California Legislature Passes Placeholder Budget

(Editor's Note: As of press time, Governor Gavin Newsom and legislative leaders have reached a budget deal. A vote by the legislators will likely take place later this week.)

CLFP has been working on a number of budget related issues that would adversely impact food processors and the general business climate in California. These issues include paid family leave, Cap- and-Trade Program revisions and a $9.2 billion tax increase. 

A placeholder budget was passed by the Legislature and sent to the governor to meet the constitutional deadline of June 15. However, the budget is still being negotiated with the governor’s office and the Legislature and several budget trailer bills will be introduced that will provide implementation language for programs being funded. The final budget may not be finalized until the end of June and trailer bills may not be decided until August.

Paid Family Leave: The Senate is considering budget trailer bill language for a paid family leave proposal that will impose a 12-week mandatory leave of absence onto employers with as few as one employee.  Currently, it only applies to larger employers with 50 or more employees – this is a significant expansion, especially at a time when small businesses are already under a tremendous amount of stress due to the pandemic. This proposed leave will not run concurrently with federal law, given the different family members for whom an employee can take time off and the different reasons – therefore creating a potential for 26 weeks of protected leave on employers. Enforcement is through a private right of action – thereby adding the threat of litigation against any employer who makes a mistake in administering the leave. The federal government already passed leave of absence requirements as a result of COVID-19. CLFP and a large coalition of business organizations argue that this proposal is not limited to COVID-19 and should not be considered at this time.

Cap-and-Trade: The budget that was passed by the Legislature and sent to Governor Newsom includes a Cap-and-Trade proposal that states, “Funds appropriated in this item shall be used by the State Air Resources Board to conduct rulemaking to consider changes to the Cap-and-Trade Program.” If the language is limited to this language, the California Air Resources Board (CARB) could arguably open up a rulemaking to do some housekeeping items. However, it is expected that trailer bill language will soon be released that specifies the things CARB should consider, such as adjusting the floor price, price collar, etc.

CLFP and other organizations are strongly opposed to this language and the use of the budget process to move such a controversial issue without the proper vetting by stakeholders and policy makers. CLFP has been flagging the potential trailer bill for legislators and requesting they oppose it.

Tax Increase: CLFP has also joined a large business coalition in opposition to two budget bills that would raise taxes by $9.2 billion on California businesses. AB 85 and SB 114 are identical bills that would, among other things, suspend the net operating loss (NOL) deduction and limit utilization of tax incentives by California employers. The NOL deduction, by definition, is designed to help businesses recover from losses. The deduction also provides equity between businesses with cyclic revenue and those with steady, predictable revenue, ensuring accurate calculation of income for tax purposes. The proposed legislation would place California out of step with every other state in the country that levies a corporate income tax. The two retroactive taxes are projected to cost taxpayers $9.2 billion from fiscal years 2020-21 through 2022-23, creating a large obstacle to their recovery.

Written by: Trudi Hughes
Director of Government Affairs
trudi@clfp.com