Will 2022 Provide California Government’s Support for Business and Economic Devlopment?

I have previously written on numerous occasions about how the California Legislature deals with business issues and economic development. Most recently I discussed the second year of the Pandemic and the first year of the 2021-22 legislative session.

As we all know, 2021 proceeded with the continued and significant disruptions and impacts from COVID. Governor Newsom governed through executive orders with his emergency order still in effect. After the recall against him was qualified some initial polls showed he could be in electoral trouble; however, he easily defeated the recall with a similar margin from his 2018 election. Governor Newsom is now expected to face weak opposition for re-election November 2022.

2021 was also year for reapportionment, the every 10-year process to redraw legislative boundaries after the census. The Citizens Redistricting Commission was appointed and for the second time in history completed, its work of redrawing all of California’s Congressional, State Senate, Assembly and Board of Equalization seats based on the 2020 census. All of their meetings were conducted virtually with significant public input from throughout the State. In the case of the congressional districts, California for the first time ever lost a seat. The new districts were finally adopted just before Christmas and resulted in many changes in district lines and numerous legislators being forced to move or run against each other. The filing deadline is March 11 and the Primary June 8. The various election lineups are still very much in flux with legislators scrambling to run in new districts, retiring, or seeking other electoral office. Stay tuned.

One of the impacts of this reapportionment will be not only that you will have legislators running in districts which are different from the ones they are currently representing, you will have an unprecedented number of lame duck legislators who will not be returning next year. This could possibly result in the impact of special interests being diminished since these members are not facing an election. It will be interesting to observe.

So how will the California Legislature, with their super majorities of Democrats, deal with business issues and economic development in 2022?

Initially, 2022 started with passing two bi partisan bills, AB 87 and SB 113, which will restore the net operating loss (NOL) deduction and lift the cap on business tax credits that were suspended and capped in the 2020-21 budget when there was a fear of the pandemic-caused deficits. As you know these never materialized. Instead, the state had an unexpected $76 billion surplus in the 2021-22 budget and is expected to have an addition surplus of $45.7 billion in the 2022-23 budget. These bills also transferred $150 million to the California Emergency Small Business COVID-19 Relief Grant Program which had been created in November 2020 and had already received almost $300 million in grant applications. Finally, these bills conformed state tax law to federal tax law to ensure that there would be no state tax obligations.

So what will the State do with the projected surplus of $45.7 billion? The Governor has proposed $20.6 billion in General Fund for discretionary purposes, $16.1 billion in additional Proposition 98 for K-14 education, and $9 billion in reserve deposits and supplemental pension payments.

His budget also reflects $34.6 billion in budgetary reserves. These reserves include: $20.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies; $9.7 billion in the Public School System Stabilization Account; $900 million in the Safety Net Reserve; and $3.1 billion in the state’s operating reserve. The so called Rainy Day Fund is now at its constitutional maximum (10 percent of General Fund revenues) requiring $2.4 billion to be dedicated for infrastructure investments in -23. The Budget accelerates the paydown of state retirement liabilities as required by Proposition 2, with $3.9 billion in additional payments in 2022-23 and nearly $8.4 billion projected to be paid over the next three years. The Budget projects the State Appropriations Limit or "Gann Limit" will likely be exceeded in the 2020-21 and 2021-22 fiscal years. Any funds above this limit are constitutionally required to be allocated evenly between schools and a tax refund. An updated calculation of this limit, and proposals to address it, will be included in the May Revision.

There will be a great deal of opportunity to find funding opportunities for infrastructure and economic development projects in the 2022-23 budget.

In addition to the Budget issues, one of the best ways to measure what can we expect from the Legislature impacting job growth and the economy is the annual list of Job Killer Bills from the California Chamber of Commerce.

In 2021, just two job killer bills passed the Legislature. The Governor vetoed one and signed the other. This continued an impressive streak of defeating bills negatively impacting business and the economy. In the past 4 years the California Chamber’s record is impressive:

• 2021: 25 Job Killers identified, 2 sent to Governor Gavin Newsom, 1 signed, 1 vetoed;
• 2020: 19 Job Killers identified, 2 sent to Governor Newsom, 1 signed, 1 vetoed;
• 2019: 31 Job Killers identified, 2 sent to Governor Newsom, 1 signed, 1 vetoed;
• 2018: 29 Job Killers identified, 1 sent to Governor Edmund G. Brown Jr., 1 vetoed;

On January 11, 2022, the California Chamber started off the year by listing AB 1400 (Kalra, Lee and Santiago) and ACA 11 (Kalra and Lee) as its first Job Killer bills of 2022. The bills would create and finance a new single payer health care system called CalCare.

AB 1400 (Kalra; D-San Jose)Penalizes employers, eliminates individual choice, and results in hundreds of billions of dollars in new taxes on all Californians and California businesses by creating a new single-payer government-run, multibillion-dollar health care system.

ACA 11 (Kalra; D-San Jose)Penalizes employers, eliminates individual choice, and results in hundreds of billions of dollars in new taxes on all Californians and California businesses by creating a new single-payer government-run, multibillion-dollar health care system.

On January 25, 2022, AB 1001 (Cristina Garcia; D-Bell Gardens) joined the list. It creates new highly subjective, non-quantifiable, and litigation-bait standards in CEQA that will threaten California’s economic recovery and ability to construct much needed housing. It also removes local government discretion regarding how to analyze and mitigate proposed project impacts, thereby making projects more expensive, harder to build and more likely to be thrown into courts by NIMBY opposition.

You should expect that there will many other bills added to the job killer list and if you are interested go to the California Chamber’s website and keep track of the new bills which are added. Along with the budget opportunities and dozens of newly contested legislative seats, the California Legislature is worth watching.