Big business is using the popular vote to bypass California law

SACRAMENTO, Calif. — Prominent oil producers seemingly absorbed a major hit from the California Legislature last year when Gov. Gavin Newsom signed a landmark law banning oil wells near homes.

But in California’s state Capitol, a bill’s passage often marks the beginning of a fight, not the end.

Ten months later, the oil companies are fighting back, using a statewide ballot initiative to block — or at least, delay — a policy that they couldn’t stop in the Capitol.

“I think the Legislature is often out of step with the average voter, and that’s why a lot of folks go to the ballot box,” said California Independent Petroleum Association CEO Rock Zierman. “I think sometimes voters are not aware of what’s happening in Sacramento.”

Industry groups and wealthy activists have figured out how to use California’s direct democracy system in ways that are changing how policy is made, prompting pushback from unions and others.

Like never before, the business of lawmaking in Sacramento is intertwined with a ballot initiative industry that churns through hundreds of millions of dollars each cycle — and policy battles loop from the Legislature to the streets back to the Legislature again.

“Even some members, as I was whipping votes, said, ‘Isn’t this just going to be overturned? Why are we doing this?’” said state Sen. Lena Gonzalez, a Long Beach Democrat who carried the bill create drilling buffer zones.

By going to the ballot, proponents can win — even if they ultimately lose the election — by freezing the law until voters weigh in. The tobacco industry in early 2021 bought itself nearly two years before the state could start enforcing its ban on flavored products. 

Organized labor has responded to the popular industry tactic with a bill to overhaul the system itself, and negotiations have unfolded under the shadow of major ballot fights on the horizon — all moving pieces in what can seem like an endless chess match.

It’s a familiar playbook: When the Legislature voted to ban single-use plastic bags and phase out cash bail, the affected industries responded with referendums. Uber, Lyft and other companies spent $235 million on a 2020 initiative to carve themselves out of a law forcing gig companies to classify workers as employees — and they went to the ballot after using the threat of a campaign to try and wring a deal from the Legislature, a common tactic as interest groups seek to force negotiations.

Business groups are now clashing with a prominent labor union, SEIU California, over a bill to rein in referenda. They managed to dilute the proposal after a furious lobbying campaign, but still see it as a threat.

“We’re obviously a one-party state, so this process takes on even more importance to be a check and balance,” said Rob Lapsley, president of the California Business Roundtable. “If we lose that ability, it is going to dramatically hurt California and the future for all sides.”

Special interests regularly spend millions of dollars to overturn laws at the ballot — with two of 2022’s most consequential laws on hold until the 2024 election — or to qualify initiatives that compel lawmakers to cut deals rather than battle it out before voters. It typically costs millions of dollars to gather the needed signatures, restricting the option to wealthy activists and groups with deep pockets.

But those players are, increasingly, seeing the ballot as their best shot at shaping policy.

“It is becoming more intertwined,” said former Public Policy Institute of California director Mark Baldassare, who is writing a book on the topic. “The ultimate challenge is: How much does it cost, in a state with 22 million voters to collect the signatures, and who’s really capable of qualifying something for the ballot?”

Lawmaking loop

Parallel struggles over two landmark laws illustrate the loop between the Legislature and the ballot box. The energy and franchise industries spent millions of dollars qualifying referendums to overturn hard-fought laws barring new oil wells near homes and regulating pay and working conditions in the fast-food sector. Newsom has decried the oil industry’s referendum as “payback” for an ambitious climate package that he pushed past concerted industry opposition.

So the action has shifted back to the Legislature. SEIU California, the powerful union that championed the stalled fast food law, is responding on two fronts: fortifying the law and throwing a wrench into the system its opponents used to put it on hold.

“We’ve seen corporations, more recently than ever before, pervert the intent of the referendum process,” said SEIU California Executive Director Tia Orr, “using their vast wealth to distort our democracy and having a blank check to be able to do so.”

Business interests have united against the proposed overhaul of the referendum process, arguing it would undermine a cherished constitutional right and make it prohibitively difficult for anyone to qualify an initiative.

“The Legislature in California has become more Democratic and more progressive over time,” said International Franchise Association vice president for state and local government relations Jeff Hanscom, and “as policies get more and more offensive to everyday citizens, they deserve a say in that.”

Recent amendments to the bill would also create a way to yank referendums from the ballot, opening a window for yet more dealmaking — and the prospect of the Legislature opting to weaken laws that have already passed to avoid fighting it out before voters.

The restaurant industry is now playing defense on multiple fronts as it prepares a ballot campaign. It has also launched an advertising blitz to derail a new bill that would impose liability on fast-food corporations for labor violations at individual franchises. Notably, the Democratic lawmaker behind the landmark fast-food labor law introduced the SEIU-championed liability proposal this year shortly after the fast food industry launched its referendum drive. Hanscom — echoing Newsom — called it “payback” for the referendum.

Assemblymember Chris Holden, a Pasadena Democrat, accused the industry of operating in bad faith, saying he worked to placate opponents last year only to have them challenge the law through the ballot.

“It’s not like the business community does not have a voice, does not have members of the Legislature that are sympathetic,” Holden said in an interview. “I can see where someone wants to go to war because ‘My god, nobody listens to us, we can’t get anything done, no one’s taking our ideas and putting them into our bills’ — that’s what we did.”

Kurt Oneto, an attorney who has worked on numerous business-backed ballot initiatives, argued that the presence of two referendums on the 2024 ballot — over fast food and oil drilling — hearkened back to the original impetus for the initiative system, which sought to wrest back power from the railroad industry.

“What was going on in 1910 and 1911? There were interests controlling the Legislature that may have been out of step with the voters,” Oneto said. “You can draw a comparison to the interests controlling the Legislature today.”

The leverage play

Many initiatives never make it before voters — but are used as leverage to bend the Legislature’s will. That tactic is now commonplace, supercharged by a 2014 law that allowed sponsors to pull measures from the ballot several months before the election.

For a few million dollars, the cost of qualifying a proposal, groups can spur lawmakers to cut a deal.

“When you’re discussing ‘leverage plays,’ which we discuss all the time now, that is very different,” said Gale Kaufman, a longtime Democratic ballot strategist. Many business groups, Kaufman added, “don’t want to put it on the ballot. They want you to come to the table.”

Players across the political spectrum have deployed the leverage play. SEIU-United Healthcare Workers West’s leader Dave Regan used the threat of an initiative to help secure a $15 minimum wage in 2016 and is now doing the same to enshrine a $25 wage for healthcare workers. And an affluent Bay Area developer, Alastair Mactaggart, bested tech giants in 2018 by qualifying a digital privacy initiative and using it to wring a deal out of the Legislature.

“We never in a million years would have gotten that privacy legislation through the Legislature,” said Consumer Attorneys of California CEO Nancy Drabble. “That was just a game of chicken, and they blinked.”

Environmentalists scored a major victory last year when they struck a legislative deal to overhaul plastics packaging and recycling. Previous bills had failed. Then advocates qualified a ballot initiative, and plastics companies moved $20 million to fight it. The escalating conflict “changed everything,” said lobbyist and lead negotiator Jennifer Fearing. “If you believe your opponent has the resources to do that, you should probably factor that in when you’re killing their bills.”

How are the initiatives are polling? What would it take to defeat them? Is there an acceptable compromise to be made? It’s all part of the calculus of modern Sacramento.

Past can be prelude: In 2018, a business coalition qualified an initiative making it harder to raise local taxes and pulled it after lawmakers reluctantly agreed to ban local soda taxes. Now a similar measure is headed to the 2024 ballot — and while Orr said her union was “gearing up for a fight” alongside local government groups, she acknowledged the contours were still coming into focus.

“We sit in a lot of war rooms trying to figure out what the other side’s goal is and what finish line they want to get to,” Orr said. “More than ever, it’s always part of the conversation. Every tactic, every angle comes up.”