Following the interim break, on January 3rd, the Legislature returned to the state Capitol to begin the second year of a two year session. This is likely to be a unique year due to implementation of several voter enacted initiatives and the fact it is an election year. Legislators will be running in districts that have been crafted by a "citizens commission" that have nested several sitting Legislators in the same district and made a few more "competitive" seats. Additionally, this will be the second year of a majority vote budget. Last year Republicans held some leverage due to the Governor's desire to place a tax plan in front of the voters which requires a 2/3 vote.  

With the Governor taking his plan to the voters through initiative, he does not need to Republicans for any major actions, including tax increases. Local Government funding and allocation of responsibilities will continue to be major issues with the demise of redevelopment and the prison realignment.   Infrastructure development and funding will take center stage this year with the release of the Bay Delta Conservation Plan, the continued controversy over high speed rail and discussion about CEQA reform for major transportation and construction projects.   Finally, many progressives in the Legislature are getting "restless" about regulatory reform, pension reform and cuts to social programs and they may start to create issues for Governor Brown's agenda.

The Governor released his 2012-2013 budget proposal, which was expected to be released on the 10th. Because the budget documents were mistakenly posted online today, the Governor moved forward with releasing his proposal officially. The total general fund spending is $92.6 billion dollars and is highly dependent on the passage of a $6.9 billion November initiative to increase taxes on sales and high earners. Because the initiative is voted on in November 2012, this budget relies on $4 billion in revenue from that measure, with the total amount available for future budgets. The budget also provides "trigger" cuts if the initiative fails which would go into effect mid-year.

The budget includes a permanent decrease to various CDFA programs of $12 million in 2012-13, as part of a two-year effort to achieve $31 million in ongoing General Fund savings.  This reduction impacts various programs relating to pest prevention, border control station, and food safety activities.

Specific budget actions include:

Increases in Fees

• $1,150,000 - Replace Interior Exclusion Program and Plant Pest Diagnostics Laboratory General Fund with phytosanitary fee for certification to move nursery stock.
• $1,028,000 - Replace Milk and Dairy Food Safety General Fund with an increase to the dairy industry's existing fee for service.

Reductions and Shifts

• $4,382,000 - Decrease General Fund for operations at Border Protection Stations. The General Fund reduction will result in reduced operations at several stations.       Budget offsets cut with a shift of $1,432,000 in reimbursement authority from CalRecycle to operate border stations to reduce fraud in the recycling program.

Program Efficiencies and Reductions in Program Scope

• $953,000 - Limit activities within the Light Brown Apple Moth program to federally funded activities only, such as a sterile release program which may increase nursery and farmers exposure to quarantines.
• $701,000 -Eliminate General Fund support for Biological Control activities.
• $366,000 - Reduce Plant Pest Diagnostics and Seed Laboratories via program efficiencies.
• $2,400,000 - Reduce Local Assistance to counties for Trapping and/or High Risk Pest Exclusion activities, including inspection of incoming shipments of plants, fruits, vegetables, and conveyances at destination points throughout the state.
• $350,000 - Discontinue support for Agriculture Security and Emergency Response Program.
• $245,000 - Reduce staffing levels through efficiencies for the Animal Health Branch and Animal Health Food Safety Data Management System.
• $425,000 - Reduce frequency of meat and poultry inspections and locate efficiencies within the Meat and Poultry Inspection program.

Additional Major Proposals in the Governor's Budget Include the Following:

• Reducing Greenhouse Gas Emissions: California has been an international leader in the effort to reduce air pollution and develop clean energy. The Budget reflects the first year of implementation of the AB 32 cap and trade program. Through a market approach, the program will create fiscal incentives for businesses to reduce their greenhouse gas emissions. The proceeds generated from Governor's Budget Summary - 2012-13 Introduction the program, potentially $1 billion in the first year, will be used to invest in clean energy, low-carbon transportation, natural resource protection, and sustainable infrastructure.

• Building High-Speed Rail: High-speed rail will be an important asset of the state's infrastructure. It will meet Californians' future travel needs in an efficient manner and reduce greenhouse gas emissions. The Budget includes funding requests to continue the basic functions of the High-Speed Rail Authority. The Authority's funding plan is under review by the Department of Finance. After the review, the Administration will propose a plan for the initial train segment.

• Meeting Water Needs: Balancing the state's water needs with environmental protection remains a long-term challenge. The Delta Habitat Conservation and Conveyance Program is currently developing a plan to promote the recovery of endangered, threatened, and sensitive fish and wildlife and their habitats in the Sacramento-San Joaquin Delta in a manner that will also ensure water supply reliability. When completed, the plan will provide the basis for issuing permits for the operation of state and federal water projects. The Budget proposes $25 million and 135 positions to complete preliminary engineering work. Future funding requests to address the state's water needs will be necessary.

• Temporary Tax Increase: The Budget is based on the assumed passage of the Governor's Constitutional Amendment on the November 2012 ballot. The proposal temporarily increases tax rates on the highest income Californians, and temporarily increases the Sales and Use Tax rate by 0.5 percent. These two provisions result in a revenue increase of $6.9 billion.
• The Budget assumes the passage of the Governor's proposed initiative at the November election. This measure temporarily increases the personal income tax on the state's wealthiest taxpayers and temporarily increases the sales tax by one-half percent. The measure guarantees these new revenues to schools and constitutionally protects the 2011 Realignment funds for local public safety. It will generate an estimated $6.9 billion through 2012-13. After accounting for the increased Proposition 98 minimum guarantee, it will provide $4.4 billion in net benefit to the General Fund budget. The measure will prevent deeper cuts to schools, protect local public safety funding, and assist in balancing the budget. The revenues will allow the state to invest in higher education and to pay off the $33 billion in outstanding budgetary borrowing and deferrals by 2015-16.  Where noted in the Governor's proposal, "trigger cuts" are the items cut if the ballot measure in November 2012 to temporarily raise taxes fails passage.

Other changes in the Governor's budget include the following:

• Reduce Number of Regional Water Boards: This proposal realigns the regional water board boundaries to create eight regional water boards, merging two of the smaller existing regional water boards (the Colorado River Basin Water Board) into neighboring regions with the boundaries continuing to follow watersheds.  The proposal brings more consistency in the size of the regions. It also reduces the number of members on the boards from nine to seven.

• Unfair Labor Practice Case Backlog: An increase of $500,000 Labor and Workforce Development Fund and 3.8 positions to reduce a backlog of unfair labor practice cases. The Agricultural Labor Relations Board will implement permanent process changes and efficiencies that will enable unfair labor practice cases to be processed more quickly.

• Consolidate Colorado River Board within the Natural Resources Agency: The Board is responsible for developing a plan to maintain an adequate water supply from the Colorado River.   The proposal eliminates the Board and transfers these responsibilities to the Natural Resources Agency. This proposal will ensure that all statewide water supply issues, such as water supply reliability, Delta sustainability, and Colorado River water issues are addressed in a comprehensive and coordinated manner.

• Research Grants for Fumigant Alternatives: An increase of $713,000 Department of Pesticide Regulation Fund and 2.0 positions to provide funding for applied research grants for fumigant alternatives research projects. These grants will encourage and support development of alternative techniques, procedures, and processes for pest control, reducing the need for high-risk pesticides use and ensuring compliance with Federal Clean Air Act requirements for specialty crop pesticide use.

• Employer Surcharge to Fund UI Interest Payments: An increase in revenue of $472.6 million, Employment Training Fund, as a result of implementing a surcharge on employers effective January 1, 2013. The surcharge revenue will fund future interest payments for funds borrowed from the federal government to pay California's unemployment insurance benefits and repay the funds borrowed from the Unemployment Compensation Disability Fund.

• Ballot Trigger Reduction:  The Department's flood control programs would be reduced by 20 percent, or approximately $6.6 million, if the Governor's tax proposal is not approved in November. These programs include floodplain mapping and risk awareness.

• Eliminate the Occupational Safety and Health Standards Board and Transfer its Functions into the Department of Industrial Relations: The Board is responsible for the adoption, amendment, and repeal of the occupational safety and health standards and public safety standards enforced by the Department of Industrial Relations (DIR). This proposal eliminates the Board and transfers responsibility to the Division of Occupational Safety and Health within DIR.

• Eliminate the Department of Boating and Waterways and Transfer the Functions into the Department of Parks and Recreation: The Department of Parks and Recreation currently partners with Boating and Waterways in facilities construction projects. Boating and Waterways funds operations at all of Parks' reservoirs. This proposal will transfer the functions of the Department of Boating and Waterways to a division of the Department of Parks and Recreation, similar to the Off-Highway Vehicle Recreation Division. Because the Department of Boating and Waterways is being transferred to the Department of Parks and Recreation, the California Boating and Waterways Commission will be eliminated. The Commission advises the Department of Boating and Waterways on matters within its jurisdiction and consents to all boating facilities loans and grants. The duties performed by the Commission will be absorbed by the Department of Parks and Recreation.

Having punted the payroll tax reduction battle - along with most federal spending, debt limit and tax reform issues - into 2012, Congress must now catch up with what it should have done in 2011, while trying to tackle a host of issues that must be handled before the November elections. Issues expected to consume Congress' time include the following:

Input Costs/Availability: Several overarching issues confronting agriculture are the cost and availability of everything from corn, soybeans and other crop ingredients to inputs, including fertilizer and feed ingredients. Much of the outcome will hinge on global factors, e.g, what will be the impact of prolonged South American drought on U.S. corn exports? What does Russian production look to be, particularly in the Black Sea region, and what will its import/export policies look like? What will China do in 2012? What's Europe's macroeconomic/currency future? Some of this will be addressed in the Farm Bill, some in energy policy development, some in tax and awaited Dodd-Frank/CFTC rulemakings.

Energy: Congress continues to wrestle with fashioning a comprehensive federal energy policy into which such things as alternative energy incentives, research into biofuels, etc., can be tucked. Expired tax incentives for biofuels - particularly biodiesel - and a federal Renewable Fuels Standard (RFS) under attack as market-distorting, will be tough hurdles to overcome, and ag groups will be pushing for a bill by Rep. Bob Goodlatte (R, VA) that would reduce the RFS mandate on corn-based ethanol should the stocks-to-use ratio fall below set limits.

Farm Bill: Production agriculture is focused on how to rewrite federal farm program income supports in a time of high on-farm income and restricted federal spending. However, given the difficulty in moving comprehensive and expensive farm legislation in an election year already has some national groups, including the National Cattlemen's Beef Assn. (NCBA), predicting the Farm Bill will not be completed until 2013, though drafts will circulate throughout 2012, and one or both committees may approve "final" versions. The chief priority for most farmers and ranchers is preserving federally subsidized crop insurance programs, with several grain/oilseed/cotton/rice/sugar/dairy groups having reinvented their federal payment programs as income insurance protection programs. The American Farm Bureau Federation (AFBF), which issued several "warnings" on various crop groups' new ideas, is meeting in Hawaii this week and will likely revisit all of its farm program recommendations, affirming or rewriting what most have called support for current programs albeit with smaller spending. A bill fashioned by Sen. Debbie Stabenow (D, MI), chair of the Senate Agriculture Committee, and Rep. Frank Lucas (R, OK), chair of the House ag panel, but never submitted to the deficit reduction super committee, may provide ideas for a new Farm Bill, but will not be the foundation for the comprehensive bill.

Trade: The World Trade Organization (WTO) formally nixed the U.S. country-of-origin labeling regulations, so 2012 will bring the Administration decision on whether to appeal that ruling or not. With Congress having finally ratified free trade agreements with Panama, Colombia and Korea, attention now turns to the Trans Pacific Partnership (TPP), with the immediate focus on bringing Japan, and perhaps Canada, into the negotiations, which increases the importance of these discussions for the U.S. livestock sector. Also on deck is congressional ratification of Permanent Normal Trade Relations (PNTR) for Russia now that this nation has been accepted into the WTO. This will be a heated debate based on Russian embargoes on poultry and other U.S. exports over the last couple of years.

Animal Rights: HSUS may continue to pursue federal legislation to make horse slaughter illegal in the U.S., as well as forcing all meat processors to kill all nonambulatory livestock - no matter the species or the reason - so that they do not enter the food supply. An assault on the use of primates in biomedical research is expected, as well as HSUS support of a proposed ban on antibiotic use on farms.   

Tax Reform: Over 1,000 federal tax credits for everything from small business research and development to child care to biodiesel were allowed to lapse at midnight on December 31, setting up another tug-of-war in getting some of them modified and all of them reauthorized. The Bush tax cuts will also expire absent congressional action, and both the Senate Finance Committee and the House Ways & Means Committee are expected to float a comprehensive tax reform package early this year that will seek to close some corporate loopholes and deductions as offsets to pay for other reform measures. Heavy debate will focus on reducing overall U.S. corporate tax rates, now the second highest in the world, as a means to entice companies to bring off-shore investment and savings back to the U.S.

USDA this week reported the Economic Research Service (ERS) has updated its data set on "data on fertilizer consumption in the U.S. by plant nutrient and major selected product, as well as consumption of mixed fertilizers, secondary nutrients and micronutrients." Data on the share of crop area receiving fertilizer and fertilizer use by receiving acre, by nutrient, etc., are also included on a state basis for corn, cotton, soybeans and wheat, along with information on fertilizer farm prices and indices on wholesale fertilizer prices.  

The complete report can be found at   

 www.ers.usda.gov/data/fertilizeruse/. 

The National Labor Relations Board (NLRB) issued an announcement on December 23, 2011 that it had postponed the implementation of its employee rights notice-posting rule until April 30, 2012, marking the second time the NLRB has postponed the deadline.

According to the NLRB announcement, the decision to postpone the effective date of its employee rights notice-posting rule came at the request of a federal court in Washington DC, hearing a legal challenge regarding the rule. The NLRB has ruled that it has determined that postponing the effective date of the rule would facilitate the resolution of the legal challenges that have been filed with respect to it. The NLRB believes that the workplace posting will serve to inform employees or their right to organize and bargain collectively with their employers. It will also serve to protect employees from certain types of employer and union misconduct and inform employees of their right to contact the NLRB, generally within six months of presumed unlawful activity, to inquire about possible violations without an employer or anyone else being informed of the inquiry.

The soon-to-be required posting can be found by  clicking here.

A controversial National Labor Relations Board (NLRB) rulemaking designed to speed up union organizing elections and forestall employer litigation got the green light just before Christmas, and the House has said it will move legislation to stop the rulemaking. The NLRB voted 2-1 along party affiliation to move to final approval of the proposed rulemaking. Industry reacted as expected, condemning the NLRB move. The House passed one bill to forestall the NLRB, but Senate action is not expected; the House has vowed to continue its fight. The rulemaking, dubbed as the "ambush elections" rule, would require union elections to be held in less than 21 days on average, down from the current 38 days.  

Further, employers would be prohibited from filing a lawsuit to negate the election until after the vote has been held so they don't hold up the election process. NLRB Chair Mark Gaston Pearce said the final rule will be modified so it would only apply to union elections needlessly delayed by "frivolous litigation." The National Association of Manufacturers (NAM), sued the NLRB over the rulemaking stating, "This is a misguided rule. This is a prime example of how the current Board's aggressive agenda seeks to significantly change longstanding and agreed-upon labor policy. The NAM will seek to explore every possible action to put a stop to the ambush election rule and protect manufacturers from the NLRB's activist agenda."