State Senate Majority Leader Hertzberg Offers End-of-Session Assessment of 2019 Legislature

Few issues garnered more attention this state legislative cycle than housing and homelessness.  As the dust settles on the 2019 California legislative session, what are your thoughts on what was accomplished to address the state’s housing and homelessness challenges?

Bob Hertzberg: Basically what we ended up seeing in terms of housing this legislative session was that a great deal of the surplus went to various forms of housing—billions of dollars came in to help support housing. Also, the voters in November passed a housing bond of $4 billion. In addition, through Proposition 2 we securitized $2 billion of the Millionaire’s tax (Darrell Steinberg’s Prop 63 – the Mental Health Services Act of 2004) to pay for housing for people with mental illnesses. Both were really big economic contributions.

Secondarily, a lot of the barriers to building housing were taken down. AB 101, the 143-page budget trailer bill exempted Low Barrier Navigation Centers on government land from CEQA environmental review, among other things.

There was also the Santiago urgency bill (AB 1197) that I carried on the Senate floor. The purpose of that was, again, to get rid of the CEQA review for this kind of housing. When you’re talking about building housing, there are three elements that get in the way. One of the great barriers for affordability in California is land costs, so if you can use government land it’s a big deal, because you can lease it for a $1 to reduce your cost. The second is the costs and time delays related to approvals. The CEQA changes that have been made have been extraordinary for this barrier. And third is the availability of capital.

Also, Department of General Services has been working diligently on locating government land for affordable housing, and they have already announced properties where they plan to build affordable housing. When you look at the year, we have the expediting effects of SB 330; we ended up not having SB 50—which eliminated single-family zoning across California and was, I think, a bridge too far; and we ended up with a significant infusion of money and significant streamlining of the process. Those are big steps forward.

That being said, none of it is fast enough, because we still have too many people living on the street. I’m not satisfied until everybody’s off the street. My philosophy is nobody lives on the street, period. In terms of health issues and the other issues associated with it, you’ve just got to take a tough, hard line on the issue with respect to homelessness. Take, for example, my bill on homeless pets. One of the reasons people are on the streets is because these housing units don’t allow their pets. The governor put $5 million in the budget to encourage shelters to let people in with their pets.

There were a lot of smaller accomplishments that will have an impact, but the overarching, larger accomplishment was the extraordinary allocation of billions of dollars and plowing the road to get rid of as many barriers as possible. SB 330 sped up the process by saying a projects needs to have an approval in 30 days, and if not, it’s deemed approved. Those are significant measures, now we just have to build the housing.

The governor recently vetoed SB 5, the Affordable Housing and Community Development Investment Program, which would have served to plug the hole in funding for affordable and middle-market housing created when Governor Brown and the legislature dissolved community redevelopment agencies (CRAs) in 2011. Without such a program, how should local governments fill that gap?

With respect to CRAs, I’m not a big fan. I was not in the legislature when it supported Jerry Brown’s bill to eliminate community redevelopment agencies. CRAs exacerbate the problem and take away property tax revenues that could be used for social services but instead goes in for incremental tax financing of redevelopment projects. It resulted in a lot of problems.

I prefer the idea of Opportunity Zones, which we’ll hopefully get done next year. There are other, better ways to more intelligently move forward than community redevelopment agencies. We just got used to that crack cocaine of CRAs, so to speak. We need to modernize the financing operation of how we do development in local government.

The governor recently vetoed SB 5, the Affordable Housing and Community Development Investment Program, which would have served to plug the hole in funding for affordable and middle-market housing created when Governor Brown and the legislature dissolved community redevelopment agencies (CRAs) in 2011. Without such a program, how should local governments fill that gap?

With respect to CRAs, I’m not a big fan. I was in the legislature when it supported Jerry Brown’s bill to eliminate community redevelopment agencies. They exacerbate the problem and take away property tax revenues that could be used for social services but instead goes in for incremental tax financing of redevelopment projects. It resulted in a lot of problems. 

I prefer the idea of Opportunity Zones, which we’ll hopefully get done next year. There are other, better ways to more intelligently move forward than community redevelopment agencies. We just got used to that crack cocaine, so to speak. We need to modernize the financing operation of how we do development in local government.

Likewise, the federal government, which historically has played a significant role in funding the production of affordable housing, has been remarkably absent in the marketplace for decades. Your thoughts?

The absence of leadership from the federal government is a big problem across the board. It isn’t just in the housing context. In so many other areas, our relationship is defined by actions in a courtroom with the federal government. The great injustice is that Californians are paying an extraordinary amount of money in taxes over and above what we’re getting back, and now it’s even worse. I don’t know what to do with that, other than to change the administration in Washington. The tensions that exist are really hurting California taxpayers, because it’s our money and we’re not even getting it back.

Speak to the legacy of Prop 13 and its impacts on the capacity of local governments to build the local infrastructure and amenities necessary to support greater urban density.

Prop 13 changed the game dramatically. Now, instead of having larger property tax bills, developers just have large fees that they have to pay in order to accomplish the infrastructure that’s necessary. We’re passing tens of billions of dollars for school construction from the state general fund to pay for costs that historically were paid for by property taxes—and then by developers. The fiscalization of land use incentivizes the construction of commercial property rather than housing, because housing means more costs for fire, police, sanitation, and other services. Instead of housing, we get auto malls and big box retail. It’s been just an absolute mess, so there’s no question that Prop 13 has been a real challenge with respect to that. I’m working on a service tax to avoid some of that volatility and allocate funds in a more intelligent way.

To help support some of those costs, we just authorized, at Metro, $120 billion in transportation infrastructure funding. We’ve spent $60 billion-$70 billion on education infrastructure from the general fund of the State of California. There’s an inequity that occurs at the local level when you have a community without resources, and they’re supposed to pick up the tab for some of their infrastructure costs. The developer fees and mitigation fees are just extraordinary, and they don’t equitably look at what should actually be the cost of things.

It has been a real problem. It takes a combination of state, local, and federal effort in order to make sure there’s equity in the process, but some of the local costs have just gone through the roof; the time delays and the costs have had a chilling effect. The worst part about it is some cities get out there and offer the moon to a developer to build an auto-mall for tax revenue and other cities don’t have that, so you get this uneven development and support in different communities.

You’ve been quite active in rethinking & aligning California’s tax and expenditure system with the digital economy. Please share what motivates and instructs your policy work.

The reality is the tax structure was built in a horse-and-buggy agricultural era. Non-governmental spending—82 percent of it today—is services, and yet we don’t tax services. 49 states in the United States tax services. I just want to modernize the system, so that the nature of the tax structure reflects how we earn money and how we should spend money.

We’ve got a few people paying a huge percentage of the total income tax revenue to the state, which creates horrible volatility, because we don’t tax capital gains. That volatility means when there’s a downturn, courts get furloughed and services get shut down, and that’s a real problem.  My whole focus has been—without regard to partisanship—about one simple thing: getting rid of that volatility and creating a tax structure that grows in a manner consistent with how California operates. It allows us to divide some of that money into local and state pots to gain some equity, get a more steady revenue stream to avoid the volatility that otherwise occurs in the system, and harmonize the future of California and our economic growth.

With Governor Newsom’s signature on AB 857, California is now the second state in the nation to authorize public banks. Address the need today and value-added of public banking, and whether there are better alternatives to extending access banking services? 

I don’t know. I voted for it in committee as an accommodation to move it along for the authors— because I like them a lot and I work with them on many things—but I didn’t vote for AB 857 on the floor. I know that public banking is done in one state—North Dakota—but I don’t think it makes sense here. North Dakota doesn’t have the institutions, so they need a public bank. We have dozens of different kinds of financial institutions that work. Secondly, banking is fundamentally changing. Online banking can dramatically reduce the costs of borrowing, determining risk, and extending to communities who haven’t had access to banking. There’s a whole host of things that are really valuable.

We have the Treasurer’s Office and dozens of various entities that do financing for things like pollution, hospitals, and schools. We have all sorts of mechanisms, so I’m not a big believer in the public bank. I think it’s going to be expensive, and I don’t think it’s going to work. It may have worked 100 years ago, but markets today are sophisticated and changing dramatically with technology

Pivoting, Governor Newsom recently signed a package of bills amending and clarifying the California Consumer Privacy Act. Remind readers the impetus for and substance of that law, and what these amendments accomplish.

Alastair Mactaggart had a measure poised to go on the 2018 ballot that created the most significant privacy protections for consumers in the country, but it was flawed. It required 70 percent support from the legislature to amend it, which is unworkable on an area of public policy that is so quickly changing and dynamic. I spent months negotiating with him and others. Because of initiative reform work I did with the Think Long Institute during my time out of government, through partnerships with the Berggruen Institute, the Legislature now has the ability to work with initiative proponents to remove ballot measures from the ballot before they are voted on by the people, which we were able to do.

We were successful in coming up with an agreement, which created the California Consumer Privacy Act of 2018, but the act wasn’t really legislation in the conventional sense. It was an agreement between Mr. Mactaggart, the Legislature, and the Governor to get Mactaggart to take his initiative off the ballot. The plan was to delay implementation for a year, so we fine tune the details through the legislative process. Our 2018 agreement was all done without the benefits of hearings and processes that are so fundamental to our democracy.

However, in 2019, not much happened. The CCPA miscalculated the role of the Attorney General: it attempted to make it that of a regulator, when in reality the AG is more of a law enforcement agency. Secondly, in the last year and a half to two years, there have been significant changes in technology as it relates to sensitive personal information, that require even more stringent protection of our privacy.

A number of us have been working on this question of enforcement and trying to get an agreement to create some sort of privacy protection agency, but we couldn’t get it done this legislative session, given all the tremendous challenges and pressing matters we were considering. Mr. Mactaggart decided to draft a new measure to create a new class of privacy protection with sensitive personal information, create a privacy protection agency that can implement the regulations together with some other changes that we thought needed to be made. So, Mactaggart put together a new initiative that’s going to go on the November 2020 ballot. It’s at the AG’s office now for the necessary processing, but I’m certain it’ll get signatures and get on the ballot—it polls very high.

We’ve really done the homework on this and taken advantage of all that we’ve learned over the last year—from enforcement to extending privacy to more consumers. I’m proud of the work, and proud of Mr. Mactaggart and what he’s done. I think it’s the right thing to do.

Given the complexity—technical, economic & political—of the above public policy, are our elected, deliberative legislatures today truly up to the challenge of resolving digital age privacy & IoT policy issues?

I think it’s a challenge for democracies across the world. We’re seeing it happen in France with the Yellow Vests, in Italy with the 5-Star Movement, and across our country—in all the states and in the federal government. Democracy is designed to be slow, deliberative, and inclusive—more inclusive now than ever. And yet, we live in a society where everybody is used to Amazon, instantaneous deliveries, and everything at your fingertips.

One simple example of this problem is in government procurement: by the time you go through the procurement process, whatever you’re seeking to acquire has already become obsolete. It is a gigantic challenge.

One of the main reasons I came back into government was to make government more user-friendly, to speed up the process while keeping it inclusive, and to modernize it. People in Sacramento are typically concerned with preserving their interests, instead of designing for the future. It is one of the biggest challenges we’re currently facing, but I have every confidence we’re going to figure it out.

To close, is there sufficient emphasis in California schools on civics—both formally and through extra-curricular programs—to support representative, democratic governance?  For historical reference, Benjamin Franklin is quoted at the close of the Constitutional Convention of 1787, when queried by Dr. James McHenry as he left Independence Hall on the final day of deliberation: “Well, Doctor, what have we got—a Republic or a Monarchy?” “A Republic, if you can keep it.”

Not enough. I don’t know if civics education is really the larger issue we should be looking at. I think it’s really about aligning incentives in a way that work. How do you align incentives to stop fake news on the internet? There are a lot of smart people that are working on this stuff—the nonprofit and for-profit sectors—trying to figure out what to do. We go through these periods in our history, and we’ve always managed to come out by adapting and modernizing. When you’re in the middle of it, you think it’s impossible until it’s figured out. I’m eternally an optimist, which is why I am dedicated to working hard to figure out many of the great challenges that we’re facing today in democracy.