California Businesses Take On Gavin Newsom Over Tax Hikes Governor says proposal would decimate funding for basic services; backers say it is needed in the high-cost state
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A California restaurant, partially owned by Democratic Gov. Gavin Newsom, is reportedly still offering some employees $16 an hour despite the state recently raising the minimum wage to $20, according to job listings.
The PlumpJack Café in Olympic Valley, California is owned by a Newsom-founded company called the PlumpJack Group. The Democratic governor notably placed his business holdings into a blind trust in 2018, prohibiting him from having a say in the restaurant’s offered wages, according to The Sacramento Bee.
Job listings for the restaurant were posted on multiple employment marketplace sites, such as ZipRecruiter and Indeed, offering a range of openings from ‘host’ to ‘line cook’. While some options, such as line cook or pastry cook, listed their wages starting at $22 and $25 an hour, the host and busser openings, posted 27 days ago, listed their pay at only $16 an hour.
California’s newly raised minimum wage increase went into effect for fast-food restaurants statewide on April 1, requiring workers to be paid at least $20 an hour. The legislation, which Newsom signed in September 2023, impacts 500,000 workers in the state, to which Newsom praised that the new law would be “fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table.”
While Newsom advocated for the increase, restaurant owners have warned about the effects the new law will have on businesses throughout the blue state. A former Foster Freeze assistant general manager Monica Navarro told Fox Business on Wednesday that her store located in Lemoore, California shut down reportedly due to the hiked wages, laying off all the employees. Navarro stated that she not only noticed local businesses already beginning to shut down but that many employees she talked to were getting their hours “severely cut” now.
Chains such as Pizza Hut and Round Table Pizza previously reported to the state that they would be cutting 1,280 delivery drivers this year to prepare for the increase, according to the Wall Street Journal. Since last September fast food workers throughout the state have dropped 1.3%, with total private employment falling 0.2% within the same time frame.
“This is the reality of today’s restaurants,” a spokeswoman for Fat Brands, owner of Round Table Pizza locations in California, told the outlet. “Operators are doing their best to retain staff and keep doors open.”
Other restaurants, such as El Pollo Loco, will now be turning to automation to balance out the labor costs, automating some of the processes for making food, the WSJ reported.
Newsom received massive backlash after reports circulated that he allegedly pushed for an exemption which enabled Panera Bread franchise Greg Flynn, who donated over $100,000 to Newsom’s campaign in 2022, to get around the wage increase. Flynn’s chain restaurant was reportedly included in an exemption to the wage increase, which allows bakeries and restaurants located within “airports, hotels, large event centers, theme parks, museums, gambling establishments, corporate campuses, and certain public lands” to not have their minimum wages bumped up.
As Flynn reportedly sought to have his chain not be considered a fast food restaurant, the Service Employees Union, a group that pushed for the bill, allegedly decided to create the bakery exemption in an attempt to have Newsom sign the bill, according to Bloomberg.
Since the allegations against the governor, Newsom’s office and Flynn have stated that the chain restaurant will most likely not be exempt from the increase, according to the Associated Press.
“Such a narrow exemption has very little practical value. As it applies to all of our peer restaurants in the fast-casual segment, we will almost certainly have to offer market value wages to attract and retain employees,” Flynn told the outlet.
A coalition of California companies is going to war with Gov. Gavin Newsom and his Democratic allies over taxes it says have grown out of control in the Golden State.
The businesses have gathered enough signatures to put a measure on November’s ballot that would require two-thirds of voters to approve most local tax increases and roll back some recently enacted ones. If passed, it would be one of the most significant changes to the way California funds its government since 1978’s Proposition 13, a voter-approved law that severely limited property tax increases.
Backers say it is necessary to stop continued tax hikes that are making it too expensive to operate in California and pushing companies to leave the state. Real estate businesses in Southern California are among the biggest funders, according to state campaign finance records, partly in response to a surcharge on luxury home sales that Los Angeles voters passed in 2022.
Newsom, local officials, and labor unions say the proposal would decimate funding for basic services such as trash collection and firefighting and would make budgeting decisions near-impossible.
The companies spent some $16 million to gather signatures to put their proposal before voters and are gearing up for a fight political analysts say could draw tens of millions of dollars in advertising by both sides.
“The business community is fed up, they want to start stepping up to make a positive change. And they recognize that if they don’t do it, nobody will,” said Rob Lapsley, president of the California Business Roundtable, an advocacy group representing some of the state’s biggest businesses and leading the “yes” campaign.
Mike Roth, a spokesman for the “no” campaign, said his side “will not only have the financial resources but the boots on the ground needed for a robust campaign to educate voters about this deceptive and dangerous measure.”
State and local tax burdenTop Five
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Bottom FiveSource: Tax FoundationNote: 2022 combined state and local taxes paid by residents, divided by state's share of net nationalproduct.
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How the measure would work
Currently, many local tax increases in California can become law with a majority vote by the public. The measure, which proponents are calling the Taxpayer Protection Act, would raise that threshold to two-thirds. It would also require any tax hikes passed by the legislature to be approved by a majority of voters statewide.
In addition, it would retroactively invalidate some local and state tax increases passed since 2022 that don’t meet the new law’s requirements—a provision opponents say would be particularly destabilizing.
“It’s a complete revision to the Constitution and to how we currently do government in the state of California,” said Kyle Packham of the California Special Districts Association, whose members include utility districts and major transit agencies.
The fight is the latest manifestation of a long-running conflict between those who want to fund generous services in a state known for its progressive policies and those who argue high costs make California unattractive to families and businesses.
“It has been an ongoing process of trying to have your cake and eat it, too—low taxes and high services,” said Kirk Stark, a law professor at the University of California, Los Angeles who researches state and local taxes. “What has been less of a focus, until now, is what power the people have to propose taxes on themselves.”
In a recent full-page ad in the Los Angeles Times and San Francisco Chronicle, Newsom and a group of state and local government leaders called out prominent corporations that belong to or support the California Business Roundtable including
Chevron
,
Blackstone Group
, UPS and Santa Monica-based real-estate firm Douglas Emmett, saying they were supporting a measure that is “dangerous, an overreach and irresponsible.”
Representatives for Chevron, Blackstone Group, and Douglas Emmett declined to comment. A representative for UPS didn’t respond to requests for comment.
In the Bay Area suburb of Walnut Creek, local leaders fear the measure’s passage would force them to revoke a half-cent sales tax increase that passed in 2022 with 65% of the vote. Keeping the tax, they said, would likely require a new vote and higher than two-thirds approval.
The money is already being used to fund five additional police officers, extend library hours, and renovate the town’s 50-year-old swimming pool complex.
“Best case scenario, we could have a gap in funding of more than one year,” said city council member Cindy Silva. “Worst case scenario, we’ll have no funding.”
Voters in Los Angeles recently passed a real estate surcharge on property sales above $5 million, which could be rolled back if the new tax measure passes.PHOTO: DAMIAN DOVARGANES/ASSOCIATED PRESS
Not the first try
The Walnut Creek tax hike is one of more than 100 that could be overturned if the new measure passes, according to opponents. Lapsley’s group has said the number is closer to three dozen.
Newsom and other top Democrats have asked the California Supreme Court to take the rare step of removing the antitax measure from the ballot, arguing that it should be considered a constitutional revision, which can’t be done via voter initiative. That case is expected to be decided by June 27, the state’s deadline for certifying measures for the November ballot.
Meanwhile, Democratic legislators are trying to counter the business group’s effort by placing a competing measure on the ballot. If passed by a simple majority, it could subject the Taxpayer Protection Act itself to a two-thirds threshold to become law.
Making it harder for voters to raise taxes on themselves isn’t a new idea, nor is the California Business Roundtable’s advocacy for it. The group spent millions in 2018 qualifying a similar measure for the ballot with significant backing from the American Beverage Association, which wanted to block local taxes on high-sugar drinks.
That summer, the Roundtable yanked the antitax measure from the ballot after the soda industry struck a deal with then-Gov. Jerry Brown and Democratic legislators on a law banning new local beverage and food taxes for 12 years.
Any possible deal this time around would likely involve the real estate industry, which wants to revoke Los Angeles’s surtax on property sales of more than $5 million that passed with 58% of the vote in 2022 and prevent similar measures from passing elsewhere.
Lapsley, the president of the California Business Roundtable, acknowledged that the real estate industry is “under full-scale frontal assault,” but he said his group isn’t holding out for a compromise in the Legislature this time.
