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IN THIS ISSUE – “They don’t just throw their money around willy-nilly – they make good, astute investments”
Political science professor on how special interests pick legislative candidates
- Governor’s Billionaire Donor Gets a Pass from Fast-Food Minimum Wage…What is “the Bread Exemption”?
- “Absurd” – Newsom Team Says Governor Never Helped Donor
- State Legislature Campaigns Make for Odd (and Savvy) Bedfellows
- Politicians Tampering with California Primary Reduced Voter Interest
- Stormwater Capture Remains a Trickle
- San Joaquin Valley Water Districts Sue Over Sinking Canal & Groundwater Pumping
- New Coastal Protection Studies
- Silicon Valley Gaming Giant Cuts 5% of Workforce
Capital News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
FOR THE WEEK ENDING MAR. 1, 2024
Governor’s Billionaire Donor Gets a Pass from Fast-Food Minimum Wage…What is “the Bread Exemption”?
LA Daily News
Billionaire Greg Flynn, who made his fortune running one of the world’s largest restaurant franchise operations, is getting a new boost from sourdough loaves and brioche buns.
That’s because a California law that’s about to raise the state minimum wage at fast-food spots to $20 an hour from $16 offers an unusual exemption for chains that bake bread and sell it as a standalone item.
Governor Gavin Newsom pushed for that break, according to people familiar with the matter. Among the main beneficiaries is Flynn, a longtime Newsom donor whose California holdings include two dozen Panera Bread locations.
The specificity of the exemption has puzzled observers for months, especially after the governor told reporters last year that it came about as “part of the sausage-making” of politics.
In response to detailed questions, Newsom’s office said the wage law was the “result of countless hours of negotiations with dozens of stakeholders over two years” — and will make a real difference for hundreds of thousands of Californians.
Flynn, who has been involved in business dealings with Newsom in addition to contributing to the governor’s political campaigns, said in a brief conversation that he didn’t play a role in crafting the bread exemption. He didn’t respond to requests for comment about his connections to Newsom.
Representatives of Panera Bread didn’t reply to multiple requests for comment.
Flynn emerged as a prominent critic of the fast-food bill, known as the FAST Act. In a 2022 opinion piece in Capitol Weekly, a publication covering California politics, he said it would all but kill the franchising business model in the state.
Behind closed doors, he urged the governor’s top aides to reconsider whether fast-casual chains such as Panera should be classified as fast food, according to people familiar with the discussions, who asked not to be named because the talks were private.
While that plan wasn’t adopted, the Service Employees International Union, a labor group that was the driving force behind the bill, decided to accept a narrower carve-out as the talks progressed — one that would only apply to restaurants operating bakeries.
That position was adopted as a means of winning the governor’s support for the legislation, said a person with knowledge of the discussions. The rationale was the governor’s longstanding relationship with a Panera franchisee, the person said.
While Panera locations and a handful of other eateries get a break on wages, competitors are bracing for higher costs when the law takes effect in April. McDonald’s Corp. franchisees have estimated the wage law will cost each California location $250,000 a year, characterizing it as a “devastating financial blow,” according to a memo seen by Bloomberg News. Chipotle Mexican Grill Inc. has said it’s considering a price increase to offset the extra expense.
Michelle Korsmo, the head of the National Restaurant Association, told an industry conference last year that “everyone’s scratching their head” about the bread exemption. She described the provision as an example of why her organization’s members should develop political connections to seek better legislative outcomes.
“You may be celebrating or you may be lamenting the bakery exemption,” she said. “But remember, all of that comes through relationships.”
The push to transform fast-food employment gained steam during the pandemic, when workers showed up for low-paying jobs while many higher earners were able to work from home.
In early 2021, the California legislature considered a bill to address what a lawmaker called the “abuse, low pay, few benefits and minimal job security” workers faced. The legislation was designed to give employees a role in regulating the industry by including them in a council with business representatives that could set wage and workplace standards, among other changes.
That would raise costs for owners such as Flynn, who has made himself into the largest restaurant franchisee in the US, if not the world. He turned a handful of Applebee’s branches into an empire with $4.5 billion in sales, including 2,600 locations of brands such as Pizza Hut, Taco Bell and Wendy’s.
Based on his company’s website, his California restaurant-chain holdings consist only of Applebee’s, which as a sit-down restaurant isn’t subject to the fast-food wage law, and Panera. Flynn is worth at least $1.1 billion, according to the Bloomberg Billionaires Index.
Flynn attended the same high school as Newsom in the suburbs outside San Francisco. The future franchising mogul served as student body president as a senior, the same year Newsom played basketball as a freshman, according to a yearbook.
Over the years, Flynn’s donations to Newsom’s political campaigns have included $100,000 to fight off a conservative-led recall effort and $64,800 to support the governor’s reelection in 2022. Flynn has been known to tout his relationship with Newsom, according to people familiar with the matter, with one saying the fast-food entrepreneur has said he can reach the governor via text.
A business connection goes back to 2014, when Flynn acquired a Napa Valley resort managed by Newsom’s hospitality company. Newsom, who was then serving as California’s lieutenant governor, reported an undisclosed amount of income from Flynn’s company that year. The management contract began under the previous owners, the Getty family trust, and Flynn decided not to renew it about a year into his ownership, said a person familiar with the decision.
Newsom’s office and Flynn declined to respond to detailed questions regarding the two men’s personal and business connections. Newsom’s assets were put in a blind trust after he was elected governor in 2018.
Newsom signed the fast-food wage bill into law in September 2022. That version of the measure set the stage for minimum pay to rise to $22 an hour at chains with more than 100 locations across the US. But it included the exemption for establishments that sold bread as a standalone item. It also defined what counts as bread according to a federal law that, the Food and Drug Administration said, excludes bagels and croissants.
Another win for Panera: The exemption meant bakeries were also off the hook on industry standards that could have been established by a fast-food council with authority to set rules about working conditions, including training.
Newsom and the SEIU declined to discuss who wrote the provision. Open-records requests filed with the governor’s office were repeatedly denied.
The office of California Assemblymember Chris Holden, the bill’s lead author, said it didn’t have any insight into the exemption’s origins.
“We don’t know how that came about,” Willie Armstrong, Holden’s chief of staff, said by phone. Holden recently introduced a bill that would shield other establishments from the minimum wage law.
Across California, about 24% of fast-food employees earned a base wage of at least that much as of the end of last year, according to a payroll index compiled by payments services company Square. Some cities and counties already require higher pay than the state minimum.
For now, though, Panera will have more wiggle room on wages than its competitors, which could face penalties if they don’t comply. Panera appears to be the largest chain by number of locations in California and countrywide to benefit from the exemption, according to company websites and a Bloomberg review of data compiled by research firm Technomic.
MORE:
https://www.dailynews.com/2024/02/28/how-panera-bread-ducked-californias-new-20-minimum-wage-law/
“Absurd” – Newsom Team Says Governor Never Helped Donor
Politico & CalMatters
Gov. Gavin Newsom’s administration pushed back Thursday on suggestions that he helped a donor avoid paying the state’s new minimum wage for fast-food restaurant workers.
The administration said an exemption for restaurants that produce their own bread on premises doesn’t apply to the Panera restaurants owned by donor and former high school classmate Greg Flynn. It was an attempt to contain a backlash that has roiled the Capitol since the publication of a recent Bloomberg News story.
“The Governor never met with Flynn about this bill and this story is absurd,” spokesman Alex Stack said in a statement. “Our legal team has reviewed and it appears Panera is not exempt from the law.” Assembly GOP leader James Gallagher of Chico called it “a crooked deal,” while Senate Republican leader Brian Jones of San Diego called Thursday for scrapping the fast food law altogether, or at least putting it on hold. All Senate Republicans opposed the law last year, and on Thursday they voted against Assembly Bill 610 that would add exemptions for restaurants in airports and hotels. Jones, in a statement: “Put simply, campaign contributions should not buy you carve-outs in legislation. That’s crony capitalism. It’s corrupt and unacceptable.” Assemblymember Chris Holden, a Pasadena Democrat and the law’s author, told KCRA Thursday that he wasn’t involved in the negotiations that resulted in the Panera exemption. Flynn told Bloomberg he did not play a role in crafting the carve-out. Newsom’s office also says that there was nothing scandalous — and that Panera may have to comply with the law after all.
The administration has not publicly explained the rationale for that exemption, which was added late in the legislative process.
The law says the wage hike does not apply to any establishments with a bakery that “produces for sale on the establishment’s premises bread.”
In earlier remarks to reporters, the governor called the bread rule part of “the sausage making.”
Newsom’s legal team has concluded that would not apply to businesses, like many Panera locations, that mix dough at one location and then bake it at stores.
State Legislature Campaigns Make for Odd (and Savvy) Bedfellows
East Bay Times
A 15-second ad during a Good Morning America commercial break this week featured an attack on Jerry McNerney, the former congressman who is currently one of the two leading candidates in the California State Senate District 5 race. It painted him as a hypocrite who criticized and then accepted PAC money.
“Former Congressman Jerry McNerney said campaign money is poisoning the system,” the ad read. “But Jerry McNerney took $5.3 million in PAC money. Guess he didn’t mean it.”
At the end of the ad, in small text, it identified the buyer: Valero, Phillips 66, and Marathon Petroleum.
So why are fossil fuel companies investing half a million dollars in a race that seems to be little more than a choice between two Democrats–McNerney and State Assemblymember Carlos Villapudua–for a seat being vacated by another Democart, Susan Talamantes-Eggman. The seat covers much of Eastern Alameda County and Parts of San Joaquin County.
According to Elizabeth Bergman, an associate professor of political science at Cal State East Bay, the outside money is evidence of the toss-up nature of the race, and the way politics has been played since the Supreme Court’s 2010 Citizens United v. Federal Election Commission (FEC) decision, which knocked down limits on corporate campaign spending. Such independent expenditures are often made without the knowledge or consent of a particular candidate.
“They don’t just throw their money around willy-nilly – they make good, astute investments,” Bergman said. “This one makes particular sense to me because it’s effectively an open seat.”
Although there are no refineries in the district, Bergman said lobbying groups target any seat that they think they might be able to influence in a 40-seat state senate. McNerney, who describes himself as a proponent of climate action, may not be viewed as a friendly partner. Villapudua, meanwhile, is considered one of the more moderate California Assembly members.
“They have to do what I call, ‘finding your Republican’,” Bergman said. “In this case, it’s Villapudua.”
A large portion of the $2.6 million in outside spending in the District 5 election–a surprising amount for a down-ballot primary race–has come from an oil and gas industry PAC,the Coalition to Restore California’s Middle Class, whose funders include Chevron, Phillips 66, Marathon Petroleum and Valero.
The companies had not responded to requests for comment by press time.
According to available records, the group has spent $522,000 in opposition to McNerney’s candidacy. Another PAC, “Fighting for our Future” has spent an additional $347,000 opposing him. Meanwhile, a group representing nurses and educators, the largest spender in the race, has spent about $367,000 in support of McNerney and $630,000 opposing Villapudua.
In an interview with this news organization, McNerney painted Villapudua as a friend of fossil fuels, and noted the same group had supported his opponent in Villapudua’s race for the State Assembly in 2018.
“They obviously think he’s going to look out for their interest in the State Senate,” McNerney said. “That’s pretty much how politics works now.”
Villapudua’s campaign had not responded to requests for comment by press time.
McNerney’s campaign has thus far raised $300,000, trailing both the amount spent by the oil and gas group against him and the $423,380 raised by Villapudua through Feb. 17. The largest amount of money in support of McNerney has come from the nursing, education and reproductive rights group. As the attack ad said, it’s true that McNerney too has benefited from independent expenditures.
With less than a week to go before Election Day, it remains to be seen what effect the outsized amount of money involved will have on the race.
“There’s a lot of money in the race,” Bergman said. “We know it’s going to be close.”
MORE:
Politicians Tampering with California Primary Reduced Voter Interest
CalMatters commentary from Dan Walters
California used to have a reasonably workable primary election. It was in June of each election year, giving voters in the two major parties opportunities to select their candidates who would then face-off five months later in the November general election.
Primary elections also would host preliminary contests for nonpartisan local offices and decide any initiative ballot measures that had qualified.
Usually there was enough on the ballot to draw substantial numbers of voters to the polls. A half-dozen well-known Republicans vied for the party’s U.S. Senate nomination in 1982, for instance, and Proposition 13, the iconic property tax cut measure, won voter approval in the 1978 primary.
However, politicians eventually started messing with it, particularly after Democrats became California’s dominant party. Democratic politicos felt left out when presidential nominees were chosen via earlier primaries in other states. They also didn’t like having conservative ballot measures, such as Prop. 13, decided in June because a primary election’s lower voter turnout would help those measures win.
Democratic majorities in the Legislature fiddled around with having primaries earlier in election years. After several inconclusive experiments, they finally decided that beginning in 2020 primaries in presidential election years would be held in March, rather than June. They also decreed that no initiative ballot measures would be placed on primary ballots.
Meanwhile, moderate Republicans, via a parliamentary power play, pushed another big change through the Legislature and won voter support. It changed California’s primary election from a closed system – voters participating within their parties – to an open top-two system in which all candidates appear on the same ballot and the top two finishers qualify for the November ballot regardless of party.
Sponsors hoped that it would tend to produce more centrist legislators in both parties and initially seemed to have that effect after debuting in 2010. But its impact was quickly overshadowed after Democrats captured immense margins in both legislative houses. Instead, clever campaign strategists game the top-two system by trying to get the weakest would-be opponents on the November ballot.
This year, for example, the leading Democratic candidate for U.S. Senate, Adam Schiff, is spending heavily on ads that promote Republican Steve Garvey, in hopes that he, rather than one of the other two Democratic candidates, will finish in second place.
Overall, these systemic changes have not had the positive effects their advocates promised.
California is no more relevant in the selection of presidential nominees than it ever was. Legislative and congressional candidates must begin raising money and campaigning nearly a year before the final election. Finally, banning initiative ballot measures from primary elections depresses voter interest while concentrating them in November contributes to voter confusion.
March primaries are mostly boring, which translates into low voter turnout even though the Legislature has made voting increasingly easy by making voter registration more or less automatic, making mail-in voting the default mechanism and sending ballots to all of the state’s 22 million registered voters.
A recent Public Policy Institute of California poll revealed that fewer than 40% of registered voters are either “extremely” or “very” enthusiastic about the presidential election and enthusiasm dropped to 28% about congressional races.
Paul Mitchell, California’s go-to expert on voting patterns, notes that a week before the March 5 primary, only 1.7 million ballots had been received by county election offices and projected that this year’s primary would set an all-time record for low turnout, 29%.
In effect, while Democrats say they want to maximize voter participation, their changes in the primary system are effectively minimizing turnout.
It’s time to go back to the drawing board.
https://calmatters.org/commentary/2024/02/primary-elections-boring-voter-participation/
Stormwater Capture Remains a Trickle
CalMatters
California fails to capture massive amounts of stormwater rushing off city streets and surfaces that could help supply millions of people a year, according to a new analysis released today.
The nationwide report, by researchers with the Pacific Institute, ranks California ninth nationwide among states with the most estimated urban runoff. Rainwater flows off streets and yards into storm drains that eventually empty into waterways and the ocean — carrying pollutants picked up along the way.
The analysis reports California sheds almost 2.3 million acre-feet of precipitation from pavement, roofs, sidewalks and other surfaces in cities and towns every year. If it were captured and treated, that would be enough to supply more than a quarter of California’s urban water use, or almost 7 million Southern California households each year.
Los Angeles came in first in the West and 19th nationwide among 2,645 urban areas for amounts of runoff. An average of about 490,000 acre-feet a year of rainfall flows off pavement in the Los Angeles-Long Beach-Anaheim area — roughly the amount that the city of Los Angeles and some surrounding areas use in a year.
“What we’ve recognized, and are recognizing, is that stormwater is a resource that can be harnessed,” said Heather Cooley, co-author of the study and director of research at the Pacific Institute.
In recent years, former President Donald Trump and other Republican politicians and lawmakers have criticized California for “wasting” water that flows out to sea. At the Conservative Political Action Conference last week, Trump said a California congressman told him, “‘No, we don’t have a drought. We have so much water you don’t know what to do.’ But they send it out to the Pacific. We’re not going to let them get away with that any longer.”
But there are many reasons why stormwater flows into the ocean: Capturing it can be costly, requiring elaborate construction projects to trap and clean up or hold massive volumes of water.
And cities like Los Angeles are intentionally designed to protect people from floods by funneling large volumes of stormwater into channels and then out to sea.
“The whole area is designed with storm drains to capture all the flows so that people don’t get flooded, people’s property don’t get flooded,” said Adam Ariki, interim deputy director at Los Angeles County Department of Public Works. “We’re really trying to capture as much of it as possible. And with time, that number is going to go higher and higher and higher.”
In many cases, water containing oil, trash and other pollutants must be treated before it can be allowed to percolate into aquifers pumped for drinking water. In others, lack of open space limits where runoff could be allowed to seep naturally into the ground.
Also, in some controversial cases, particularly the Bay-Delta in Northern California, experts say stormwater must flow into rivers and the ocean to support fish and other wildlife. Growers and others in the Central Valley criticize that flows and call for more reservoirs, saying the water is wasted.
Sometimes there’s just too much rain at once to capture all of it. “Some flows may need to be sacrificed or allowed to go to the ocean because you can only capture so much of it, especially like last year,” Ariki said. “That’s the challenge.”
Water officials and experts agree that capturing more stormwater before it flows into drains is a top priority to help boost California’s water supply.
Los Angeles County already collects about 200,000 acre-feet of runoff a year, including about 95% of the San Gabriel River’s flows — enough to fill about 100,000 Olympic-sized swimming pools. Last year, among the wettest in California, the county captured around 630,000 acre-feet of storm flows, Ariki said.
Fourteen dams capture flows off the mountains that are then slowly released into 27 spreading grounds, where they percolate into the ground to feed aquifers. But capturing water off of concrete, rather than mountainsides, can be more challenging.
In most California cities, runoff flows into storm drains, not treatment plants. San Francisco, with its combined sewer system that treats both stormwater and sewage, and Santa Monica, with its recently upgraded facilities for treating and injecting stormwater into the aquifer, are rare exceptions. And pollution of ocean waters can sicken people and disrupt ecosystems.
Los Angeles is already working to funnel water off streets and into planted areas as well as underground infiltration chambers and wells. And it has plans to ramp up the effort and expand stormwater capture beneath parks in the San Fernando Valley, as well, said Art Castro, manager of the Los Angeles Department of Water and Power’s watershed management group.
“If you look at the density of the city, we can no longer build spreading grounds that are roughly 150 acres big,” Castro said. “Parks are going to be the next big opportunity that we have, and if you think about it, parks are in almost every community, in every watershed.”
San Joaquin Valley Water Districts Sue Over Sinking Canal & Groundwater Pumping
GVWire
Farmers in Tulare County are being allowed to continue pumping so much groundwater that it is endangering a newly constructed portion of the Friant-Kern Canal that had to be rebuilt because overpumping had sunk a 33-mile section of the canal, according to a lawsuit filed Feb. 16.
Land around the new canal section has continued to sink at a much faster rate than initially envisioned, said Johnny Amaral, chief operating officer of Friant Water Authority, which filed the lawsuit along with the Arvin-Edison Water Storage District.
“To make matters worse,” Amaral continued, “there are new cones of subsidence upstream and downstream of the realigned canal that are causing concern.”
A new canal had to be built next to the existing canal, which had sunk from about Pixley in Tulare County to the Kern County border. That “sag” reduced the canal’s carrying capacity by nearly 60%.
That capacity crimp has been especially hard on Arvin-Edison, which sits at the end of the Friant-Kern Canal’s 152-mile run and contracts for 350,000 acre-feet annually.
If the current rate of subsidence — projected at one foot a year — continues, it will “reduce long-term deliveries by nearly 100,000 acre-feet per year” to Arvin-Edison, according to the lawsuit.
The first phase of construction on a 10-mile section is expected to be completed and water flowing in the canal by the end of March.
The lawsuit was filed against the Eastern Tule Groundwater Sustainability Agency, which is responsible for enacting a plan to reduce groundwater pumping under the state’s Sustainable Groundwater Management Act.
Much of the land covered by Eastern Tule GSA isn’t covered by any water districts, which pay to bring in imported water. Because of that situation, many Eastern Tule farmers rely heavily on groundwater.
“We have been working to the best of our ability on the mitigation side of overpumping and ramping up efforts in our management zones,” said Eastern Tule Manager Rogelio Caudillo. “It’s a lot of work we’ve had to do, but we’re definitely getting there.”
Friant disagrees.
Eastern Tule’s plan is far too liberal with how much groundwater it allows farmers to pump and how much native water it credits to farmers, according to the lawsuit.
The complaint also alleges that Eastern Tule has failed to charge its farmers high enough overpumping penalties that reflect actual consumption in order to bring in $200 million, which is needed by Friant for the canal reconstruction.
Some onlookers have speculated that $200 million is the real crux behind the lawsuit as it makes up a substantial portion of Friant’s $300 million funding mix to rebuild the canal. Some of that money came from federal and state sources and some from other Friant contractors, who complained that the farmers who caused the canal to sink should pay their share.
In fact, Friant and Arvin-Edison entered into a settlement agreement with Eastern Tule back in 2021 that recognizes subsidence will continue and lays out pumping penalties to help pay for that damage.
Caudillo with Eastern Tule told SJV Water, “We have been honoring the settlement since we implemented it.”
He added that as of its Feb. 1 board meeting, Eastern Tule has paid Friant more than $16 million to address subsidence issues with the canal.
The payments have been coming in slower and lower than anticipated, though, as Eastern Tule’s water accounting system gave its farmers what Friant contractors believed was more water “credits” than existed in reality. That has resulted in an inaccurate view of actual groundwater consumption and, of course, lower penalty payments, according to Friant contractors.
“It’s a big shell game that they’re playing with their precipitation and the way their market works, which is leading to some of the subsidence,” said Jeevan Muhar, general manager at Arvin-Edison. “We’ve been sharing ideas that are not sticking on the other side.”
Along with the lawsuit, Eastern Tule is facing possible probation under SGMA by the Water Resources Control board after its groundwater plan was found “inadequate.” Its first hearing is scheduled for September.
Eric Quinley, general manager at Delano-Earlimart Irrigation District, said after 10 years of the SGMA, the Tule subbasin still isn’t seeing changes in unsustainable pumping quickly enough.
“And that’s evidenced by what’s going on with the Friant-Kern Canal,” he said.
New Coastal Protection Studies
Public Policy Institute of California
Sea levels and flood risks are both rising in California. More than seven million Californians—one in five residents—live in areas at risk of flooding, and redesigning and protecting infrastructure will be necessary but costly. Adaptation will require improved collaboration, land use planning, and insurance, as well as innovative flood management.
» Sea Level Rise in California
Silicon Valley Gaming Giant Cuts 5% of Workforce
Associated Press
Electronic Arts is cutting about 5% of its workforce, or approximately 670 employees, as layoffs in the technology and gaming sector continue after a surge of hiring in recent years.
The video game maker said in a regulatory filing that its board approved a restructuring plan that includes the layoffs, as well as closing some offices or facilities.
The Redwood City, California, company had 13,400 workers globally as of March, 31, 2023, according to a filing.
MORE:
https://apnews.com/article/electronic-arts-layoffs-sony-microsoft-8725a896ccbd19c324b48f8c69981677