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Ballot blockade: California industries rely on referenda to stop laws

Bay Area fast food workers march in downtown San Francisco on Nov. 15, 2022. They demanded that industry leaders drop efforts to overturn Assembly Bill 257 and negotiate to find solutions to longstanding issues within the industry.
Aaron Rosenblatt
Bay Area fast food workers march in downtown San Francisco on Nov. 15, 2022. They demanded that industry leaders drop efforts to overturn Assembly Bill 257 and negotiate to find solutions to longstanding issues within the industry.

The fast food and oil industries are only the latest to seek a referendum to stop, or at least delay, a law passed by the state Legislature. The return on investment can be huge — so much money that some are calling for changing the referendum rules in California.

For a reported cost of just more than $4 million, California’s fast food industry may have bought itself a two-year reprieve from one of the most contentious state labor laws in recent memory.

Last week, a coalition led by the International Franchise Association and national business groups announced it had collected enough signatures to qualify a referendum for the 2024 ballot. If at least 623,212 of the 1 million-plus submitted signatures are valid, that would give voters the opportunity to overturn a first-in-the-nation law that would create a state council to set wages and other workplace standards for a large swath of California’s burger-flipping, taco-hawking industry.

The 2024 election is still nearly two years and many millions of dollars away, but the likely qualification of the referendum constitutes its own victory for the franchisees: It would buy them some valuable time.

Unlike initiatives — ballot measures that enact new laws — referenda, which overturn statutes passed by the state Legislature and signed by the governor, have an added feature that benefit their backers even if they ultimately lose on Election Day. As soon as a referendum campaign qualifies for the ballot, thelaw that it targets is put on hold. And becausestate law only allows referendum votes to be held during regular general elections, that reprieve can last as long as two years.

That could explain why the “people’s veto” seems to be having a moment of late. With Democrats dominating the Legislature and governor’s mansion and proving ever more willing to aggressively regulate, penalize or phase out specific industries, those targeted interest groups have turned to the will of the electorate.

In 2014, after state lawmakers passed a bill barring stores from distributing single-use plastic bags, manufacturers took the battle to the ballot. The referendum campaign failed, leaving the law in effect, but only after a lengthy delay. A more ambitious plastics recycling proposal was headed to this November’s ballot, until a last-minute legislative deal between industry and environmental groups.

Then in 2020, when the Legislature voted toend cash bail, the entire bail bond industry qualified a referendum to put bail reform on hold. The industry ultimately succeeded, persuading voters to nix the law.

Then this year, voters were asked to reconsider the Legislature’s work once again. This time, thelaw in question was a ban on most flavored tobacco products. Tobacco giants including Philip Morris and R.J. Reynold ponied up the money to qualify a referendum. By nearly a 2-1 margin, voters opted to keep the long-delayed ban.

The 2024 ballot is shaping up to be more of the same.

First, there’s the effort by the fast food industry. On Friday, the Secretary of State’s office directed county election officials to start verifying a random sample of signatures and gave them until Jan. 25 to finish. Second, oil and gas producers are mounting their own effort to overturn a law that bans new oil and gas wells within 3,200 feet of homes, schools, hospitals and other “sensitive” facilities. The industry has until Thursday to submit the necessary signatures.

Putting a price tag on a pause

Under the moniker “Save Local Restaurants,” fast food giants such as In-N-Out Burger, Chipotle, Starbucks and McDonald’s have raised nearly $21 million to overturn the labor-backed law. The group had spent $4.3 million through the end of September, according to its most recent filing, with the bulk of that money being used to fund signature gathering. It’s a continuation of a battle the industry has been waging throughout the year. In the final months of the last legislative session, the International Franchise Association spent more than $5 million lobbying members of the Legislature not to support Assembly Bill 257.

It’s not difficult to see why overturning the law — or at least delaying its implementation — might be worth the expense. One of the law’s provisions would allow the new council to mandate a minimum wage as high as $22 an hour next year for fast food restaurants, compared to the overall minimum wage that rises to $15.50 an hour on Jan. 1.

UC Berkeley economist Michael Reich, who performed a preliminary calculation for CalMatters, said the higher wage bill could add up to as much as $3.6 billion over two years. That figure equates to about $6,000 for each of California’s more than 500,000 fast food workers.

Reich’s calculation comes with a few caveats. It’s based on the assumption that if the law goes into effect, the council would impose the $22 minimum wage in six months — as early as next July. A more gradual approach is more likely, he said.

And though the law would only apply to large chains, defined as fast food establishments with more than 100 locations nationwide, federal labor statistics don’t distinguish how many workers fall into that category. Reich’s figure is based on a wage hike from the current California average hourly wage of all fast food workers, which he estimated is more than $19.

It’s also not clear how franchised fast food restaurants would respond to higher labor costs. Another economist, Christopher Thornberg, said a back-of-the-napkin calculation shows a pause on the law would save the industry about “one to two billion dollars a year.”

But it’s fast food consumers, not the businesses themselves, who would ultimately pay the higher wage costs in the form of higher prices, he said. Thornberg this year authored an industry-commissioned report at the U.C. Riverside Center for Economic Forecasting & Development that estimated that the law’s increased labor costs would result in a 20% hike in fast food prices.

“Pausing it will not only stave off, but prevent up to a 20% food increase cost for consumers,” said Jeff Hanscom, vice president of state and local government relations at the International Franchise Association.

The association estimates about 15,600 franchised fast food restaurants in California would be subject to the council’s regulations. That number doesn’t include non-franchised chains such as Starbucks and Chipotle, which would also be covered by the law. A pause on the law also means halting a fast food council from setting numerous other workplace standards such as training requirements, safety rules and the temperature of a restaurant.

“No one really knows what they could do,” Hanscom said. “Knowing we’re now back to the certainty of the status quo will allow business owners in California to operate without that fear of what’s coming down the road.”

Winning even when you lose

Though precise numbers may not be available on the benefits of delaying a law, for an industry on the wrong side of a piece of legislation, a temporary pause can be well worth the price of a campaign, even if the referendum eventually fails.

Few political observers expected Proposition 31, the November referendum on the state’s flavored tobacco ban, to be particularly close. And it wasn’t. In the final uncertified count, California voters upheld the ban 63% to 37%.

But thanks to the unsuccessful referendum campaign, the ban only briefly went into effect on Jan. 1, 2021, as the law prescribed. It was then paused when the referendum qualified later that month, and is likely to remain on hold until as late as Dec. 21.

Menthol cigarettes and other tobacco products at a store in San Francisco on May 17, 2018.
Jeff Chiu
AP Photo
Menthol cigarettes and other tobacco products at a store in San Francisco on May 17, 2018.

According to reports filed with the state, the tobacco industry-funded campaign spent a little more than $15 million on signature gathering in late 2020. The coalition spent less than $2 million during this year’s actual campaign — a negligible sum by the standards of statewide ballot battles.

The Campaign for Tobacco Free Kids, an advocacy group that supported the ban, estimated that the industry made an additional $784 million during that nearly 700-day delay. CalMatters reached out to both the “No on 31” campaign and R.J. Reynolds Tobacco, one of the campaign’s biggest financial supporters, requesting comment on that estimate. Neither responded.

“It was a good investment on their part,” said Jerry Hill, a former Democratic senator from San Mateo, who introduced the flavored tobacco ban. “They were using the referendum to delay the inevitable.”

On Nov. 9, the day after the polls closed in California, R.J. Reynolds, along with a coalition of vape and chewing tobacco companies, filed a lawsuit to challenge the ban in federal court. A few days later, the court rejected the companies’ request to put the law on hold. And today, the U.S. Supreme Court also turned down the industry’s last-ditch appeal.

What’s behind the referenda uptick?

California voters have had the option to veto legislation passed in Sacramento since 1912. But after a surge in referenda through the 1940s, the practice fell out of favor through around 2000. The recent run of referenda on the ballot since 2016 isn’t unprecedented, but is part of a longer-term trend, said Mary-Beth Moylan, a University of the Pacific law professor.

What might explain what she describes as a “slight uptick?” Moylan points to the increasingly Democratic dominance in Sacramento, with a majority of lawmakers now more willing to slap legislative targets on large, well-resourced industries. Those industries may be “seeing this as the only option now, whereas they were having more success in prior decades sorting and killing bills in the legislative process,” she said.

Though the state constitution doesn’t explicitly say that a referendum, once qualified, puts the underlying law on hold, the text has been interpreted that way by state courts for decades.

“It was a good investment on their part. “They were using the referendum to delay the inevitable.”

Now some advocates who have grown tired of this electoral maneuver are calling for change.

At a press conference held last week by the Service Employees International Union California, which sponsored the fast food law, advocates said they want the state to require proof of “grassroots support” before qualifying a referendum. That could include requiring a certain share of signatures to be gathered by volunteers, rather than firms that pay workers by the signature.

“Petition circulators were once almost universally unpaid,” said Trent Lange, president of the California Clean Money Campaign, who said he hasn’t taken a position on the fast food referendum. “Now, however, corporations and billionaires can buy their way onto the ballot by using unlimited amounts of money to hire mercenary signature-gathering firms.”

SEIU has accused the referendum campaign of lying to get voters to sign petitions, submitting videos to the Secretary of State’s office and the Attorney General’s office in which signature gatherers appear to tell the public they would be supporting an increase in the minimum wage. Neither office has said whether they are investigating the complaints. Hanscom, of the International Franchise Association, said the group has not heard from either office, but it believes the “referendum was pursued in a way that met the letter of the law.”

Another voice that’s called for change: The Los Angeles Times’ editorial board, which called the recent run of referenda a “perverse application of a system designed to empower ordinary people against corporate influence in the state Capitol.”

Hill, the former state senator, said “it is easy — and too easy — to file a referendum by a corporation with paid signature gatherers…They have nothing to lose and everything to gain by doing this.”

“I do think that there needs to be reform in the referendum space,” he added, “and I would hope that the Legislature or a commission or something could look at it.”

There’s little indication yet that the Legislature is willing to take that step.

State Sen. Lena Gonzalez, a Democrat from Long Beach and the author of the oil well setback bill that could wind up on the 2024 ballot, called the campaign an “abuse” of the electoral process in a conversation with CalMatters earlier this year. Asked last week, a spokesperson for the senator said she had “no specific concrete policies” under consideration.

Assemblymember Isaac Bryan and Sen. Steve Glazer, the current Democratic chairpersons of the respective chamber’s election committees, also declined to comment.

In an interview with CalMatters during her reelection campaign, Secretary of State Shirley Weber said her office was considering whether to support changes to the referendum process “because it can easily be bought.” She also said she wants to find ways to better educate voters because referenda can be particularly confusing — a “yes” vote is to uphold the law being challenged, not to support the industry.

Last week, Weber’s spokesperson said the office was “still in discussions about best approaches to this issue” and encouraged the public to check back in 2023.

In recent surveys, support for monkeying with the ballot measure qualification process has been lukewarm at best. And though there were calls for change from lawmakers and advocacy and watchdog groupsafter the unsuccessful recall election of Gov. Newsom last year, interest in changes to the statewide process waned after Election Day.

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.