California Legislature Delivers a Little Hope to Improving California's Business Climate in the 2015 Legislative Session

California has a well-deserved reputation as an unfriendly place to do business and create jobs. Our environmental and land use regulations are much more cumbersome and expensive than most other states. In addition, our business regulations and tax structure continue to lead many businesses to either move their operations out of California, or decide not to expand their businesses and facilities in other states where they have existing operations.

In spite of these facts, the recent end of the 2015 California Legislature's session, and the signing and vetoing of legislation by Governor Brown, provides a sliver of light that there may be hope in the future for our business climate in California. The California Chamber of Commerce has for over two decades analyzed legislation which would impact California's Business Climate and the creation of jobs. As a result it annually prepares a list of Job Killer Bills. In 1997 when Republican Pete Wilson was Governor, 9 Job Killer bills were passed by the Legislature and all 9 were vetoed by Governor Wilson. When Democrat Gray Davis became Governor, the trend changed significantly. In his last year in office in 2003 13 Job Killer bills were sent to him and he vetoed only 2. However, after his recall and the election of Republican Arnold Schwarzenegger, the trend reversed again. During his tenure 69 Job Killer bills were passed by the Legislature and Governor Schwarzenegger vetoed 63 of them.

With the election of Democrat Governor Brown in 2010 and the emergence of Democratic 2/3 majorities for a period in both houses of the State Legislature, there certainly was the fear and expectation that more Job Killer bills would not only be passed, but signed and become law. Interestingly, the opposite has occurred. First, the total number of Job Killer bills introduced and identified by the Chamber has decreased from 43 in Governor Schwarzenegger's last year to just 19 in 2015. In addition, the number of Job Killer Bills passed by the Legislature has decreased from 12 in 2010 to just 3 this year. During Governor Brown's 5 years in office, only 17 Job Killer Bills have passed the Legislature, but he has vetoed 10 of them including 2 in 2015. This compares to 44 Job Killer bills passed during Governor Davis' 5 years in office of which 32 became law. This change from previous Democratic Governors and legislatures may be in part due to an increase in a group of more moderate/business friendly legislators elected as a result of the change in electoral districts and the new top two election system, along with Governor Brown's fiscal conservative approach to Government as a result of the serious recession he faced when he returned as Governor.

What were some of the major Job Killer Bills in 2015?

The three which passed the legislature were AB 465 (R. Hernandez) and SB 406 (Jackson) which would have extended the California Family Rights Acts. AB 465 would have attempted to preclude mandatory employment arbitration agreements. The Governor's veto focused on the fact that the courts had already set reasonable standards for these agreements. Passage would have resulted in greater litigation and higher costs in dealing with employment issues (For those of you dealing with employment issues, please consider contacting my partner Brian Koegle who manages our firm's Employment Law Practice Group). SB 406 would have significantly expanded the California Family Rights Act, increasing employer costs and risks of litigation by expanding the number of family members which an employee could take a leave for and potentially requiring employers to provide employees up to 12 workweeks of family leave during a 12 month period. Only AB 359 (Gonzalez) dealing with grocery workers was signed by the Governor.

The Chamber has also taken the positive direction of promoting Job Creator Bills in the California Legislature. In 2015, 5 of these bills reached Governor Brown. He signed into law AB 1506 (R. Hernandez) which allows employers the opportunity to fix technical violations of the itemized wage statement to an employee. Providing the employer a limited time to cure purely technical violations which create no injury to the employee will protect employers from costly and devastating litigation which would only deflect financial resources from allowing an employer to expand its workforce. In addition, AB 323 (Olsen) was signed into law which continued the current CEQA exemption for certain roadway repair and maintenance projects. Unfortunately, the other three Job Creator Bills were vetoed. AB 35 would have promoted affordable housing by expanding an existing low-income housing tax credit program. The Governor's veto message stated that while the State Budget had significantly improved, he could not support additional tax credits due to their potential on the ability to balance the State Budget. SB 251 would have limited frivolous litigation and claims regarding construction-related accessibility violations where the businesses have sought to comply and provide an opportunity to resolve prior to litigation.

The other fight in California, which may be even more important than the so called Job Killer and Job Creator Bills, is the almost insatiable appetite of many members of the State Legislature to pass new tax measure as the recession in California has ebbed and revenues have increased. In 2012, the voters agreed to pass billions of dollars in "temporary" sales and incomes taxes due help pay off debt incurred during the recession. However, these temporary taxes expire at the end of 2016 and in addition to proposals to extend them, dozens of new tax measures were introduced in 2015. These included AB 1335 which would have imposed a $75 fee on each real estate transaction, SB 591 which would have increased cigarette taxes, and SB 684 increasing the corporate income tax to as high as 13%. None of these bills passed because there remains a 2/3 vote requirement for the imposition of new taxes.

The Governor also called a Special Session on health care and transportation issues, which will continue into 2016. The total amount of taxes proposed by various measures in this Special Session is $8 billion annually which would result in annual tax increases of $205 additional taxes per person and $637 per household.

Assemblyman Scott Wilk, who represents Santa Clarita, has pointed out that since the Democrats lost the 2/3 majority in the Legislature, Californians have been saved from up to $30 billion in total new taxes at the same time that additional existing revenue has resulted in the largest State Budget General Fund in history, $115 billion. With the difficulty in enacting new taxes in the State Legislature, there are numerous tax proposals which will likely appear on the November, 2016 General Election ballot. However, even if we continue to be able to defeat tax increases in the State Legislature, we will also need to focus on the numerous tax increase proposals which are likely to appear on the November, 2016 General Election ballot.

While it continues to be a challenge to do business in California and create the quality jobs our residents need, by working with business groups like the Santa Clarita Valley Chamber, Santa Clarita Valley Economic Development Corporation, VIA and the State Chamber of Commerce, along with legislators who stand up to unnecessary and counterproductive legislation and tax increases, we can make strides toward making California more friendly to business, job creation and economic development.