Legislature Tackles State Budget
Deadline to approve a budget is today, June 15, but negotiations continue
State Capitol
Assembly and Senate Democrat leaders announced a decision last week to approve the Legislature’s version of the state budget to meet today’s June 15 constitutional deadline.
However, the budget approved on June 15 will not be the final 2020-2021 state budget. Instead, Democrat leaders Speaker Anthony Rendon (D-Lakewood) and Senate Leader Toni Atkins (D-San Diego) said the budget is being approved to meet the constitutional deadline “while our productive negotiations continue with the governor.” They said legislators “will approve any amendments to the Legislature’s version of the budget” at a later date.
Multiple outstanding issues remain to be negotiated, such as funding for schools and local governments. As part of the budget process, budget trailer bills on various policy issues will be considered in the coming days, weeks and months. Trailer bills are changes in law that are generally negotiated as part of the budget process and are considered either alongside or after the budget is approved.
SIGNIFICANT POLICY ISSUES IN THE BUDGET PROCESS
Tax-Related Issues
The governor and legislators are seeking ways to trim the budget and address the state deficit, and issues under consideration include a temporary suspension of net operating loss deductions and limiting R&D tax credits and tax credits that businesses utilize to spur hiring. Making the changes would provide about $4.5 billion in revenue to the state.
Ag Council is concerned the inclusion of such provisions in the budget could impede economic recovery.
Net Operating Loss (NOL) Deductions
Ag Council opposes suspending NOL deductions and is advocating that this proposal not move forward. The governor’s budget plan and legislative language would suspend NOL deductions for three years from 2020-2022.
This provision does not apply to entities with a net business income of less than one million dollars for the taxable year.
Hiring Tax Credits
Both the governor’s budget proposal and a legislative budget trailer bill include limits on the use of tax credits used for hiring, which is counterintuitive at a time when economic incentives are more imperative than ever given many people face unemployment at this unprecedented time.
Under the provision, hiring credits could not be used to offset more than $5 million in taxes per year in 2020, 2021 and 2022.
Research and Development (R&D) Tax Credits
The R&D tax credit would be limited under a legislative budget trailer bill, which are policy measures considered either alongside or after the budget is approved. This critical credit helps spur innovation and job creation in California.
We oppose limiting both the R&D and hiring tax credits and Ag Council is asking legislators to more thoroughly consider the implications of this proposal.
Climate Change – Cap & Trade
The budget includes language opposed by Ag Council to direct the Air Resources Board (ARB) to consider changes to the existing cap and trade program. Ag Council’s membership includes some food processing members required to participate in cap and trade.
The author of this provision, Sen. Wieckowski (D-Fremont), wants to shift the cap and trade program into a cap and tax program in a subsequent budget trailer bill – thereby ending the existing market based program. An exemption from the Administrative Procedure Act is included, which would hinder public participation in the regulatory rulemaking process at ARB.
The provision in the budget is unnecessary given the cap and trade program is successful in doing its job as designed by the Legislature to slash emissions and meet state goals. The program was not created as revenue generator for state coffers and is operating as intended to reduce emissions in California.
A similar proposal by Sen. Wieckowski was rejected back in 2017 when cap and trade was reauthorized by a two-thirds vote.
Very little consideration and discussion of this provision has occurred on this provision in the budget hearing process. Such a major shift in California’s climate program belongs in legislation and not in the state budget.
Ag Council strongly opposes this effort and is working with legislators to stop a budget trailer bill containing this provision.
Food Banks
Legislators agree with the governor’s May budget to provide an additional $30 million in General Fund dollars to support food banks responding to COVID-19 for a total of $50 million in 2020-2021. Food banks are a lifeline for many people during times of crisis and the pandemic revealed a massive need to feed hungry families. Ag Council supports this funding.
Water
In the middle of a massive budget deficit, the State Water Resources Control Board is proposing to hire new staff for two separate water quality programs, the water resiliency program, and the safe drinking water program.
This effort could potentially increase fees on stakeholders. At the same time, state water board staff is saying fee increases will not occur. However, a budget trailer measure is pending consideration that could lead to higher fees. Given there is uncertainty around how this issue will be addressed this budget year, Ag Council is engaged in both the legislative and regulatory arenas on this matter.
Ag Council supports the safe drinking water program. However, we are concerned about prioritizing staff positions over funding for actual water projects to solve the drinking water crisis for people in need.
Attorney General’s Office Issues Letter Seeking Extension on Prop 65 Notices
The California Attorney General’s office sent a letter to private Proposition 65 enforcers concerning 60-day notices filed during the ongoing COVID-19 emergency. The Attorney General requested that private enforcers cooperate with a noticed party if they seek an extension to the 60-day notice period due to the stay-at-home orders.
Extensions will only be granted if noticed parties seek this request of a private enforcer — the extension is not automatic.
The letter can be found at the link HERE.
ICYMI – Real Talk on Tough Issues with Asm. Cooper
Did you catch the latest Capitol Farm Connection podcast? Ag Council invites you to listen to our team’s conversation with Assemblyman Jim Cooper (D-Elk Grove) via the link below.
In the podcast, Assemblyman Cooper provides his thoughts regarding calls for change in law enforcement, and he speaks about the state budget, as well as water and environmental issues at the forefront in the Legislature.
Listen to the podcast HERE.