ATTACHMENT 1A MEMORANDUM To: North County Transit District Board of Directors Matthew O. Tucker, Executive Director From: Townsend Public Affairs, Inc. Christopher Townsend, President Richard Harmon, Senior Director Date: December 3, 2018 Subject: Monthly Report—November 2018 SUMMARY This memorandum is an overview of activities undertaken by Townsend Public Affairs (TPA) over the last month, working on behalf of the North County Transit District, including the following subjects: • Legislative Activity and Updates o State Update ▪ Legislative Activity ▪ State Budget Update ▪ Wildfire Legislation o Tracked Legislation • Administrative Action and Updates o Newsom Administration o High-Speed Rail Hearing o November 2018 General Election Results • Potential Funding Opportunities LEGISLATIVE ACTIVITY AND UPDATES State Update Legislative Activity The Legislature will hold its swearing-in Session on December 3. Members will be administered the oath of office and some will introduce their first pieces of legislation. If the current election State Capitol Office ▪ 925 L Street • Suite 1404 • Sacramento, CA 95814 • Phone (916) 447-4086 • Fax (916) 444-0383 Federal Office ▪ 600 Pennsylvania SE • Suite 207 • Washington, DC 20003 • Phone (202) 546-8696 • Fax (202) 546-4555 Central California Office ▪ 744 P Street • Suite 308 • Fresno, CA 93721 • Phone (949) 399-9050 • Fax (949) 476-8215 Southern California Office ▪ 1401 Dove Street • Suite 330 • Newport Beach, CA 92660 • Phone (949) 399-9050 • Fax (949) 476-8215 Northern California Office ▪ 300 Frank Ogawa Plaza • Suite 204 • Oakland, CA 94612 • Phone (510) 835-9050 • Fax (510) 835-9030 results hold (there is still one Assembly District that is very close with a Republican currently in the lead by 700 votes), Democrats will hold 60 seats in the Assembly and 29 in the Senate. Legislators are able to introduce bills on December 3 and we are expecting several Members to make statements about their policy priorities. This will include legislation bringing back redevelopment in some form, as well as additional bills addressing the housing crisis. The Senate will also be voting on a new Secretary following the retirement of Danny Alvarez. The Secretary of the Senate is the chief parliamentarian and keeper of legislative records, overseeing the drafting of bills and their presentation to the governor. The new Secretary will be Erika Contreras who currently serves as the Chief of Staff for Senator Ricardo Lara (D-Bell Gardens) and is someone we have worked with quite extensively. In January, two current Senators (Ricardo Lara and Ted Gaines) will be sworn in to their new offices as the State’s Insurance Commissioner and Board of Equalization Member, respectively. With several Assembly Members likely to compete for the vacant Senate seats, there will be a domino effect of other special elections for whichever Assembly Member wins election. State Budget Outlook The Legislative Analyst’s Office (LAO) recently commented, “It is difficult to overstate how good the budget’s condition is today.” Unless the Legislator and incoming Governor choose to spend the surplus, the LAO estimates a $14.8 billion surplus this year. In fact, they also estimate if the Governor-Elect follows the fiscal track record of Governor Brown, there could be as much as $30 billion in a reserve fund by mid-2020. While the size of the General Fund budget grew by approximately $70 billion during Governor Brown’s current term, he was generally conservative in creating new programs that could experience cuts in a future recession. Governor Brown—and many economic analysts—believe a recession could come by 2021. Governor-Elect Newsom—in his June Primary victory speech—argued for universal health care, a “Marshall Plan” for affordable housing, and an emphasis on resources for aging, child poverty, college assistance and middle-class workforce efforts. Newsom has also expressed a desire to change the State’s tax structure to create less volatility based on high-income earners and the potential for expanding taxes to services. Newsom’s transition team is currently working with Governor Brown’s Department of Finance to craft the proposed 2019-20 State Budget. The proposal is due by January 10, just after the inauguration. Wildfire Legislation This year, the Legislature and Governor approved Senate Bill 901 to provide funding for forest health and fire prevention activities, as well as options for utilities as they handle the liability of damages from devastating fires. The legislation, however, did not apply to fires in 2018. 2 Utilities such as PG&E have already seen stock prices plummet in the wake of the recent fires, risking their financial viability. Some lawmakers believe without stable utilities residents and ratepayers will see increased costs and uncertainty in energy availability. Assembly Member Chris Holden, who chairs the Assembly Utilities and Energy Committee, will be proposing legislation as early as the first week of December to provide some protection for at least PG&E following the Camp Fire in Butte County. Ultimately, the legislation appears designed to prevent a utility from going bankrupt in connection with the current wildfires, also protecting customers. The proposal is likely to face stiff opposition from lawmakers and groups who argue utilities should be doing more to prevent their systems from causing devastating fires. Tracked Legislation Once the Legislature reconvenes in December, we will include legislation relevant to the District. ADMINISTRATIVE ACTION AND UPDATES Newsom Administration Governor-Elect Gavin Newsom began the effort to transition into his Administration following the results on Election Day. The gubernatorial transition process involves a couple of key processes—bringing in new staff members and being brought up to speed on current activities and issues. On November 9, Newsom appointed Ann O’Leary as Chief of Staff and Ana Matosantos as Cabinet Secretary. O’Leary was a policy advisor and legislative director for Hillary Clinton during her presidential campaign and time in the U.S. Senate. Matosantos worked as the Director of the Department of Finance for both Governor Brown and Schwarzenegger. She is largely in charge of the transition process and, as Cabinet Secretary, will coordinate activities between the Governor’s Office and all of the agencies and department. There are approximately 3,100 governor-appointed positions in State government. While not all of these will be filled at once, many of the key policy and agency positions will begin to be announced starting in December as the new Administration prepares for taking over in January. In mid-November, Governor Brown filled a final vacancy on the California Supreme Court. He appointed Joshua Groban, who has served as Brown’s legal counsel and advisor on judicial appointments. High-Speed Rail Hearing On November 29, the Joint Legislative Audit Committee (JLAC) and Assembly Transportation Committee conducted a hearing to discuss the recent audit from the California State Auditor regarding the High-Speed Rail Authority’s (Authority) contracting and cost control practices. The recently-released report concluded that the Authority's flawed decision making regarding the start 3 of high-speed rail system construction in the Central Valley and its ongoing poor contract management for a wide range of high-value contracts have contributed to billions of dollars in cost overruns for completing the system. According to the report, the Authority began construction in the Central Valley in October 2013 despite being aware of the risks associated with beginning construction early—the fact that the Authority had not acquired sufficient land for building, had not determined how it would relocate utility systems, and had not obtained agreements with external stakeholders. These unmitigated risks have contributed to $600 million in costs overruns thus far for the three active Central Valley construction projects, with another $1.6 billion in additional costs needed to complete the projects. The Authority has cited the terms of a 2010 federal grant—which originally required construction to be complete by 2017—as the primary factor in its decision to begin construction when it did. However, the Auditor determined that even with a grant deadline extension until December 2022, the Authority could miss the new deadline unless Central Valley construction progresses twice as fast as it has to date. Missing the deadline could expose the State to the risk of having to pay back as much as $3.5 billion in federal funds. The Authority has partially offset Central Valley cost overruns, as well as those projected elsewhere in the system, by planning to share existing rail infrastructure where possible. However, the Authority acknowledges that it has identified every feasible option to do so and therefore cannot continue to use this approach to offset costs. Moreover, despite its challenging financial situation, we determined that the Authority has failed to implement sound contract management practices. As a result, it cannot demonstrate that the large amounts it has spent on its contracts have been necessary or appropriate. The committees spent more than an hour and a half hearing testimony from the State Auditor and her staff, as well as asking questions about the audit. Most legislators expressed disappointment with the status of the project and shared the concerns about the timeline for completion and potential for clawback of funding by the federal government. The Authority was represented by Vice Chair Tom Richards and Chief Operating Officer Joe Hedges. Their testimony focused on acknowledging there were risks associated with the project from the outset and pointing to examples of working to managing those risks. They disagreed with the characterization of increased costs as “overruns”, instead arguing they represented the true cost of the unknown elements of the project. Vice Chair Richards also recognized they may prepare a Plan B and ask the Federal Railroad Administration for an extension. Legislators did not appear to be satisfied with the responses from the Authority representatives and spent nearly two hours asking further questions.