business Roundtable and it says

no the problem with taxes is that we

have this weird Prop 13 distinction

between General taxes and special taxes

we should raise all of the tax

thresholds to

2/3 and we should subject legislative

tax increases to popular vote it is a an

initiative of astonishing scope so while

the first initiative would lower the

threshold the second one would raise the

threshold ah but a third initiative is

coming and this is a devilishly creative

proposal it says any proposal to raise a

vote threshold for taxes must pass by

the threshold it proposes in other words

if you want to raise a vote threshold to

2/3 you have to pass the initiative by

2/3 so pity the voter who doesn't listen

to webinars like this who tries to

figure that out when their sample ballot

arrives but regardless of what happens

and one could be approved or two could

be approved or Lord help us if three are

approved it will all go into the courts

it will have to be sorted out but it

will have very very substantial impact

on local and State uh government and

therefore your profession with that

Scott and Nikki and Sarah I uh I think I

may have gone one minute over my 20

minute allotment for that I should be

severely censured if not

reprimanded uh but it is a pleasure

working with Scott and Nikki and the

whole organization as it has been now

for approximately 50 years