M E M O R A N D U M
To: City of Santa Clara
From: Townsend Public Affairs
Casey Elliott, Vice President
Date: June 21, 2023
Subject: Q2 Legislative Update
The month of May saw the Legislature advance work on the state budget, as well as significant activity in the lead up to the House of Origin deadline on June 2 nd. In addition to movement on
the budget and legislative fronts, May also featured notable legal action related to the implementation of campaign finance reforms, executive action on infrastructure project streamlining, and assessments on the effectiveness of the state’s organic waste recycling regulations.
State Budget
On June 11th, the Senate and Assembly released their version of the 2023- 24 State Budget, in SB 101, which include s over 1,000 pages of text. The “two-party” (Senate/Assembly) budget framework was approved by the Legislature a few days later, on June 15th, thereby meeting the constitutional requirement for the Legislature to adopt a budget.
While the Legislature approved a budget, it did not reflect an agreement with the Governors’ Office. As such, t he Legislature and Administration continue to neg otiate final budget details, which will be enacted through a series of budget trailer bills that will be adopted, likely some point prior to the commencement of the new fiscal year on July 1 st.
The Legislature’s Version of the State Budget (SB 101) contains $311.7 billion in total spending, including $227 billion from the General Fund. It includes $30.7 billion in solutions to close the budget gap and contains a total General Fund Reserves of $37.2 billion.
Key elements of the legislatively approved budget include:
Housing and Homelessness
Accessory Dwelling Unit Grant Program
• Full funding the Accessory Dwelling Unit Grant Program, thus facilitating the continued production of these “missing middle” housing options by rejecting Governor Newsom’s proposed $50 million in proposed cuts.
Affordable Housing
• Proposes to direct $1 00 million to the Housing and Community Development Department’s flagship affordable housing development program: Multi -Family Housing Program.
CalHome and Foreclosure Intervention
• Retains $50 million for the CalHome affordable housing retention and rehabilitation program, by partially rejecting Governor Newsom’s $100 million in proposed cuts. • Retains $82.5 million for the Foreclosure Intervention and Housing Preservation Program ($32.5 million above and beyond the Governor’s proposed level of funding), while still achieving budget year savings through deferral of $345 million previously allocated to the program.
California Dream for All Program
• Full funding the California Dream for All shared-equity down payment assistance program for first-time homebuyers by rejecting Governor Newsom’s $200 million in proposed cuts. • Proposes to direct CalHFA to refine program eligibility to ensure the California Dream for All down payment assistance program lifts up first -time homebuyers from historically - excluded communities and authorizes CalHFA to pursue innovative partnerships with charitable foundations and private entities in order to replenish and expand the pool of funds available for the program – pending finalization of corresponding trailer bill language.
HAAP Funding
• In agreement with Governor Newsom’s Budget proposal to provide $1 billion in Homeless Housing, Assistance, and Prevention (HHAP) funding to support Round 5 of local efforts to reduce and prevent homelessness.
o Requires regional planning and establishes additional accountability mechanisms for local spending of homelessness reduction and prevention resources across programs including, but not limited to, HHAP – pending finalization of corresponding trailer bill language.
• Proposes to provide an additional year (“Round 6”) of HHAP funding in the amount of $1 billion, enabling local initiatives to make investments in solutions to homelessness over a longer time-horizon.
• Proposes to advance deployment of $360 million in HHAP funding previously set -aside for use as “bonus” awards.
Temporary Shelter for Asylum Seekers
• Proposes to provide $2 million to assist border communities with temporary s helter for recently arrived asylum seekers.
Environmental Protection
Coastal Resilience
• Amends Governor Newsom’s budget by restoring $102 million for coastal resilience programs at the Coastal Conservancy and $65 million to implement SB 1 at the Ocean Protection Council (OPC).
Decarbonization
• Rejects Governor Newsom’s proposed reductions of $97 million for the Equitable Building Decarbonization programs at CARB and CEC.
Flood Protection
• Approves Governor Newsom’s proposals for an additional $290 million for flood protection.
Greenhouse Gas Reduction Fund
• Proposes to provide $595 million in Greenhouse Gas Reduction Fund allocations to various programs aimed at reducing emissions in various sectors.
Public Safety
Education/Outreach Programs
• Proposes to provide $2.3 million for sexual and domestic violence prevention programs, $7 million for services for victims of human trafficking, and $10 million for Family Justice Centers, which assist victims of crime in accessing legal services. • Proposes to provide $4 million for education and outreach in multiple languages around Gun Violence and Domestic Violence Restraining Orders.
Firearms
• Amends Governor Newsom’s budget proposal by shifting $25 million proposed for firearm surrender programs at Cal OES to the Judicial Branch for expedited removal of firearms from prohibited persons in criminal cases.
Rehabilitation Program Reforms
• Amends Governor Newsom’s budget to provide preliminary funding for rehabilitative and programming reforms at San Quentin State Prison, and includes $21 million for rehabilitative programming statewide.
Tenant Rights Enforcement
• Proposes to provide $3 million for additional enforcement of tenant rights.
Transportation
Highways
• Approves Governor Newsom’s proposal to continue funding for homeless encampment clean up on state highways.
• Amends Governor Newsom’s b udget proposal to require Caltrans to report on the outcomes of the Encampment Coordinator Team, who will support statewi de efforts to address homelessness within the highway system right of way.
Transportation Improvements/Infrastructure Package
• Proposes to adopt trailer bill language that limits Caltrans from charging self-help counties, those with countywide sales tax measures dedicated to transportation improvements, more than 10 percent for administration indirect cost recovery. • Rejects the $2 billion proposed net reductions from Governor Newsom’s budget of the Transportation Infrastructure Package, including $1 billion in 2023- 24 and $1.5 billion in 2024-25 and a delay of $500 million to 2025-26.
Zero-Emission
• Proposes $1.1 billion to CalSTA across 2023- 24, 2024 -25, and 2025 -26 for the Zero Emission Transit Capital Program, which will provide 100% flexibility for c apital and operations expenses and be contingent on meeting specified accountability provisions.
Higher Education
Affordable Tuition/Grant Programs
• Proposes foster youth to be the first population to achieve “Debt Free College” by expanding the Student Success Completion Grant for CCC foster youth students and the Middle Class Scholarship for CSU and UC foster youth students. Changes will cover their total cost of attendance.
• Maintains Governor Newsom’s proposed 2023- 24 funding for the Middle Class Scholarship for the 2024- 25 school year to maintain efforts to reach goal of Debt Free College.
Student Housing
• Approves solution that preserves, with minimal delays, Higher Education Student Housing Grant Program funding for affordable student housing projects across UC, CSU, and CCC campuses.
• Funding delay rejected from Governor Newsom’s proposal, for the California Student Housing Revolving Loan Fund and instead provides $300 million per year for six years (each of 2023-24 through 2028-29). This fund will provide zero-interest loans to qualifying campuses at UC, CSU, and CCC for the purpose of constructing affordable student, faculty, and staff housing.
Governor Newsom Unveils Sweeping Plan to Speed Up Infrastructure Projects
On May 19 th, Governor Newsom announced plans to unveil a sweeping package of legislation and an Executive Order to make it easier to build transportation, clean energy, water, and other infrastructure across California. The package is designed to capitalize on federal funds passed by the Biden Administration to boost climate-minded construction projects. The state is estimated to receive $180 billion in state and federal funds for infrastructure in California over the next decade.
As the first step in the process, Governor Newsom signed an Executive Order that will instruct various government agencies to work together and create an infrastructure strike team, which in theory will target projects that need to be completed and make sure they get across the finish line.
The remaining 11-bill package is designed to shorten the contracting process for infrastructure and water projects, limit timelines for CEQA and other environmental litigation to no more than nine months, and simplify permitting processes for complicated projects like the Sacramento-San Joaquin River Delta tunnel project to deliver water to Southern California. The Governor noted that these processes are already in place for expedited permitting and construction of sports venues, as well as other megadevelopments, across the state.
Omitted from the package is any direct focus on environmental streamlining for housing production. When asked at the press conference why these policies were not included, the Governor noted that there are “numerous legislative proposals that he looks forward to signing” that will address these issues. This likely includes AB 1633 by Assembly Member Ting, which clarifies that it is a violation of the Housing Accountability Act (HAA) for a local jurisdiction to deny in bad faith an environmental clearance to which an urban infill housing development is legally entitled.
During his presentation, the Governor noted he would like to fold the package into the State Budget trailer bill process , as opposed to having the bills go through the full policy committee process. The Legislature and the Administration are still negotiating the final details of the fiscal blueprint, but several legislators have expressed significant concerns with the Govenror’s proposal. Given the significant impact that impacted projects could have on the state, the Legislature has indicated that they would prefer to see the Governor’s proposals go through the policy process, not the budget process, so that they can be more thoroughly vetted.
Legislative Discussions Continue on How to Address Fentanyl Crisis
The fentanyl crisis has been a policy topic that has drawn significant attention during the 2023 Legislative Session. Numerous policy proposals have emerged to address the frequency of deadly overdoses in the state – including reforms to the penal code to allow for enhanced sentencing against offenders, distributing opioid antagonist kits and educational materials to public-facing entities, and intercepting transnational crime rings. The Democratic Caucuses within the Senate and Assembly have been hesitant to pass measures that would add to the penal code and add sentencing enhancements, much to the dismay of Republican lawmakers and the families of fentanyl overdose victims, who wish to see dealers of fentanyl face stiffer punishment.
To increase topic transparency and look at the issue holistically, the Legislature has held a series of special hearings to discuss a path forward in addressing the crisis. In April, the Assembly Public Safety Committee held a special hearing on a handful of fentanyl -related bills, which moved forward bills that would level fentanyl sentencing enhancements with existing scheduled drugs, promote education and interagency collaboration, and distribute naloxone kits.
Similarly, in May, the Legislature held its first Special Committee on Fentanyl and Overdose Prevention hearing, where panelists and victims’ families discussed fentanyl addiction, state and local public health response, state and local legal response, and education efforts. Legislators questioned experts, local off icials, and each other about the best way to tackle the problem.
Frustration ran high during the hearing, with information on increased drug use and distribution, to the lack of adequate treatment, legislators pointed out the state’s various failings in the fentanyl crisis, which continues to worsen through the year.
The key takeaway from these committee hearings is that there is not one solution to addressing the fentanyl crisis. Legislators will need to take a multipronged approach with bills that addres s policy areas like criminal justice reforms, educational outreach, transnational action, and creating and supplying lifesaving resources like Narcan. Looking forward, the Legislature is poised to continue addressing the topic through additional bill introductions, future special committee hearings, and budget allocations to increase law enforcement response and access to opioid antagonist kits.
California Watchdog Agency Says the State is Already Falling Short of Organic Waste Recycling Efforts; Recommends Pausing Policy Altogether
On May 24
th, the Little Hoover Commission - an independent California state oversight agency that assesses the effectiveness of laws – released a draft report detailing the shortfalls of the state’s ambitious organic waste recycling laws. SB 1383 (Lara, Statutes of 2016) became effective in 2022 and aims to cut organic waste disposal by 75% and reduce edible food waste by 20% by 2025. According to the report, the state is “poised to miss” these targets.
The law was signed in 2016, but implementation has been slow due to a multiyear rulemaking period and pandemic-related delays. Concerns about cost, practicality and regulatory complexity have been voiced by local governments that are responsible for compliance in the face of expensive penalties.
The report details that not only did the state miss its 2020 target, but California dumped more organic waste in landfills than it did in 2014 (the baseline year used to calculate targets) and is set to miss its 2025 goals, too. The Commission’s recommendation is for the Legislature to temporarily pause implementation for additional intergovernmental coordination and preparation to take place.
CalRecycle responded to the repor t noting that it would be a huge mistake to hit pause. The Agency notes that the state has already spent nearly half a billion dollars in California to jump- start 1383 in organic recycling and a lot of that would be halted.
Ultimately, the Commission’s report is non-binding and will not result in any tangible action without legislative or regulatory intervention. It does, however, point to the difficulties associated with implementing the nation’s most expansive organics recycling plan.
Mental Health Services Act Modifications
On June 19 th, Senator Eggman and Assembly Member Irwin amended two bills to include the anticipated Mental Health Services Act (MHSA) reforms and Behavioral Health Continuum funding packages. In early March, Governor Newsom announced plans to develop a ballot initiative to improve how California treats mental illness, substance abuse, and homelessness, these bills provide specific details on the Govenror’s proposal. The Governor’s proposal contains three key components:
• Amend the MHSA leading to at least $1 billion every year in local assistance for housing and residential services for people experiencing mental illness and substance use disorders, and allowing MHSA funds to serve people with substance use disorder;
• Authorize a general obligation bond to build thousands of new community behavioral health beds in residential settings to house Californians with mental illness and substance use disorders, which could serve over 10,000 people every year in residential -style settings that have on-site services; and
• Improve statewide accountability through the development of outcome measures (instead of just process measures) and increase fiscal transparency by requiring counties to report on annual expenditures for key funding brackets.
With the new amendments to SB 326 (Eggman) and AB 531 (Irwin), it is now clear that SB 326 is the vehicle for MHSA policy reforms and AB 531 is the vehicle for the issuance of bonds for the state’s behavioral healthcare infrastructure needs. As amended the bills propose to:
• SB 326
(Eggman) recasts the MHSA by, among other things, renaming it the Behavioral Health Services Act (BHSA), expanding it to include treatment of substance use disorders, changing the county planning process, and expanding services for which counties and the state can use funds.
This proposal is over 230 pages long, we are working to produce an analysis and circle in with CSAC to fully understand local impacts. The key takeaways, however, are that the reforms would greatly expand the pool of who can receive care with funds, improve interagency data collection practices to gather a better understanding of the target populat ion/population served, and update funding brackets to expand services to include housing interventions, among other things.
• AB 531 (Irwin) enacts the Behav ioral Health Infrastructure Bond Act of 2023 which, if approved by the voters, authorizes $4,680,000,000 in bonds to finance grants for the construction and capital acquisition of community -based treatment settings, residential care settings, and housing for veterans and others who are experiencing homelessness or are at risk of homelessness and are living with a behavioral health challenge.
Both of these measures include language to be placed the March 5 th primary election ballot, which
would require the Legislature to approve the measures before they adjourn in September. As was the case with the passage of the CARE Court bill , and now this push for the expansion of services and infrastructure, the Newsom Administration is moving in the direction of recentralizing the state’s behavioral healthcare system, which was previously dismantled in the 1960s.
The month of May saw several developments on the federal appropriations front, actions related to federal water supplies, and the announcement of major policy initiatives in the issue areas of sustainability and homelessness.
House Passes Debt Limit Bill with Bipartisan Support to Avert Default
On May 31
st, the House overwhelmingly passed legislation negotiated by President Biden and Speaker Kevin McCarthy to suspend the debt ceiling and set federal spending limits. The measure defers the federal debt li mit for two years — allowing the government to borrow unlimited sums as necessary to pay its obligations — while imposing two years of spending caps and a string of policy changes that Republicans demanded in exchange for allowing the country to avoid a disastrous default. Additional information on key provisions can be found below:
Funding Provisions
• The measure imposes separate spending caps on security and non- security programs, which have been standard in the previous acts that raised the ceiling in the past. • Nondefense spending for FY24 will be stabilized at 2023 levels and will be capped at $703.7 billion and for FY25 at $712.7 billion
• Defense spending will be capped for FY24 at $886.3 billion and for FY25 at $895.2 billion.
COVID Funds
• The package rescinds unspent monies provided under any of the laws enacted in 2020 for COVID-19 relief, as well as the 2021 reconciliation package. • This provision will only extend to communities that have not yet obligated their funding.
Work Requirements
• Current law requires most able- bodied adults between the ages of 18 and 49 without dependents to work or attend training programs for at least 80 hours a month if they want to receive more than three months of SNAP benefits within a three- year period. The bill
FEDERAL LEGISLATIVE UPDATES
phases in higher age limits for those work requirements, bringing the maximum age to 54 by 2025.
• But as part of the compromise with Democrats, the provision is slated to expire five years later. At that time, the maximum age for the work requirements would drop back down to
49. Changes to Temporary Assistance to Needy Families (TANF) • For households utilizing Temporary Assistance to Needy Families (TANF ) benefits, the deal would make adjustments to a credit that allows states to require fewer recipients to work, updating and readjusting the credit to make it harder for states to avoid. The credit, called the “caseload reduction credit,” allows states to reduce the number of people subject to work requirements based on the decline in the number of people on the TANF rolls in that state as compared to the number of people receiving the assistance in 2005. • House Republicans wanted to move the year of comparison to 2022, which would have initially reset the credits to close to zero for every state. Under the compromise bill, states can gain credits for their caseload reduction since 2015. The bill would also make other adjustments to TANF, including eliminating some small cash payments to families.
Changes to Supplemental Nutrition Assistance Program (SNAP) • Under current rules, individuals ages 18 through 49 can’t receive SNAP benefits for more than three months in three years if they don’t meet additional work requirements. • The measure would expand work requirements for “able- bodied adults without dependents” under the Supplemental Nutrition Assistance Program to individuals up to the age of 51 starting in fiscal 2023, 53 starting in fiscal 2024, and 55 star ting in fiscal 2025.
• The measure would exempt homeless individuals, veterans, or certain individuals in foster care from the work rules that apply to able-bodied adults without dependents. • States would have to apply the work requirement provisions to any application for initial certification or recertification beginning 90 days after the bill’s enactment. • The work requirement changes would sunset on Oct. 1, 2030, to allow Congress to reevaluate.
• The measure would also modify the number of exemptions that state agencies can provide to the work requirements, so the average number of exemptions doesn’t exceed 8% of all covered recipients beginning in fiscal 2024, instead of 12%.
• The Agriculture Department would be required to make public all available state waiver requests and agency approvals, including supporting data from the state and relevant documents on the waivers’ use.
Student Loans
• The measure will end federal student loan payment suspension sixty days after June 30
and would not allow the Department of Education to implement a similar measure through executive action unless authorized by Congress. This has no substantive effect on current measures being decided by the courts.
Biden Administration Announces Efforts to Mitigate Homelessness
In mid-May, the Biden-Harris Administration announced the launch of All INside, an initiative to address unsheltered homelessness across the country. All INside is a key part of All In: The
Federal Strategic Plan to Prevent and End Homelessness , which set a bold goal to reduce homelessness by 25 percent by 2025.
Through the initiative, the U.S. Interagency Council on Homelessness (USICH) and its 19 federal member agencies will partner with state and local governments to strengthen and accelerate local efforts to get unsheltered people into homes in six places: Chicago, Dallas, Los Angeles, Phoenix Metro, Seattle, and the State of California. In participating communities, for up to two years, the administration will:
• Embed a dedicated federal official in each community to accelerate locally -driven strategies and enact system -level changes to reduce unsheltered homelessness;
• Deploy dedicated teams across the federal government to identify opportunities for regulatory relief and flexibilities, navigate federal funding streams, and facilitate a peer learning network across the communities; and
• Convene philanthropy, the private sector, and other communities to identify opportunities for follow-on support and collaboration.
Clean Energy Technology Funding for Public Agencies
In mid-June, the U.S. Treasury Department announced details of an expanded tax credit for clean energy technologies provided as a result of the Inflation Reduction Act which became law in August 2022. The tax credits include a provision that enables tax -exempt and government entities, such as cities, counties, water districts, college districts, transit districts, and non- profit organizations to receive the tax credit in the form of a direct payment.
The feature, known as direct pay by the White House and elective pay by the IRS, applies to twelve tax credits created by the Inflation Reduction Act. Among these are a tax credit (direct payment) of up to $40,000 for qualified commercial clean vehicles such as buses, ambulances,
and other public fleet vehicles. There are also a tax credit for EV charging infrastructure and clean electricity production such as community solar panels and for clean energy storage. A full list of the tax credits eligible for direct pay is detailed on this IRS fact sheet here.
Unlike most federal funding opportunities created in recent years this is not a competitive grant program. All eligible entities making eligible clean energy investments who file the required forms will receive the direct payment.
The process to access the payments will be similar to filing a tax return. Eligible entities will need to preregister with the IRS and then file an IRS Form 990- T for the tax year that the qualifying purchase was made. More information about the preregistration process will be provided by the IRS later this year. Once you have filed your required form the credit will be issued to you in th e form of a direct payment as though it were a tax refund.
Treasury’s announcement included proposed regulations implementing the direct pay provision.
The proposed regulations were published on June 21
st. The White House’s announcement of
funding initiated a formal 60- day public comment period on the program. Treasury will be accepting feedback on the proposed regulations through August 14, 2023.