2009 Year End Report

 

THE 2009 YEAR IN REVIEW
 
In 2009, the United States economy continued its downward spiral which started with the housing collapse in 2007, followed by the financial institution melt-down in 2008. Faced with growing unemployment figures around the country, newly-elected President Barack Obama’s first major action was to bailout America’s ailing banks and automobile industry. Also in response to the American economic crisis, the President proposed to Congress and signed into law the American Recovery and Reinvestment Act of 2009 which appropriated $787 billion in federal funds for programs to “spur economic activity and invest in long-term economic growth.”
 
During 2009, Congress also spent a significant amount of time and energy on health care reform, climate change and regulation of the financial services industry. While these major legislative debates raged on, Congress and the Federal Communications Commission (FCC) also remained active on a number of cable related issues (discussed in further detail on the Federal page of our web site).
 
While the national recession finally appears to be improving slightly, the National Conference of State Legislature (NCSL) recently projected continued steep declines in revenues for the majority of U.S. states. In fact, the NCSL reports that many states are projecting annual budget gaps through fiscal year 2012. For the next few years, states will have to significantly reduce their spending and increase their revenues (fees and taxes).
 
In 2009, California failed to maintain a balanced state budget. After some significant delay, on September 23, 2008, the Legislature and Governor finally adopted the state 2008-09 budget by using a number of questionable budget gimmicks. Almost immediately, the state had to approve a new budget in February 2009, and then significantly revise the budget again in July 2009. In total, the state had to close a roughly $60 billion deficit for the calendar year. The Legislative Analyst is projecting that the California budget deficit is currently $6.3 billion and will continue to grow to $20.7 billion by June 2010. New fees and taxes will certainly be high priority discussion items during 2010 budget negotiations.
 
The Legislature will return to session on January 4, 2010 to complete the second half of the 2009-10 legislative session. Governor Schwarzenegger will release his proposed 2010-11 budget on January 8, 2010. He has already announced that his new proposed budget will continue state employee furloughs and layoffs for a total savings of $1.6 billion. To further complicate matters, 2010 is also a major election year with several legislators running against each other for state-wide offices and others are hoping to switch legislative houses. During high profile elections, it is very difficult to obtain the thin bipartisan vote to approve a compromise budget. Legislators are unwilling to vote for either cuts in programs or tax increases during election years. We should expect significant budget gridlock.
 
While the budget deficit haunted the Legislature throughout 2009, it did not stop legislators from introducing new legislation, or stop the California Public Utilities Commission from considering new telecommunications related regulations. The California Cable & Telecommunications Association (CCTA) had significant success in addressing legislative and regulatory issues that could have created unnecessary operational challenges or that would have significantly increased costs for CCTA members (discussed in further detail on the Regulatory page of our web site).
 
CALIFORNIA LEGISLATURE
 
2009 Legislation. By midnight October 11, 2009, the Governor acted on the last of the hundreds of bills sent to him by the Legislature at the end of the 2009 legislative year. Of the 1,156 bills on his desk, the Governor vetoed 258, or 22 percent, which is significantly less than his 2007-08 all-time veto record of 35 percent.
 
While a number of bills were introduced that would have impacted the cable and telecommunications industry, we managed to either defeat the most onerous bills (unlisted telephone numbers) or work with the Authors to either withdrawn the measure or take amendments to address our concerns (advertising and automatic renewals purchases).
Significant State Budget Tax Change. As part of the February 2009 budget, legislation was enacted to eliminate, as of January 1, 2011, a statute that defines how income is apportioned for companies that do business in multiple states, known as the “cost of performance.” This proposal, SB3X 15 (Calderon and Florez), was intended as a tax break to encourage California businesses to keep their operations in the state. Since the bill was adopted without any public participation, CCTA has been actively educating legislative leadership on the severe negative impact this tax change will have on the cable industry. More importantly, we have been educating legislators and key legislative staff on the value our industry brings to the California economy. CCTA will continue to address this issue in 2010.
 
Commission on the 21st Century Economy. In July 2009, the Governor established a bipartisan commission to re-examine and modernize California’s out-of-date revenue laws that contribute to California’s feast-or-famine state budget cycles. On September 28, 2009, the Commission submitted its report to the Legislature for consideration and adoption. The report primarily recommends flattening the personal income tax brackets; eliminating the corporate income tax and the state’s portion of the sales and use tax; and establishing a new business net receipts tax, phased in over five years, up to a rate of approximately 4 percent.
 
Both the Senate and Assembly tax policy committees held public hearings on the proposal and it quickly became very clear that there was not any support for the Commission’s tax proposal. There was opposition from academics, labor, business and non-governmental organizations.
 
TAXATION
 
Sales and Use Taxes: Internet.  AB 178 (Skinner) – Would define a “retailer engaged in business in this state” as any out-of-state Internet retailer that uses a California online marketplace or pays to have a banner ad or click through on a California website. Although the Author held the proposal in the Assembly taxation committee, the joint budget conference committee adopted the provisions of the proposal and scored an annual tax revenue increase of $110 million.  Budget Action Failed Passage/AB 178 Two-Year Bill
 
Penalty for Failing to Furnish Tax Information.  AB 347 (Block) – Would authorize the State Board of Equalization to impose a 25% penalty if during an audit a person fails or refuses to furnish any relevant and reasonable information the BOE requests. Also, would clarify that “records” include electronic data.  Two-Year Bill
 
Property Taxation.  SB 816 (Ducheny) – Imposes a penalty for the failure to file a change of ownership statement within 45 days of the date in which the change of ownership or control occurs. This measure was sponsored by the California County Assessors Association.  Chapter #662
 
Sales Tax Fairness and Simplification Act.  SJR 1 (Ducheny) – Resolution urging members of the California congressional delegation to support federal legislation to allow states to collect use taxes on remote sales but exempt small businesses that sell products over the Internet from the use tax collection requirement.  Signed by the Governor.  Chapter #95
 
PRIVACY
 
Privacy.  AB 524 (Bass) – Would make it unlawful for a person to sell, transmit, publish, broadcast, or use any images or recordings with the actual knowledge that the images or recordings were obtain illegally and provided compensation for the use of, or rights to, the unlawfully obtained images or recordings.  Signed by the Governor.  Chapter #449
 
Internet-Based Social Networking.  AB 632 (Davis) – Would require an Internet-based social networking site to provide a disclosure to a user that any uploaded image to the site is capable of being copied by persons who view the image without the consent of the user who initially uploaded the image.  Vetoed by the Governor
 
In vetoing AB 632, the Governor issued the following veto message:
 
This measure would require "social networking" Internet Web sites to post disclosures informing users that photographs could be copied by persons who view the image. This measure is unnecessary. Many websites that allow users to upload content already provide disclaimers concerning the use of the content. In addition, it is common knowledge that digital images can be copied, saved, and manipulated by anyone who views them. For these reasons, I am unable to sign this bill.
 
Personal Information.  SB 20 (Simitian) – Would require any agency, person, or business that is required to issue a security breach notification, as required under current law, to provide additional specific information, including the type of personal information believed to have been the subject of the breech; the possible date or range of dates of the breech; the toll-free number of major credit reporting agencies; and a general description of the breech incident. Also, would require any agency, person, or business that is required to issue a security breech notification to more than 500 California residents to electronically submit a single sample copy of that notification to the California Attorney General.  Vetoed by the Governor
 
In vetoing SB 20, the Governor issued the following veto message:
 
This bill would require any agency, person, or business that must issue an information security breach notification pursuant to existing law to also fulfill certain additional requirements pertaining to the security breach notification.
California's landmark law on data breach notification has had many beneficial results.  Informing individuals whose personal information was compromised in a breach of what their risks are and what they can do to protect themselves is an important consumer protection benefit. This bill is unnecessary, however, because there is no evidence that there is a problem with the information provided to consumers.  Moreover, there is no additional consumer benefit gained by requiring the Attorney General to become a repository of breach notices when this measure does not require the Attorney General to do anything with the notices.  Since this measure would place additional unnecessary mandates on businesses without a corresponding consumer benefit, I am unable to sign this bill.
 
VIDEO/TELECOMMUNICATIONS/BROADBAND
 
Telephone Users Surchargee Act.  AB 639 (Torlakson) – Initially, would have established a new $0.25 surcharge on all intrastate telephone communication service in the state, including VoIP service, to exclusively fund poison control and 911 emergency call centers. The Author, after discussions, has amended the bill to now simply appropriate $3 million to poison control and 911 emergency call centers. Two-Year Bill
 
Emergency Telephone Users Surcharge.  AB 912 (Torres) – Specifies that a minimum of 0.50% of the intrastate telephone users surcharge, including VoIP service, may be used to pay the Board of Equalization and the office of the State Chief Information Officer for administration costs and for the purchase of equipment. Also, specifies that a maximum of 0.25% may be used for recruitment and training costs.  Signed by the Governor.  Chapter #489
 
Administration of ARRA Funds.  AB 1012 (V. Manuel Perez) – Requires the State Chief Information Officer (CIO) to access and administer any moneys received by the state pursuant to the federal American Recovery and Reinvestment Act of 2009 (ARRA) that are directed for broadband-related activities, programs, or projects.  Two-Year Bill
 
Public Utilities Commission.  AB 1315 (Ruskin) – Would require the Public Utilities Commissioners to elect the President of the Commission, rather than the Governor making the appointment.  Two-Year Bill
 
Lifeline Service Rates.  AB 1528 (Ruskin) – Freezes Lifeline Service rates at the January 1, 2009 rate but allows cost-of-living increases. Also, authorizes the California Public Utilities Commission to authorize VoIP and mobile phone services to provide Lifeline programs only if the Commission finds that the level and quality of service meets the standards as of January 1, 2009.  Two-Year Bill
 
California Advanced Services Fund.   AB 1555 (V. Manuel Perez) – Authorizes an entity eligible to participate in the California Advanced Services Fund (CASF) program to use CASF funds as their required matching funds to participate in American Recovery and Reinvestment Act of 2009 (ARRA), but only if the entity is also eligible to participate in the ARRA program.  Signed by the Governor.  Chapter #24
 
Notice to Subscribers.  SB 437 (Pavley) – Initially, would have prohibited a telephone subscriber from being charged for an unlisted telephone number. However, the Author recently amended the bill to now require a local exchange service provider to notify customers at least 60 days in advance of a proposed change to its services, and prohibit early termination penalties within 30 days from the effective date of the change.  Two-Year Bill
 
BUSINESS
 
Disposal of Personal Information.  AB 1094 (Conway) – Any business that “knowingly” fails to take all reasonable steps to properly dispose, or arrange for the disposal, of customer records is guilty of a misdemeanor.  Signed by the Governor.  Chapter #134
 
Advertising and Automatic Renewal Purchases.  SB 340 (Yee) – Requires all printed marketing materials containing an offer with an automatic renewal to “clearly and conspicuously” disclose to the customer that they are agreeing to an automatic renewal subscription or purchasing agreement, the terms of the agreement, and the cancellation policy. Also makes it unlawful to charge a consumer for an automatic renewal without first obtaining the consumer’s affirmative consent. The bill would also impose similar requirements for any automatic renewal offer made over the telephone or on an Internet website. CCTA successfully negotiate a number a favorable amendments, including a cable industry exemption.  Signed by the Governor.  Chapter #350