March 20, 2015 Sacramento,

Legislature Discusses Business of Home-Sharing John A. Norwood

Counselor at Law The Assembly committees on local government and revenue and taxation held a joint

informational hearing on Wednesday to explore the growing trend of home-sharing and short- Erin Norwood term vacation rental websites like Airbnb and the impact the industry has on local Publisher municipalities. County and city governments currently have authority to enact transient

occupancy taxes (TOTs) that are assessed upon individuals who rent a room in a hotel, inn, or

Contributor other lodging facility unless the stay is for at least 31 days. The tax is collected by the hotel or Alex MacIlraith their agents and is transferred to the local government who has imposed the tax, which Brittany Trudeau supports cities and counties for higher public service costs associated with serving tourists. Amanda Gualderama In the last several years there has been a remarkable spike in online short-term vacation rentals pioneered by notable companies like Airbnb, Vacation Rentals by Owner (VRBO) and Contact Us HomeAway. The growing popularity of such companies has called into question the impact of [email protected] the industry on the housing market and the prospects for local government to collect TOTs stemming from the home-sharing economy. Hotels and other housing businesses – who are Capitol Place represented by the California Hotel and Lodging Association – have expressed concerns of a 915 L Street, Suite 1110 competitive disadvantage that home-sharing companies currently enjoy because the websites Sacramento, CA 95814 are typically not required to collect TOTs, often resulting in hosts who are unaware of tax laws and their obligation to collect revenues that TOS generate. However, the court decision in (916) 447-5053 HomeAway Inc. v. City & County of San Francisco determined that it is constitutionally legal (916) 447-7516 fax for local governments to impose the responsibility of TOT collection upon home-sharing companies. Nonetheless, many cities have not mandated the requirement upon the growing

industry, and some are hopeful of policy that would require agreements to be reached

between local governments and businesses. Currently Airbnb has struck accords relating to

TOT requirements with the cities of San Jose and San Francisco.

Some lawmakers are skeptical of passing a statewide legislative mandate because of the potential effect it would have on a growing business segment that contributes significantly to California Links the state economy. “When you try to get ahead of the curve with regulations, it really becomes not only over-burdensome, but also becomes not relevant to the issues at hand as State Senate this technology develops and enters the marketplace,” said Assembly Member Matt Dababneh. Proponents of the emerging industry also point to recent surveys by Airbnb that State Assembly determined more than 70 percent of hosts used the rental money to make their mortgage payments. Additionally, more than 30 percent of rentals occur in low and middle income communities that homeowners rely upon. However, some members were concerned by the Department of public safety risk the home-sharing industry creates and also potential safeguarding Insurance mechanisms to reduce preventable incidences. For example, some sort of background check that can determine if a prospective renter is a sex offender. Secretary of State Currently there are two bills that have been introduced in the state Legislature that grapple with the home-sharing industry, but both remain nonsubstantive. Democrat Senator Isadore Official Legislative Hall’s SB 761 is currently contains intent language that suggests the need to enact Information requirements upon home-sharing business operators to provide consumer protections as well as public disclosures such as the fact that rentals can violate the terms of a lease. Republican Assembly Member is also authoring legislation on the topic in AB 1220, which would prohibit local governments from levying TOTs for short-term rentals if it involves stays lasting less than 90 days. Senate Health Committee

On Wednesday the Senate Health Committee held another in a series of Oversight Hearings. This hearing focused on “Making Healthcare Affordable: Impact on Consumers.” Senator Ed Hernandez (D-West Covina) who is chair of the Senate Health Committee stated that he believes that transparency and reduction of costs are key to making health care more affordable for consumers. Senator Hernandez also stated that an important aspect of the Committee was to find out what are the cost drivers are in health care and learn how to control those cost drivers.

Health Access California testified that health costs in America have risen 180%. Administrative costs have remained stable and mandated benefits are less than 5% and while Americans are getting older, Health Access believed that this was not a significant driver in cost. Americans also do not use the health care system more than other countries, and on terms of health, people in America are generally healthier than other countries.

So although Americans are healthier and don’t use the health care system as much as people in other countries, the health care price is higher than other countries. What causes this high cost, according to Health Access, is the unit price which has a higher cost in America’s health care. In other words things cost more in America including doctors, drugs, labs, surgeries, etc.

It was noted that implementation of the ACA represents a fundamental change in health care delivery in California including the emphasis on primary care and prevention. But there are some unintended implementation expenses that act as a deterrent to getting health care. Senator Janet Nguyen (R-Santa Ana) commented that the Committee needs to ensure that when they talk about transparency regarding cost that they look into all the costs to consumers and to businesses in California, so as to not have the unintended consequences that hurt access to care or hurt the ability for businesses to open or stay in California.

The most important part of this hearing and this topic, though, according to Senator Hernandez was the consumer’s prospective since the consumer is the one trying to find a health plan, finding a doctor within his or her health plan and ultimately paying for the health plan including the deductibles and co-pays. A few of these consumers testified regarding the cost and inability to find health care. The focus was on care for children with special needs, Hepatitis C patients, and Californians with AIDS/HIV. All of the consumers commented on how hard it was to find specialists and the high cost of specialty drugs or programs. Workers’ Compensation Administrators in California Exceed Benchmarks

A report by the California Workers’ Compensation Institute found that claims administrators in the state who administer utilization reviews earned a 97 percent performance rating for the year of 2013. This rate is far above the 85 percent rating that insurance regulators define as a passing grade and speaks highly of the effectiveness of claims administrators in the state. The study was conducted by the California Workers’ Compensation Institute’s Audit Unit and looked into the expedience of response times in 280 offices over several years. It found small amounts of variance from year to year, but the overall score from 2011 to 2013 was above 95 percent. The study was based on the requests for treatment being responded to in five business days, as well as the content of utilization review determinations and delivery of written notices in regards to those decisions. The conclusion of the study was that the utilization review processes in California “have been working efficiently” in spite of concerns to the contrary that “administrators have performed poorly in meeting their obligations in responding to treatment requests.” Blue Shield of California Loses Tax Exemption

The California Franchise Tax Board has revoked the tax-exempt status of Blue Shield of California, a status that the insurance giant has held since 1939. The move was made by the Board in August following an audit of their finances, but it did not come to light until this week as the company faces increasing scrutiny over increases in premium rates and the billions of dollars they hold in financial reserves. Blue Shield has been ordered to file taxes dating back to 2013, the amount of which will likely total in the tens of millions of dollars.

Blue Shield of California is the state’s third largest insurance company, bringing in $13.6 billion in revenue in 2014. Many are now calling for Blue Shield to be reclassified as a for-profit company, including Insurance Commissioner Dave Jones who said, “The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer.” Reclassification of the company as a for-profit corporation would mean that Blue Shield would need to return billions of dollars of public investment money to the state, something that has happened before when Blue Cross of California gave back $3 billion that was used to create the California HealthCare Foundation and the California Endowment.

Questions are rising over why it took so long for the news of the change to come to light for the public. A spokesperson for the tax board stated that it is simply because the results of their audits are not generally available to the public, and they do not generally comment on the reasons behind revoking status in the interest of confidentiality. The Legislature is looking into the matter as well, with the Chair of the Senate Health Committee Sen. Ed Hernandez stating that he would like answers from Blue Shield and would like to see a debate on whether or not the company is doing enough to meet the requirements that come with receiving public money. A former Blue Shield insider is also joining the call for transparency and reclassification of the company – former public policy director Michael Johnson resigned last week and is now leading a campaign with an open petition for the company to become a for- profit corporation. Blue Shield has not yet commented on the move by the tax board, but it has made it known that it will be working to protest the decision. Glazer, Bonilla Advance to Runoff

Three Senate special elections were held across California this past Tuesday to fill vacancies resulting from former legislative members departing for Congress after successfully winning contests during the November midterms. Although voters in Senate Districts 21 and 37 elected a new Senator who will join the Capitol chambers after the results become officially certified, the battle for Senate District 7 will advance to a May 19th runoff as a crowded field of contending candidates prevented anyone from acquiring 50 percent of the vote plus one.

The top-two finishing candidates in SD 7 – Orinda Democratic Mayor Steve Glazer and Assembly Member (D – Concord) – will square off in a contest that has proven to be significantly costly and splintered the Democratic Party. As of Friday morning, Glazer finished with 33.2 percent, Bonilla with 24.5 percent, Joan Buchanan with 22.8 percent, Terry Kremin with 2.8 percent, and the lone Republican candidate who had previously dropped out nonetheless finished with 16.7 percent. Although late vote-by-mail and provisional ballots remain to be counted, the vote-tally margins are too steep to overcome the current standings. Despite more than $2 million in special interests being spent on advertisements and mailers, only 20 percent of registered voters cast a ballot as of Tuesday night.

Glazer, who lost last year in the June Primary for Assembly District 16 after campaigning for a ban on BART strikes, has already faced significant opposition from labor union groups who spent heavily against his candidacy. Unions revived their opposition in response to his campaign platform that re-invoked calls for a prohibition against BART strikes, a cap on pension benefits, opposition to tax hikes on oil companies and top-earning Californians, and other policies that kept him to the right on the political spectrum against competing candidates. During this go-round, business and charter school groups supported Glazer financially, while the powerful California Teachers Association backed Buchanan and other labor groups split their support between her and Bonilla. Bonilla’s campaign was premised upon her bipartisan policy approach that has allowed passage of heavy-lifting legislation including the overhaul of the state’s student testing regimen and insurance requirements upon transportation network companies like Uber and Lyft that eliminated a coverage gap that endangered drivers, passengers, and the public.

Republican Senate candidate Sharon Runner – the only candidate appearing on the ballot for Senate District 21 – coasted to victory on Tuesday and now returns to Sacramento where she served in the Assembly until requiring a double lung transplant. However in the race for Senate District 37, current Assembly Member Don Wagner lost to Orange County Supervisor John Moorlach who captured 51.4 percent of the vote. Wagner terms out in 2016, but Moorlach’s departure from the Board of Supervisors leaves a seat open in an area that Wagner already represents! Although these special elections appear to be drawing to a close, if Bonilla is victorious in May another special election would be needed to fill the Assembly seat she would be required to depart. Committee Hearings This was the first week that the California Legislature began committee hearings to test the merits of bill proposals. You will recall that a majority of bills were not introduced until immediately before the bill introduction deadline during the last week of February, and because it is a requirement that bills be in print for 30 days before action may be taken, most will not be heard in their respective policy committees until after the Legislature returns from Spring Recess on April 6th. However several important bills were heard this week including:

Privacy Legislation:

AB 195 (Chau) Vote Count: 6-0 Assembly Public Safety, referred to the Privacy and Consumer Protection Committee This bill would make it a misdemeanor punishable by up to six months for any person who solicits another to join in the commission of crimes relating to unauthorized access of computer systems. The definition of computer systems is expanded to include smartphones. Surprisingly, it is not currently a crime to solicit someone to knowingly and without permission hack into a computer network or smartphone.

AB 170 (Gatto) Vote Count: 9-2 Assembly Privacy and Consumer Protection, referred to the Health Committee This bill would require the Department of Public Health to provide informational materials about the California Newborn Screening Program to a parent or guardian of a newborn prior to the newborn screening test. It also requires parental or guardian consent before storing, retaining and using a newborn’s blood sample for medical research. Once of legal age, an individual may request the department to destroy or not use his or her blood sample for research purposes.

AB 259 (Dababneh) Vote Count: 11-0 Assembly Privacy and Consumer Protection, referred to the Appropriations Committee This bill would extend breach notification requirements to state public agencies by requiring the agency whose data was breached to provide notice to those impacted and offer 12 months of identity theft prevention and mitigation services at no cost to affected individuals.

Labor Legislation:

AB 11 (Gonzalez) Vote Count: 5-2 Assembly Labor and Employment, referred to the Appropriations Committee This bill would extend the provisions of paid sick leave enacted last year to also include providers of in-home supportive services, who were previously exempted from the mandate.

AB 67 (Gonzalez) Vote Count: 5-2 Assembly Labor and Employment, referred to the Appropriations Committee This bill would require employers who do not have collective bargaining agreements established for staff to pay employees twice their regular pay for work performed on Christmas and Thanksgiving. Opponents question the constitutionality of the bill as it may violate the free exercise of religion provided by the First Amendment since it treats employees differently on a Christian Holiday. Proponents suggest that it is supported by Supreme Court decision that recognizes Christmas is a cultural celebration that is not solely theologically based.