|
Prepared by Precision Advocacy
With the new year around the corner and Governor Gavin Newsom’s proposed budget due to the legislature on January 10, legislators and stakeholders are beginning to look at the budget picture for 2025. As previously reported, the Legislative Analyst’s Office is projecting that the 2025-26 budget is roughly balanced absent changes, however, there are structural deficits in the out-years.
The California Budget and Policy Center recently provided a snapshot of how federal funding impacts California, with about one-third of state budget revenues coming from federal funding. The fact sheet examined the 2024-25 budget and found the following:
- The budget includes $153 billion in federal funding - 33.9% of total funding.
- Health and human services programs receive about 75% of the federal funding - $115.7 billion.
- $8.5 billion is directed to labor and workforce development programs, primarily for unemployment insurance benefits.
- $7.9 billion is for K-12 education.
- $7.4 billion is for higher education.
- $6.8 billion is for transportation, primarily transportation infrastructure.
- $6.8 billion is directed to miscellaneous public services and systems, including environmental protection, state courts, and corrections.
Governor Newsom has also begun providing some insight on his priorities, including providing:
- $25 million for the Attorney General to file lawsuits against the federal government and defend against lawsuits coming from the federal government. California spent $42 million for this purpose during Trump’s first presidential term, including filing more than 120 lawsuits.
- A $420 million increase in tax break for Hollywood film studios. California currently offers $330 million in credits annually.
Other elements that are adding uncertainty to the budget picture include the following:
- Medi-Cal costs are trending at about $2.7 billion more than anticipated in the budget year and $1.2 billion more in 2025-26.
- Proposition 35, the managed care organization (MCO) tax ballot measure, directs MCO taxes differently than the legislature did as part of the 2024 Budget Act and will result in a $4.9 billion hole in the Medi-Cal budget.
- Proposition 36 will increase costs for jails and prisons.
We will continue to provide information on the state budget as developments emerge. Any shortfall to the state budget is likely to impact funding provided to Orange County, particularly for safety net programs that assist vulnerable residents.
Sober Living Home & Recovery Residence Legislation for 2025
In light of the Ohio House LLC vs. the City of Costa Mesa decision last week from the U.S. Court of Appeals for the Ninth Circuit, we anticipate additional substance use disorder recovery and treatment program legislation in the 2025 legislative session. The precedent setting decision determined that Costa Mesa’s ordinance governing sober living homes does not discriminate against recovering addicts.
Assemblymember Diane Dixon has introduced AB 3, directly related to the audit she requested last year, applying density standards that seek to maintain a non-institutionalized setting for treatment facilities. Recommendations from the California State Auditor in October primarily focused on the Department of Health Care Services (DHCS), however, recommendations to the legislature suggest the ability to address concerns about the over concentration of treatment facilities in residential communities without violating federal housing and disability law, an issue Orange County has been contending with for many years.
The legislature could enact legislation:
- Directing that DHCS issue regulations under the Administrative Procedure Act for making specific findings of fact when a licensed applicant's proposed facility will result in over concentration, to deny or impose additional requirements on the license when over concentration would create an institutional setting for residents or impede their integration into the community.
- Amending the statutory exemption from local zoning regulations to exclude new licensees that will effectively have more than six residents, such as closely located facilities that share owners, directors, and amenities and have more than six residents in total, among them.
The State Auditor recommends DHCS:
- Ensure treatment facilities are inspected as required by state law, by October 2025, by providing management with information about the timeliness of compliance inspections, implementing a mechanism in the DHCS licensing database that notifies staff of the dates for upcoming compliance inspections so they can plan accordingly, and filling vacant positions.
- By April 2025, ensure that DHCS assigns complaints to analysts for investigation within 10 days, and update policies and staff training.
- Implement guidelines by October 2025 specifying the length of time analysts should take to complete key steps in the investigation process for different types of investigations. DHCS Response: DHCS will implement guidelines by October 2025 to specify the targeted timelines analysts have to complete key steps in the investigation process for different types of investigations.
- Conduct site visits beginning December 2024 in all instances in which there is an allegation that an unlicensed facility is advertising or providing treatment services without a license.
- By April 2025, DHCS should develop and implement a follow-up procedure to confirm that unlicensed treatment facilities do not continue to provide services without a license after an investigation substantiates the allegation.
Cal Cities is working on a package of three bills, although details are preliminary, and association lobbyists are still securing authors, including seeking several from the Orange County legislative delegation. Concepts for the legislation are based on the outcomes of Assemblymember Dixon’s requested audit:
- Notification to local jurisdictions when DHCS approves a license.
- Codification of timelines for the complaint process and provision of information on the status of complaints.
- Requiring site visits for unlicensed facilities, including implementing timelines, follow-up requirements, and investigation of other facilities owned by someone who has lost a license.
As a refresher, the governor signed two pieces of related legislation into law earlier this year.
AB 2081 (Davies) Substance abuse: recovery and treatment programs, requires entities licensed or certified by the Department of Health Care Services (DHCS) to include on their websites and intake paperwork a disclosure stating an individual may check DHCS’s website to confirm any actions taken against the entity.
AB 2574 (Valencia) Alcoholism or drug abuse recovery or treatment facilities, requires a licensed alcoholism or drug abuse recovery or treatment facility or certified alcohol or other drug program to disclose to DHCS whether any of its agents, partners, directors, officers, or owners own or have a financial interest in a recovery residence and whether it has contractual relationships with unlicensed entities that provide recovery services.
We will continue to keep the county apprised of legislation and discussions related to sober living homes and recovery residences as bills are introduced.
LAO Issues Report on Unemployment Insurance Program Fiscal Challenges
The Legislative Analyst’s Office (LAO) issued a tough report on the state’s ongoing Unemployment Insurance program (UI) challenges last week. The report, Fixing Unemployment Insurance comes after more than two decades of persistent fiscal challenges with the fund, more than a decade after the State Auditor issued its own report on the fund’s challenges, and almost twenty-five years after the original political sin that put the whole thing in motion. The LAO report calls the current system “broken” and offers four key recommendations to fix it.
Background. UI provides temporary wage replacement to unemployed workers, helping to alleviate temporary economic challenges for workers and their families and stabilize the economy during economic downturns. Only about 40% of unemployed workers receive unemployment insurance. Unemployment benefits now routinely outpace incoming tax contributions, leading to a costly reliance on federal loans and constraining the state’s options to improve the program.
California’s UI program is funded by taxes and pays Unemployment Benefits. The state’s UI program is a state-federal partnership under which workers receive partial wage replacement if they lose their job through no fault of their own. Employers pay a payroll tax on each worker to fund benefits. These payroll taxes—the tax rate currently averages 3.5% on the worker’s first $7,000 in annual wages, or about $250 per year for each worker—are paid into the state’s UI trust fund.
On average, employers contribute a total of $5-6 billion into the fund each year. When an eligible worker becomes unemployed, the state pays the workers’ benefits out of the trust fund. Unemployed workers can receive 50% of their regular wages, up to a maximum of $450 per week, for up to 26 weeks. Due to the $450 weekly benefit maximum, about half of workers receive less than 50 percent of their regular wages.
The fund’s challenges can be traced to 2001, when the UI Fund had a $6.5 billion positive balance of reserves. But the governor at the time, Democrat Gray Davis, owed political debts to unions that financed his 1998 campaign. He repaid them by doubling unemployment insurance benefits, contending that the hefty reserve could cover them without raising payroll taxes on employers.
Pandemic Unemployment Rates Exacerbated the Problem. Following decades of fiscal shortfalls during recessions, the fund faced its greatest challenges during the pandemic. Beginning with only $3 billion in reserves, the fund could not keep pace with increased benefits during a time when 1 in 5 California workers would eventually receive UI benefits. In 2020 the state paid out $24 billion in UI benefits. Facing a shortfall, the state received a federal loan of $20 billion to keep paying benefits associated with the state’s UI program.
Since the pandemic, employment levels have recovered, but the debt owed by the state’s UI program has remained about the same. The state is entering its fourth year of repayments, and employers will pay an additional 1.2% federal surcharge in 2025 (equivalent to $84 per worker).
Efforts to Expand and Reform the System. State UI programs are intended to be self-sufficient, collecting enough funds to cover benefits over time. While this was largely true of California’s program a few decades ago, it is not true today. According to the LAO’s report, California has been at the maximum UI tax rate schedule since 2004.
Benefits were last increased in 2004 and have not been adjusted for cost-of-living increases since,
including through the recent period of historically high inflation. While California’s UI program provides lower weekly benefits relative to wage level than most other states, the program tends to pay benefits for a slightly longer duration and to a larger than average caseload compared with other states. At the same time, California’s UI tax burden is below average compared with other states.
The legislature has pursued expanding UI coverage to workers who have not typically received benefits, including striking workers, undocumented workers, and independent contractors. The imbalance in the current financing system has stymied these efforts, however. For example, the governor recently vetoed a bill to expand UI to striking workers, citing fiscal challenges with the state’s UI trust fund.
UI Structural Deficit is Expected to Worsen in Years Ahead. The administration is forecasting a continued structural deficit of the fund over the next several years, estimated at $2 billion per year for the next 5 years. The state UI system's significant outstanding federal loan, currently $20 billion, together with ongoing expected structural deficits, is likely to lead to an ongoing gap between contributions and benefits. The state’s only path to repaying the federal loan is through a federal surcharge that will continue to ramp up until the loan is repaid.
Although intended to be self-sufficient, the state’s General Fund will likely pay around $1 billion per year on associated interest costs on its federal loan. This will likely be a permanent feature of the program and a major ongoing cost for taxpayers, rather than employers.
LAO Recommendations
-
Substantially Increase the Taxable Wage Base: The LAO recommends the legislature increase the taxable wage base from $7,000 to $46,800, tying the taxable wage base to the amount of UI benefits a worker can receive ($450 per week). Taxing this level of earnings means no taxes would be paid on wages that are not covered by UI. This taxable wage base level would place California among the ten states with taxable wages bases above $40,000 and all other Western states. While helpful, this step alone would not be sufficient to address the state’s solvency problems.
- Redesign Employer Tax Rates Using Standard Rate and Reserve-Building Rate: Following federal guidelines, the LAO recommends the state adopt a simple, robust UI tax structure consisting of a standard tax rate and a reserve-building tax rate. The standard tax rate would cover typical UI benefit costs. The reserve-building rate would help the state build up a robust reserve that can be drawn down during recessions. Under current conditions, the standard tax rate would be 1.4% and the reserve-building rate would be 0.5%, for a total of 1.9% UI tax rate applied to our proposed $46,800 taxable wage base.
- Transition to Experience Rating System with Fewer Downsides: The LAO recommends the legislature transition to a new experience rating system that bases employers’ tax rates on increases or decreases in their employment, rather than an exact accounting of their former workers’ UI costs (as the current system operates). This approach would continue to reflect, indirectly, employers’ costs to the UI system because businesses that reduce employment tend to have higher UI usage. Thus, this alternative approach maintains the policy goals of experience rating but does not suffer from the main downsides of the current system.
- Refinance the Federal Loan with Shared Participation Between Businesses and the State: The outstanding federal loan complicates the state’s efforts to fix the UI financing system. As long as the federal loan remains outstanding, even an improved tax system would probably not be able to build reserves ahead of the next recession. To address this, and in acknowledgment of the unique nature of the pandemic that caused the significant UI loan, the LAO outlines a shared approach to refinancing the federal loan. This would involve two equal parts: (1) a revenue bond paid back by employers and (2) new borrowing from the Pooled Money Investment Account paid back by the General Fund.
The LAO recommends the legislature make changes now so that it can make strategic choices about how to repay the federal loan, while also replacing the UI financing system with one that is simpler, balanced, and flexible.
Governor’s Press Releases
Below is a list of the governor’s press releases beginning December 4.
December 11: California approves $1.4 billion plan to build thousands more vehicle chargers, boost ZEV infrastructure
December 11: State boosts critical battery storage project at Camp Pendleton with $42 million investment
December 11: Governor Newsom proclaims special election for Senate District 36, Assembly District 32
December 11: ICYMI: Private sector jobs are backbone of California’s job growth
December 10: Building California: Revamped Build.ca.gov highlights billions in infrastructure investments in every California community
December 10: Pivotal Delta Conveyance Project hits major milestone, now has support of water agencies serving majority of Californians
December 10: More water, more jobs: Governor Newsom visits historic farm in Colusa to highlight efforts to build water infrastructure, faster and create jobs
December 10: California’s cannabis task force seizes over $19 million in illegal cannabis and products in recent operations
December 10: California secures federal assistance to support response to Franklin Fire in Malibu
December 9: TOMORROW: Governor Newsom continues ‘California Jobs First’ tour in Colusa County with focus on water and infrastructure
December 9: California invests over $100 million to build safe walking and biking routes in disadvantaged communities
December 8: Governor Newsom appoints Adam Schiff to the U.S. Senate to complete remaining term ahead of full elected service
December 7: Governor Newsom proclaims Pearl Harbor Remembrance Day 2024
December 7: The California Weekly
December 6: Governor Newsom announces appointments 12.6.24
- Clint Kellum, of Sacramento, has been appointed Chief Deputy Director at the California Department of Cannabis Control
- Yvonne Dorantes, of Sacramento, has been appointed Assistant Deputy Director, Legislative and Government Affairs at the California Governor’s Office of Emergency Services
- Robert Koji Kumpulainien, of Fair Oaks, has been appointed Deputy Director of Service Innovation at the Office of Data and Innovation
- Jarrett Krumrei, of Sacramento, has been appointed Lead Product Manager at the Office of Data and Innovation
December 5: Governor Newsom announces appointments 12.5.24
- Gabrielle Santoro, of Sacramento, has been appointed Chief Deputy Director at Emergency Medical Services Authority
- James Yu, of Fremont, has been reappointed to the Dental Board of California, where he has served since 2018
- Michael Long, of San Francisco, has been reappointed to the Dental Hygiene Board of California
- Diego Inzunza, of Castro Valley, has been reappointed to the Physician Assistant Board, where he has served since 2020
December 5: Governor Newsom and First Partner Siebel Newsom to induct the 18th class of the California Hall of Fame
December 5: At Southern Border, Governor Newsom announces new Port-of-Entry construction to spur economic development and new efforts to bolster border security
December 5: Governor Newsom issues emergency proclamation to support response to Northern California earthquake.
December 4: Governor Newsom announces appointments 12.4.24
- Jaskiran “Jassy” Grewal, of Sacramento, has been appointed Deputy Secretary of Legislation at the Labor and Workforce Development Agency
- Mark Krausse, of Clarksburg, has been reappointed to the Public Employment Relations Board
- Joyce Kaufman, of June Lake, has been appointed to the Eastern Sierra Tri County Fair Board
- Alonso Escobar, of Mammoth Lakes, has been appointed to the Eastern Sierra Tri County Fair Board
- Bethany Renfree, of Sutter Creek, has been appointed to the 26th District Agricultural Association Amador County Fair Board
- Amber Hoiska, of Ione, has been appointed to the 26th District Agricultural Association Amador County Fair Board
- Shannon Clark, of Plymouth, has been appointed to the Amador County Fair Board. Clark has been a Teacher for Amador County Unified School District since 2001
|
|
Prepared by Townsend Public Affairs
This week Congress focused on legislation related to the Federal Emergency Management Agency (FEMA) while also moving the FY24 National Defense Authorization Act and Water Resources Development Act through the House. Negotiations continued on a proposed $98 billion supplemental appropriation for disaster relief and temporary of extension of government funding, setting up a busy final week of the congressional session next week.
LEGISLATIVE BRANCH ACTIVITY
House Passes Annual National Defense Authorization Act
On December 11, the House passed the annual National Defense Authorization Act (NDAA). The legislation moves to the Senate where it will likely pass and then be signed by President Joe Biden. Bipartisan congressional leadership released legislative text of the NDAA over the weekend, outlining more than 1,800 pages of spending priorities for the Defense Department’s budget. The compromise legislation hammered out with the Democratic-led Senate has a $895.2 billion topline figure, which will come in under the budget caps imposed by the Fiscal Responsibility Act despite efforts in the Senate to exceed the limit.
The NDAA passed with bipartisan support despite some Democratic opposition. It includes a 14.5% pay raise for junior enlisted troops and a 4.5% raise for the rest of the military. Controversial provisions on abortion, transgender care, and diversity efforts were dropped. However, it bans the Pentagon from endorsing critical race theory and imposes a hiring freeze on diversity-related positions.
Of the $895.2 billion topline the bill authorizes $850 billion for the Pentagon, $33.5 billion for nuclear programs, and $11.6 billion for other defense activities. A proposed $25 billion increase was shelved, and an appropriations bill still needs to be enacted to fund the provisions authorized in the NDAA.
The bill also approves key Pentagon programs, including a second Virginia-class submarine and a third Arleigh Burke-class destroyer, while cutting funds for the Constellation-class frigate. Additionally, it allows the transfer of Air National Guard space units to the Space Force without state governors’ consent.
The bill heads to the Senate where further action is expected in the coming days.
Republican and Democratic Steering Committees Begin Selecting Committee Leaders
The House Republican Steering Committee convened on December 9 to address upcoming vacancies and term limits affecting several committee chairs. Three prominent chairmen were appointed, with the remaining positions to be filled in the coming months. Rep. Brett Guthrie of Kentucky was chosen to lead the influential House Energy and Commerce Committee, which oversees policies related to healthcare, the environment, and energy. This was the most closely contested race within the Republican Conference. Rep. Brian Babin was appointed to chair the Committee on Science, Space, and Technology, and Rep. Brian Mast was selected to head the House Foreign Affairs Committee. These leadership changes are expected to significantly impact Republican strategy and legislative priorities in the upcoming session, amid ongoing discussions about potential leadership shakeups and committee power dynamics.
On December 11, the House Democratic Steering Committee focused on leadership challenges and committee assignments, with notable contests for key positions. Rep. Jamie Raskin is challenging Rep. Jerry Nadler for the top position on the House Judiciary Committee, indicating a push for more assertive leadership against the GOP. Rep. Raúl Grijalva is stepping down from the House Natural Resources Committee due to health issues, with Rep. Jared Huffman likely to succeed him. Additionally, Rep. David Scott faces challenges from Reps. Jim Costa and Angie Craig for the Agriculture Committee chairmanship due to his health concerns. Fundraising capabilities and internal caucus dynamics are playing significant roles in these races, which will shape the Democratic strategy in the next Congress.
House Passes Water Resources Development Act
This week the House passed S.4367, the Thomas R. Carper Water Resources Development Act of 2024 by a vote of 399 to 18. The bill now heads to the Senate where it is expected to pass and then be signed by the President in the coming days.
The act authorizes over 200 new feasibility studies and 22 reviewed projects, introduces reforms to empower non-federal sponsors, and improves project transparency and delivery. It also creates initiatives to help non-federal interests access Corps resources for new projects.
Additionally, WRDA reauthorizes FEMA’s National Dam Safety Program through 2028, strengthens the High Hazard Potential Dam program, and includes measures to optimize federally-owned office space usage. It addresses state transportation concerns by redistributing unobligated TIFIA balances through the Surface Transportation Block Grant program and reauthorizes the Economic Development Administration to promote economic development in distressed communities.
County Relevance
- The 2024 Water Resources Development Act includes several provisions with direct impact on the County of Orange.
- Santiago Creek Modification: Section 1311 requires redesigning the Santiago Creek component to minimize impacts on existing trees before construction can begin, addressing community concerns in Santa Ana.
- OC River Walk Study: This study aims to transform the Santa Ana River Corridor into a major recreational and economic hub, enhancing water resources and connectivity in Southern California.
- Reimbursement Authorization: This provision directs the U.S. Army Corps of Engineers to provide information on reimbursement requests by the Orange County Flood Control District for costs incurred in the Santa Ana River Mainstem Project.
- Appraisals and Settlements: The U.S. Army Corps of Engineers is directed to update on pending land appraisals and litigation settlements.
- Westminster-East Garden Grove Flood Risk Management Project: Added to the “ability to pay” list, this allows the U.S. Army Corps of Engineers to adjust cost-sharing based on the economic capabilities of local communities, ensuring fairer financial contributions for the project
House Passes Disaster Contract Improvement Act
On December 9, the House passed S.310, the Disaster Contract Improvement Act. It heads to President Biden’s desk to be signed into law. S.310 directs FEMA to establish an advisory working group to encourage and foster collaborative efforts among individuals and entities engaged in disaster recovery, specifically relating to debris removal.
The bill requires FEMA to then conduct outreach to states, tribal governments, and local governments with respect to any guidance or support materials developed; and the Government Accountability Office to conduct a study that examines the use and adoption rate of advance contracts for debris removal by states, tribal governments, and local governments.
House Passes Local Government Interest Relief Legislation
On December 9, the House passed the FEMA Loan Interest Payment Relief Act (H.R.2672). The legislation heads to the Senate for further consideration. Under H.R.2672, FEMA would be required to reimburse local governments and electric cooperatives for the interest paid on loans taken out for disaster relief efforts that are later covered by federal disaster assistance. H.R. 2672 would effectively allow local agencies and utilities to take out loans for immediate post-disaster response and recovery activities while avoiding the potential for large interest payments that can accrue while they wait for FEMA to disburse federal disaster funds.
A bipartisan coalition of Congressmembers representing coastal states such as Florida, Louisiana, and California supported the legislation.
House Passes FEMA Management Costs Act
On December 9, the House passed the Disaster Management Costs Modernization Act (H.R.7671). The legislation would allow the recipients of FEMA disaster relief and preparedness grants to reallocate unspent administrative funds toward management costs associated with other declared disasters, emergencies, or disaster preparedness activities. State and local governments that receive federal assistance for major disasters and emergencies would be able to retain and repurpose excess funds provided to help cover management costs for up to five years. Grant recipients could also use repurposed funds to help build their administrative capacity and readiness to respond to future disasters.
EXECUTIVE BRANCH ACTIVITY
Updates on Presidential Transition
President-Elect Donald Trump has announced additional nominations for his administration. He will continue to do so over the next several months as he fills the thousands of political appointee positions across the federal government. Here are some notable appointments:
- Secretary of Defense: Pete Hegseth
- Secretary of Homeland Security: Kristi Noem
- Secretary of State: Marco Rubio
- Secretary of Labor: Lori Chavez-Deremer
- Secretary of the Treasury: Scott Bessent
- Secretary of Commerce: Howard Lutnick
- Secretary of Health and Human Services: Robert F. Kennedy, Jr.
- Secretary of Energy: Chris Wright
- Secretary of the Interior: Doug Burgum
- Secretary of Transportation: Sean Duffy
- Secretary of Agriculture: Brooke Rollins
- Secretary of Education: Linda McMahon
- Secretary of Housing and Urban Development: Scott Turner
- Attorney General: Pam Bondi
- IRS Commissioner: Billy Long
- S. Trade Representative: Jamieson Greer
- EPA Administrator: Lee Zeldin
- White House Counsel: David Warrington
- Director of National Intelligence: Tulsi Gabbard
- CIA Director: John Ratcliffe
- FBI Director: Kash Patel
- Ambassador to the United Nations: Elise Stefanik
- Ambassador to NATO: Matthew Whitaker
- Under Secretary of State for Economic Growth, Energy, and Environment: Jacob Helberg
- Chairman of the Securities and Exchange Commission (SEC): Paul Atkins
- Administrator of NASA: Jared Isaacman
- Administrator of the Small Business Administration (SBA): Kelly Loeffler
- Special Presidential Envoy for Hostage Affairs: Adam Boehler
EPA Announces Latest Actions to Ban Trichloroethylene and Perchloroethylene
On December 9, the Environmental Protection Agency (EPA) finalized the latest risk management rules for trichloroethylene (TCE) and perchloroethylene (PCE) under the bipartisan Toxic Substances Control Act of 2016. The final rule will ban manufacturing and processing of both substances within one year in an effort to protect public health.
TCE is known to cause liver cancer, kidney cancer, and non-Hodgkin’s lymphoma. It also causes damage to the central nervous system, liver, kidneys, immune system, reproductive organs, and causes fetal heart defects. PCE is known to cause liver, kidney, brain and testicular cancer, as well as damage to the kidney, liver and immune system, neurotoxicity, and reproductive toxicity.
Both TCE and PCE are found in consumer and commercial products such as cleaning and furniture care products, degreasers, brake cleaners, sealants, lubricants, adhesives, paints and coatings, arts and crafts spray coatings, and are also used in the manufacture of some refrigerants. Safer alternatives are readily available for the majority of these uses. Senator Ed Markey said, “With no doubt that these chemicals are deadly, there is no doubt that this final rule will save lives—especially our children’s lives—around the country.”
LEGISLATION INTRODUCED BY ORANGE COUNTY DELEGATION
No legislation was introduced by members of the Orange County Delegation.
|
