Sacramento Summary Q1 2019

By Michael J. Arnold & Michael Belote, Esq.
Legislative Advocates

January 7 marked the return of the California legislature to Sacramento for the effective beginning of the 2019-2020 two-year session. Much has been made of the increasingly blue tint to the Assembly and Senate, which are now basically three-quarters Democrat. Recently a Republican Assembly member switched parties and became a Democrat, and it is possible that more will follow. Arithmetically, it becomes more difficult to defeat a Democratic author’s bill on the floor of the Assembly and Senate, or to pass a Republican bill if there is any appreciable Democratic opposition.
Two months into the new session, it is possible also to identify key issues which will confront legislators this year. There are at least four large-scale issues which will be of interest to CMA members: privacy, Dynamex, housing, and taxation. Each of these issues is the subject of multiple bills in the pile of nearly 2600 proposals introduced this year, all of which have been read by the CMA legislative advocates for evaluation by the Legislative Committee.
Privacy: Last year the legislature passed AB 375, which may constitute the most expansive privacy law in the world. Later technical amendments were made in SB 1121. The bills contained a delayed operative date of January 1, 2020, in order to provide additional opportunity to refine the law in this incredibly complex area.
Privacy may well be the most hotly-contested issue in this legislative year. Business groups have identified hundreds of changes they would like to see enacted this year, and privacy advocates are equally active in urging the legislature not to weaken the protections of last year’s bills. The stakes are high: other states are now considering adopting laws similar to California’s, and groups are asking Congress to step in and pass some sort of national law to avoid a patchwork of state laws.
Very fundamental issues are being debated, like the definition of “consumer,” exemptions from the law for fraud protection and more, and the degree to which consumers will be authorized to sue for violations.
The first line of inquiry is whether a given business is subject to the new law. Clearly any business with greater than $25 million in annual gross revenue is covered, but other coverage tests are more difficult to follow. For example, the law covers businesses which collect personal information on 50,000 or more consumers. Seems like a lot, but does each click on a website, where information is stored about the contact, count towards the 50,000?
CMA will be monitoring the progress of the privacy debate very closely, and will be prepared to provide information to members as the 2020 implementation date approaches.
Dynamex: Last spring the California Supreme Court released their decision in Dynamex v. Superior Court. The decision, which deals with classification of employees vs. independent contractors, landed like a thunderbolt in the business community. The court moved away from common-law tests of employment vs. independent contractors in use in California for decades, in favor of a three-part test described as “ABC.” The “B” test is particularly problematic, because it holds that if a worker is performing tasks which constitute the usual course of business of the hiring entity, the worker is by definition an employee.
The Dynamex issue is only slightly less contentious than privacy. Entire portions of the “gig economy,” like drivers for Lyft and Uber, may see their business models upended. Imagine the range of businesses which historically have utilized independent contractors! What’s more, the decision appears to be retroactive, putting businesses in jeopardy with obviously no ability to change what happened in the past.
Competing bills would codify Dynamex, which will be strongly opposed by the business community, or restore the pre-Dynamex common law factors of employment, which will be strongly opposed by labor. Is there a middle ground? Stay tuned.
Housing: Legislative issues come and go, and sometimes it takes time for an issue to reach critical mass with policymakers. That time clearly has arrived in California, where the housing shortage is on the mind of every elected official in Sacramento. Dozens of bills have been introduced to address the issue, ranging from new sanctions for local governments which do not create their fair shares of housing, to faster processing of CEQA lawsuits, to new tax credits for housing. As one of the important sources for housing finance, CMA will be involved with the debate, which is so critical to the future of the California lifestyle and business climate.
Taxation: Everyone agrees that a recession will occur at some point in the future, and that California is dangerously dependent on wealthy taxpayers to fund the operation of government. After that, there is precious little common ground on solutions. Should the progressivity of our income tax laws be flattened, even if it means more taxes from the less wealthy? Should we modify Proposition 13 to create a split roll property tax system? That proposal has already qualified for the November 2020 ballot, unless proponents can be persuaded to withdraw the initiative in favor of some legislative solution. Should we expand the sales tax base to cover services, which might well affect CMA member services? Amazingly, this might be the most intractable issue of all of those discussed above.
If all of this is not important and timely enough to merit legislative involvement and support for CMA, what is?