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California Business Groups Request COVID-19 Relief From Governor

Dated Jan. 15, 2021

SUMMARY BY TAX ANALYSTS

In a letter to California Gov. Gavin Newsom (D) and the state legislature, several business groups requested economic relief in light of COVID-19, including suspending some laws and regulations to reduce the burden on employers; providing additional financial support; allowing employers to use net operating losses and tax credits; delaying the enforcement of updated guidance; rejecting any new tax measures; and paying down the unemployment insurance fund.

January 13, 2021

The Honorable Gavin Newsom
Governor, State of California
State Capitol
Sacramento, CA 95814

The Honorable Anthony Rendon
Speaker, California State Assembly
State Capitol, Room 219
Sacramento, CA 95814

The Honorable Toni Atkins
President Pro Tem, California State Senate
State Capitol, Room 205
Sacramento, CA 95814

Members
California State Legislature
State Capitol
Sacramento, CA 95814

SUBJECT: ECONOMIC RECOVERY

Dear Governor, Mr. Speaker, Madam President Pro Tem, Members of the State Legislature:

The California economy cannot fully recover until businesses are allowed to reopen. Many employers believe they could safely reopen now with the extensive work they have done to create a safe environment for their employees and customers. But, until there is widespread distribution of the vaccine, it is doubtful that California will be allowed to reopen anytime soon with the record number of infections that have overwhelmed hospitals throughout the State. The shut downs have already devastated many small and large employers, and brought misery to millions of workers. As the shut down continues indefinitely, many more of these businesses will close permanently, unable to withstand the financial losses they are suffering. These closures take with them jobs, local tax revenues, and social glue from both local communities and the State.

At the same time, California continues to suffer a significant exodus of employers to other states, who are seeking lower taxes, fewer regulatory burdens, more affordable housing for employees, and reduced employment litigation. While we have seen these occurrences gradually grow over the past several years, the pandemic, and current economic crisis in California has exacerbated this situation. Some of these employers will maintain existing facilities in California, while others are shutting down their offices/locations here completely, transferring jobs out of state. And, all employers leaving are eliminating the option for any future growth in California.

California needs to address both crises immediately.

We appreciate the announcement of the Governor's Equitable Recovery for California Businesses and Jobs plan that includes much needed financial relief for businesses suffering as a result of the pandemic, especially the proposed grant programs, which could provide a financial bridge for many employers until they are able to reopen. And, we encourage urgent action on these proposals as many employers are in desperate need now.

But, we need to do more. The financial grant programs, loans, and tax relief will certainly help. However, not all employers who need assistance will be eligible and even for those who do, will not receive enough money to fully offset the costs they are facing as a result of the pandemic.

The business community stands ready and willing to assist in expediting the distribution of the vaccine to help stop the spread and reopen the economy. Many employers have already offered their sites as locations to administer the vaccine to help with the distribution. But, until we reach a widespread distribution of vaccines, the Governor and Legislature must take action now to not only provide financial relief, but also reduce the costs facing all employers in California, including alleviating regulatory burdens, litigation threats, and tax threats, as well as immediately address our housing crisis. Small employers need to be protected from the harm of the pandemic and larger employers and their employees need a reason to stay.

Accordingly, we request the Governor take executive action to immediately and temporarily suspend for at least six months, the following laws and regulations, which will reduce burdens on employers without affecting the health and safety of Californians:

1. CFRA for Small Employers: Temporarily suspend compliance with the California Family Rights Act for employers with fewer than 50 employees. These employers do not have the resources to administer a new and unfamiliar leave mandate while struggling to keep their businesses open. Employees of small businesses already have protected, paid leave if they have been exposed to, have symptoms of, have been diagnosed with, or have tested positive for COVID, through California paid sick leave and the new (SB 1159-Hill) workers' compensation presumption. The new leave mandate under CFRA is not COVID-specific. Small employers should be temporarily spared the cost and burden of new compliance with the extensive leave under CFRA while they are coping with the challenges of the pandemic.

2. CalOSHA Mandatory Testing and Paid Leave: In November 2020, the California Occupational Health and Safety Board (CalOSHA) adopted emergency regulations to address COVID-19 (“Emergency Regulations”) that imposed onerous requirements on employers of all sizes, including training, reporting, development of new processes/policies, protective barriers and equipment in the workplace, paid protected leave, and testing. These regulations were introduced, approved, and in effect within an approximate two week period, without meaningful stakeholder input from the employer community. The result has been overwhelming concern and cost to employers who again, are already suffering. And, these regulations unquestionably have a disproportionate impact on small employers, who have limited resources and do not have legal counsel, human resource managers, or safety advisors to help them comply. The CalOSHA Standards Board is not planning to meet and discuss these Emergency Regulations until March — and appears unlikely to make any changes to improve the regulation until months after the March meeting. While we appreciate the recent commitment to waive fines until February 1st for certain provisions of the Emergency Regulations, waiving some fines for a few weeks is not sufficient. Many employers need relief now and the structural infeasibilities of the Emergency Regulation (discussed below) will not disappear February 1st. The two provisions of these regulations creating the most concern and cost are testing and paid protected leave, upon which we request immediate action.

a. Eliminate the enforcement of the mandatory testing requirement under the Emergency Regulations for employers who are in no position to meet these onerous requirements, such as weekly or biweekly testing of entire workplaces. As an initial matter, such testing is not commercially available in the volume needed to comply with this requirement, which will force struggling businesses to compete to purchase this scant supply. As recently as last month, both public and private employers reported shortages and inability to purchase or schedule tests in sufficient volume to comply with the regulation at CalOSHA's December stakeholder meeting. Putting aside the issue of shortages and cost, this onerous requirement will force employers to procure testing in bulk for large swaths of their workforce and compete with those who should be given priority such as healthcare workers, the elderly and those showing symptoms. This mandate is even more onerous on small businesses who do not have the resources or scale as a larger employer to purchase these tests.

b. Eliminate the mandatory payment of wages under the Emergency Regulations for employees who are excluded from the workplace due to COVID. For employees who are exposed at work and ultimately test positive, California last year adopted SB 1159 (Hill) that provides employees with paid time off and medical care under the worker's compensation system. Requiring employers to provide additional paid time off under the Emergency Regulations for a potential exposure, even if the employee ultimately does not test positive, forces employers to subsidize this public health crisis, which is an unfair burden to place on employers who are already suffering. Small employers with a limited workforce will be unfairly penalized by this requirement. Because the exposed workers may constitute most or all of a small employer's workforce, not only would this mandate force the business in many cases to shut down entirely, it would require the employer to continue paying wages even though the business is shuttered.

3. Property Taxes: Unlike other taxes, property tax payments are not based on a percentage of income or sales. These tax payments are due regardless of the owner's ability to pay, many of whom cannot due to the shutdowns. Accordingly, we request for you to temporarily delay the next installment of property taxes that are due in April 2021 to allow employers time to reopen and earn income/revenue.

We request the Governor and/or Legislature to do the following:

1. Expedite Additional Financial Resources to Small Businesses: While both large and small employers have been impacted by this pandemic, small businesses have been exceptionally vulnerable. The most recent shutdowns have exacerbated sales and operating pressures that many small businesses have been struggling with for nine months. These small businesses do not have the financial reserves to satisfy all of the new obligations imposed by new regulations and laws, while trying to maintain their businesses at a reduced capacity — if operating at all. While the recent federal relief package will provide some employers with financial support through extension of the Paycheck Protection Program, as we know from the first relief package, not all employers will receive a loan and the costs upon which the loan money can be spent to ensure forgiveness is limited.

The California Rebuild Fund and the Governor's proposed grant programs in the 2021-2022 budget are great additional tools to provide relief. But, the proposed maximum amounts and eligibility criteria under the grant programs are limited and will not sustain all employers through these shut downs. Accordingly, we request the Governor and the Legislature to expand the eligibility under the grant programs so more employers can qualify and increase the maximum amounts provided to sustain employers through the extended shut downs. Additionally, the Governor and Legislature should develop an immediate financial reimbursement or quarterly tax offset for employers who are investing in state-mandated upgrades for their workspaces to protect employees from COVID, compliance with the Emergency Regulations, hiring employees, or any other business expense the employer has incurred as a direct result of the pandemic. A tax credit at the end of the year will work for some employers, but many cannot wait that long for financial relief or will not have enough taxable income for a credit to have an impact.

2. Allow Employers to Utilize Net Operating Losses and Tax Credits: In July 2020, the Legislature approved the Governor's proposal to suspend the use of personal and business net operating losses (NOLs) and limit the use of existingbusiness tax credits to offset their tax liability for years 2020-2022. This proposal was advanced to raise approximately $9 billion in revenue to help address the budget shortfall expected as a result of COVID.

As the Governor announced last week, California is not even close to experiencing a budget shortfall. In fact, California's budget is so flush with money that the surplus requirements in both the Rainy Day Reserve (Proposition 2) and State Appropriations Limit (Proposition 4) have been triggered. Accordingly, these tax saving measures that were adopted in July 2020 are no longer needed and businesses should be allowed to immediately utilize NOLs and earned tax credits to offset any harm they have suffered as a result of this pandemic and to encourage employers who are considering leaving, to stay.

We further request the Legislature to enact the following policies in 2021:

1. Eliminate disincentives for telecommuting. Work-from-home options have kept thousands of employers in business and saved the jobs of thousands of employees. Due to public school closures, many parents are having to support their children who are distance learning, while also maintaining a job. Telecommuting gives working parents an opportunity to do both. However, existing state laws do not provide the necessary flexibility for employers to accommodate the scheduling challenges parents are facing with working and supporting kids at home. Employers who allow employees to work separate shifts in a day, work more hours one day to take time off on another day, or even skip a break to finish working early, may be penalized and fined. The laws should be updated to address this disincentive so that employees can enjoy the flexibility they need to meet these work and home demands.

2. Relieve Employers of Abusive Lawsuits Under the Labor Code Private Attorney General Act. During the pandemic, businesses have had to quickly react to the emergency shutdown orders and health guidance, by reducing employee hours, layoffs, final pay, transitioning employees to work from home, implementing supplemental COVID sick pay, new CalOSHA regulations, etc. Employers have had to adjust with limited time and notice to these changing arrangements, while trying to keep their businesses afloat. While employees should always be entitled to wages they earn, employers should not be subject to frivolous litigation under PAGA in which they are extorted by attorneys for layers of penalties for minor violations. At a minimum, the Legislature should temporarily suspend PAGA or eliminate the opportunity for lawyers to file these abusive lawsuits against employers who are already struggling from this pandemic. Employees should still be able to pursue claims before the Labor Commissioner and other agencies. But attorneys should not be able to victimize businesses who are already suffering.

Additionally, the constant threat and barrage of employment litigation is one of the top concerns of large employers in California. It should be noted that California is the only state in the country that has a PAGA statute, allowing private attorneys to stand in the shoes of the state and seek penalties against employers for a number of different labor violations, including purely technical deficiencies. The Legislature must reform PAGA to eliminate the opportunity for lawyers to file these abusive lawsuits against employers, which have proven be a huge windfall for attorneys, and negligible relief for employees. Employers have paid millions in attorney's fees over the last decade due to PAGA, and the negative impact is finally taking its toll as large companies are now fleeing the State.

3. Delay Enforcement of Updated Guidance and Regulations. Dozens of state agencies have conducted business as usual during the pandemic, issuing new rules and guidance for employers to follow, with little to no notice, and pushing costly emergency regulations with less than one week of notice to the business community. CalOSHA did not provide the text of the Emergency Regulations until November 12th, and yet businesses were expected to be in compliance with the finalized regulations by November 30th. At the same time as these guidance documents and new regulations were released, businesses were scrambling to adjust to statewide orders to shut down or reduce their capacity. We have heard complaints from employers that by the first week of December, CalOSHA was already investigating and citing employers for failure to comply with these expedited regulations. Notably, the Governor issued an Executive Order that allows the Office of Administrative Law additional time to review and consider proposed regulations given the strain of the pandemic, but provided no such courtesy for the regulated community. The Legislature should provide employers with some grace period to receive notice of any new guidance and regulations, and time to gather the resources to comply, before any effort of enforcement.

4. Pay Down the Unemployment Insurance (UI) Fund: This pandemic has created unprecedented unemployment numbers, which are tragic for unemployed Californians, but are also draining the State's UI fund, and forcing the State to borrow billions of dollars from the federal government. This insolvency and job loss is due, in large part, to the ongoing state-mandated shutdown of much of California's economy. The Employment Development Department recently indicated that the State would reach $21.5 billion in loans from the federal government by the end of 2020 and that the loan will grow to $48 billion by the end of 2021. This federal loan is paid off by increasing payroll taxes on employers through a reduced federal tax credit, which forces employers to further shoulder the cost of this shutdown. Given the size of the expected UI Fund deficit, we expect California's employers to be facing increased taxes for twenty years or more without state action. To address this insolvency and help businesses rebuild, the one-time windfall noted in General Fund revenues should be applied to the outstanding UI loan to reduce this future tax increase on employers.

5. Reject Any New Tax Measures: California already has the highest personal income tax, the highest sales tax, and one of the highest corporate tax rates in the country. Although Proposition 13 keeps property taxes at a reasonable rate, the cost of housing in California eclipses the financial relief Proposition 13 provides. For years, the assumption has been that employers and employees would pay these high rates to enjoy the benefits California offers. But, the costs are now outweighing the benefits. Both employers and employees are leaving the State to find a lower cost of living and lower cost of doing business. Employers cannot withstand more taxes at either the state or local level. Any new proposals should be immediately rejected, not only because it is bad policy, but because even allowing these proposals to move through the process further encourages more employers to leave the State.

6. Eliminate Barriers to Housing: Employers and employees are leaving the State also because of the severe affordable housing crisis. It is a problem that existed before the pandemic, and a problem that has been exacerbated by the pandemic. The Legislature must reform the California Environmental Quality Act (CEQA) to eliminate litigation cost premiums and unnecessary delays for the development of affordable housing and market priced homes to provide housing for lower income and middle class Californians. Additionally, the Legislature must approve real and meaningful solutions, including but not limited to capping local housing fees, reinstating tax increment financing for targeted economic development to help pay for local infrastructure and housing, holding cities more accountable for not approving adequate housing, reshaping state-local tax sharing to reduce disincentives to approve new housing, quashing any further attempts at rent control, avoiding overly broad one-size-fits all development bans in State Responsibility Areas and high fire severity zones, and further incentivizing up zoning and “missing middle” housing.

The State will need a strong business recovery to bring back jobs and stability to our communities. We cannot recover when businesses are shutting down and employers are leaving the State. We look forward to working with all of you this year to stop the spread of the virus and help California rebuild.

Sincerely,

Allan Zaremberg
President and CEO
California Chamber of Commerce

Jennifer Barrera
Executive Vice President
California Chamber of Commerce

Emily Rooney
President
Agricultural Council of California

Thomas K. Bannon
CEO
California Apartment Association

Erin Guerrero
Executive Director
California Attractions and Parks Association

Dan Dunmoyer
President and CEO
California Building Industry Association

Rex Hime
President
California Business Properties Association

Rob Neenan
President and CEO
California Food Producers

Elizabeth Graham
Executive Director
California Fuels & Convenience Alliance

Lynn S. Mohrfeld, CAE
President and CEO
California Hotel & Lodging Association

Sandra Giarde
Executive Director
California Landscape Contractors Association

Lance Hastings
President and CEO
California Manufacturers and Technology Association

James Simonelli
Executive Director
California Metals Coalition

Jot Condie
President
California Restaurant Association

Rachel Michelin
President
California Retailers Association

Robert Gutierrez
President and CEO
California Taxpayers Association

Shaw Yadon
CEO
California Trucking Association

Robert Rivinius
Executive Director
Family Business Association of California

Maria Salinas
President and CEO
Los Angeles Chamber of Commerce

John Kabateck
California State Director
National Federation of Independent Business

Lucy Dunn
President and CEO
Orange County Business Council

Bobby Koch
President and CEO
Wine Institute

Alameda Chamber Chamber of Commerce

Alhambra Chamber of Commerce

American Chemistry Council

American Council of Engineering Companies California

American Staffing Association

Anaheim Chamber of Commerce

Antelope Valley Chambers of Commerce

Apartment Association of Greater Los Angeles

Associated General Contractors

Association of Claims Professionals

Auto Care Association

Beaumont Chamber of Commerce

Benicia Chamber of Commerce

Big Bear Chamber of Commerce

Brawley Chamber of Commerce

Brea Chamber of Commerce

Building Owners and Managers Association of California

CAWA — Representing the Automotive Parts Industry

California Alarm Association

California Apartment Association

California Arts Advocates

California Association of Sheet Metal and Air Conditioning Contractors National Association

California Association of Winegrape Growers

California Beer and Beverage Distributors

California Business Properties Association

California Hotel and Lodging Association

California Lodging Industry Association

California Manufacturers & Technology Association

California Self Storage Association

California Staffing Professionals

California State Council of the Society for Human Resource Management

California Travel Association

Carson Chamber of Commerce

Cemetary and Mortuary Association of California

Chemical Industry Council of California

Chico Chamber of Commerce

Chino Valley Chamber of Commerce

Citrus Heights Chamber of Commerce

Claremont Chamber of Commerce

Coalition of Small and Disabled Veteran Businesses

Commercial Real Estate Development Association — NAIOP of California

Coronado Chamber of Commerce

Costa Mesa Chamber of Commerce

Covina Chamber of Commerce

Cupertino Chamber of Commerce

Dana Point Chamber of Commerce

Dinuba Chamber of Commerce

Duarte Chamber of Commerce

El Centro Chamber of Commerce

El Dorado County Chamber of Commerce

El Dorado Hills Chamber of Commerce

Elk Grove Chamber of Commerce

Escondido Chamber of Commerce

Family Business Association of California

Flasher Barricade Association

Folsom Chamber of Commerce

Garden Grove Chamber of Commerce

Gilroy Chamber of Commerce

Greater Coachella Valley Chamber of Commerce

Greater Conejo Valley Chamber of Commerce

Greater High Desert Chamber of Commerce

Greater Irvine Chamber of Commerce

Greater Riverside Chambers of Commerce

Greater San Fernando Valley Chamber of Commerce

Greater Stockton Chamber of Commerce

Greater Tehachapi Chamber of Commerce

Half Moon Bay Coastside Chamber of Commerce & Visitors' Bureau

Hawthorne Chamber of Commerce

Hayward Chamber of Commerce

Housing Contractors of California

Imperial Chamber of Commerce

Industrial Environmental Association

Industry Business Council

International Bottled Water Association

International Council of Shopping Centers

International Franchise Association

Job Creators For Workplace Fairness

La Verne Chamber of Commerce

Laguna Beach Chamber of Commerce

Laguna Niguel Chamber of Commerce

Lake County California Chamber of Commerce and Visitors Center

Lake Elsinore Valley Chamber of Commerce

Lodi Chamber of Commerce

Lomita Chamber of Commerce

Long Beach Area Chamber of Commerce

Los Angeles Area Chamber of Commerce

Los Gatos Chamber of Commerce

Mammoth Lakes Chamber of Commerce

Manhattan Beach Chamber of Commerce

Martinez Chamber of Commerce

Metal Finishing Association of Northern California

Metal Finishing Association of Southern California

Montebello Chamber of Commerce

Moreno Valley Chamber of Commerce

Murrieta/Wildomar Chamber of Commerce

National Association of Theatre Owners of California

Nevada National Elevator Industry, Inc.

National Federation of Independent Business

Newport Beach Chamber of Commerce

North Orange County Chamber

North San Diego Business Chamber

Norwalk Chamber of Commerce

Oceanside Chamber of Commerce

Official Police Garages Association of Los Angeles

Oxnard Chamber of Commerce

Pacific Water Quality Association

Palm Desert Area Chamber of Commerce

Palo Alto Chamber of Commerce

Paradise Ridge Chamber of Commerce

Paso Robles Chamber of Commerce

Pleasanton Chamber of Commerce

Plumbing-Heating-Cooling Contractors Association of California (CAPHCC)

Poway Chamber of Commerce

Professional Fiduciary Association of California

Rancho Cordova Chamber of Commerce

Rancho Mirage Chamber of Commerce

Regional Chamber of Commerce — San Gabriel Valley

Ridgecrest Chamber of Commerce

Roseville Area Chamber of Commerce

Sacramento Metropolitan Chamber of Commerce

San Clemente Chamber of Commerce

San Leandro Chamber of Commerce

San Mateo Area Chamber of Commerce

San Ramon Chamber of Commerce

Santa Ana Chamber of Commerce

Santa Barbara South Coast Chamber of Commerce

Santa Fe Springs Chamber of Commerce

Santa Maria Valley Chamber

Santa Paula Chamber of Commerce

Santee Chamber of Commerce

South Orange County Economic Coalition

South San Francisco Chamber of Commerce

Specialty Equipment Market Association

Sunnyvale-Silicon Valley Chamber of Commerce

TechNet

Temecula Valley Chamber of Commerce

Torrance Area Chamber of Commerce

Tri-County Chamber Alliance of San Luis Obispo, Santa Barbara and Ventura County

Trinity County Chamber of Commerce

Tulare Chamber of Commerce

United Chamber Advocacy Network

United Chambers of Commerce

Vacaville Chamber of Commerce

Valley Industry & Commerce Association

Ventura Chamber of Commerce

Visalia Chamber of Commerce

Vista Chamber of Commerce

Water Quality Association

West Hollywood Chamber of Commerce

West Valley Warner Center Chamber of Commerce

Western Electrical Contractors Association (WECA)

Western Independent Refiners Association

Western Manufactured Housing Communities Association

Western Steel Council

Whittier Area Chamber of Commerce

Yorba Linda Chamber of Commerce

Yountville Chamber of Commerce

Yuba-Sutter Chamber of Commerce

Yucca Valley Chamber of Commerce

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