Legislative Update

As this report goes to press (August 21, 2006), two weeks remain in the 2006 Regular Session of the California Legislature. During this time the legislature will render its final judgment on the three bills still alive that would negatively impact apartment interests.

The apartment lobby will launch “floor fights” in the Assembly against AB 1169 (Torrico) and SB 1676 (Ducheny). The Torrico bill proposes to reset the 60-day notice requirement for termination of a periodic tenancy of one-year or more that was in effect statewide from 2003-2005. Senator Ducheny’s bill would increase by approximately 180 days the notice required for termination of a tenancy in advance of a condominium conversion. (Past issues of the Apartment Journal contained descriptions of these bills in greater detail.) Recall that last year the Assembly rejected SB 51 (Kuehl), legislation that would have extended the 60-days notice requirement. Earlier this year the Assembly voted down AB 2562 (Saldana), a bill that also would have imposed more notice restrictions on condominium conversions. These past votes provide a relatively accurate guide for building coalitions to defeat AB 1169 and SB 1676. While other factors might complicate the task – Assemblyman Torrico and Senator Ducheny are both relatively popular with their colleagues and might be able to call in some personal favors that Senator Kuehl and Assemblywoman Saldana could not – the chances of stopping these proposals in the Assembly are significant. As a backstop, we’re working with the Schwarzenegger Administration to set up a gubernatorial veto should either bill make it out of the Legislature.

The third bill of significant interest is SB 540 (Kehoe). This proposal would make it illegal for a landlord to prohibit a tenant from posting or displaying signs on the property that relate to a political campaign or legislative issue subject to certain quantity and size limitations. The chances of stopping this bill in the legislature are not great; while virtually all Republicans have voted against the proposal Democrats have been just as consistently in favor. While technically not a free-speech proposal – constitutional rights restrict the government generally but apply to private entities only when “state action” is present, which is not the case with apartment complexes – Senator Kehoe has cast her bill as speech protection. The emotional resonance of that position works well against the technical and contract arguments that the opposition has offered in response. Our best hope with SB 540 is to persuade the Governor – a commercial property owner himself -- to exercise his veto authority.

Some work will also be performed during the final weeks to address technical concerns the apartment lobby has with a few other bills. AB 2210 (Goldberg) reworks the regulatory scheme governing tow truck operators. The apartment lobby engaged early in this bill to correct some onerous and inefficient requirements that the bill originally proposed to govern authorization of a tow at an apartment complex. We reached a conceptual agreement with the author that was approved in the Senate Transportation & Housing Committee during July. However, when the actual language effectuating this compromise was inserted into the bill, certain new provisions that had not been discussed in committee were also included, most notably a misdemeanor penalty that would apply to any apartment owner who didn’t receive the correct information from the tenant who initially requested a tow. Senator Alan Lowenthal (Long Beach), chair of the Transportation & Housing Committee and the hometown Senator of the Apartment Association, California Southern Cites, has promised to correct this action and restrict AB 2210 to the terms explicitly discussed during his committee’s hearing.

AB 2865 (Torrico) presents some other technical issues. The measure would require that landlords alert tenants of “pest management practices” but provides little in the way of guidance as to what that phrase actually encompasses. We will attempt to get all necessary clarity inserted into the bill or set up a veto.

NOVEMBER BALLOT THICK WITH INITIATIVES

Thirteen initiatives have qualified for the November, 2006 ballot. Elsewhere in this edition you will find a detailed analysis of the specific initiatives that would significantly impact real-estate and apartment interests. This section will give a broad political overview of all the initiative proposals.

Start with Propositions 1A-1E, the five initiatives that the Legislature placed on the ballot as part of its agreement with Governor Schwarzenegger on bonds. Proposition 1A is a technical measure that touches on the use of the gasoline sales tax. Current law requires that sales-tax revenue from the sale of gasoline be dedicated to the Transportation Investment Fund but provides certain exemptions to this requirement. Proposition 1A would recast those exemption provisions to specify that gasoline sales-tax revenue could only be transferred to the general fund during times of budgetary emergency and only through authorizing legislation approved by a 2/3rds vote of each house.

Propositions 1B-1E propose that nearly 500 billion dollars in new bonds be authorized for highway and transportation projects (1B), housing and emergency shelter (1C), educational facilities (1D), and disaster preparedness and flood protection (1E). Back in January, during his State-of-the-State Address, Governor Schwarzenegger called for massive new state spending on infrastructure projects. Working with the legislature, the Governor developed these four proposals for the voters’ consideration.

Originally conceived as a means by which the Governor could rebuild his bipartisan credentials after the special-election debacle of 2005 that saw Schwarzenegger’s poll numbers plummet, the bond proposals have not so far captured broad public support. Proposition 1C trails in the latest Field Poll by a margin of 33-42-25 (support, opposition, undecided) while neither Propositions 1E (47-33-20) nor 1D (48-37-15) attracts support from more than 50% of the electorate. (Political wisdom holds that an initiative that polls below 50% during the summer likely will fail because undecided voters tend ultimately to break against initiatives.) Only Proposition 1B shows deep political strength, polling at 54-27-19. While bond supporters argue that these numbers will improve once Governor Schwarzenegger hits the campaign trail in earnest, it’s unlikely that he will choose to devote his political capital to generating support for the bonds. Schwarzenegger has his own reelection to worry about and won’t take up the cause of the bonds unless he sees an advantage to his own campaign. Right now, with Schwarzenegger leading Democrat-nominee Phil Angeledes in the polls, a focus on the bonds makes little sense for Schwarzenegger.

Propositions 83-90 present broader policy questions to the voters. Three propose higher taxes on specific commercial activities to fund new programs. Proposition 86 would raise taxes on cigarettes ($2.60 per pack) to fund hospital emergency services. Proposition 87 would add a severance tax on oil production to fund alternative energy research and production incentives. Proposition 88 would impose a $50 parcel tax on real property to fund new K-12 educational programs. All three campaigns will play out against the backdrop of the gubernatorial race in which taxes will be central issue. If Schwarzenegger gains traction with the voters with his critique of Angeledes as a “tax-and-spend” candidate then the bonds might suffer by inference.

Proposition 85 would require that the parents of a minor seeking an abortion be notified in advance. This measure is essentially identical to Proposition 73 from the 2005 special-election ballot, which the voters rejected 47.2% - 52.8%. Turnout for the special skewed Democrat, meaning the expected slightly higher Republican turnout this November could make this a one or two point election either way. Both gubernatorial candidates will likely oppose this measure, however.

Proposition 89 would provide for public-funding of campaigns for state elective offices. Its origin is somewhat ironic in that the California Nurses Association – a huge money player in the special election -- is the primary proponent. Little polling on this proposal has been published so far, but voters in California have shown a consistent appetite for campaign-finance reform over the past decade. Were it to pass, several aspects of the measure would likely be found unconstitutional – most notably the limits imposed on independent expenditures. Expect an unusual coalition – formed from special interests on both the political left and the right looking to preserve their influence – to oppose the measure.

Proposition 83 proposes what is known as “Jessica’s Law,” a series of greater restrictions on the movement of convicted sex-offenders with provisions for enhanced monitoring and enforcement. Both gubernatorial nominees have endorsed Prop 83 and it commands broad and deep public support. Expect it to pass with upwards of 70% of the vote.

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