Bill to Implement Federal Financial Services Reform

THIS WEEK IN SACRAMENTO

Prepared by Norwood & Associates

October 24, 2026

Seismic Shift Occurring in Sacramento

Governor-elect Arnold Schwarzenegger this week announced that he has appointed Patricia Clarey as his Chief of Staff. Prior to serving as Deputy Campaign manager on the Schwarzenegger for Governor campaign, Clarey was Vice President at Health Net, Inc. She served in senior levels for the Department of the Interior under the Reagan administration and was former Governor Pete Wilson's Deputy Chief of Staff.

Now that the Governor has a Chief of Staff, we expect to see a rush of new appointments as the Governor-elect moves to fulfill his promise of rapid change. With well over 5,000 applications under review, the transition needs to move quickly to put the basic team in place by the time the Governor is sworn in. The highest priority will go to naming a Finance Director to start working on the budget crisis. Cabinet level appointments are likely to follow in short order, with lower level appointments most likely occurring over a period of months as the reigns are slowly turned over.

Legislative staffers in the Republican caucus are looking to join the administration, and special interest groups of all stripes are assessing their lobbying strategies. Capitol insiders are expecting a round of musical chairs inside and outside of the Capitol as adjustments are made to the new political reality.

Business Groups Move Quickly on Policy Issues

While all the personnel issues and lobbying strategies are being sorted out, insurers and the business community will have to react to several quickly developing policy issues:

· Governor-elect Arnold Schwarzenegger met with Insurance Commissioner John Garamendi this week to talk about the next phase of worker's compensation insurance reform. During the campaign, Schwarzenegger said he would make substantive reform one of his first priorities. Garamendi agreed, suggesting the Governor convene a special session of the Legislature or convene a summit to get the ball rolling. It appears both leaders are in agreement that many of the issues that were off the table in this year's reform efforts need to be addressed quickly.

· The Attorney General has cleared for circulation a referendum to prevent implementation of SB 2 (Burton), which would phase in a mandate that employers provide health insurance coverage. Proponents need to collect 373,816 valid signatures by January 4, 2004 to stop the measure from taking effect. The issue would then go to the voters.

· An initiative to make it easier to raise taxes has already qualified for the March 2, 2004 ballot. The initiative would only require a 55% majority to increase taxes, as opposed to the current 2/3rds vote. Proponents call the measure the "Budget Accountability Act." Opponents call it the "Blank Check Act." Under current law, the Democratic majority requires the sign-off from the Republican minority to achieve the 2/3rds vote necessary to hike taxes. This initiative would make the Republicans irrelevant. Thus, Democrats on their own would be able to raise all sorts of business taxes and fees - thus the "blank check" moniker. The initiative has just enough good ideas in it to cloud the issue for voters, like requiring a portion of some revenue increases to go into a reserve fund and denying salary to legislators for every day the budget is late. The real point of the initiative, however, is to make it easier to raise taxes.

· Business groups filed an initiative to reign in abuse of the unfair competition law, know as "Section 17200" lawsuits. Governor-elect Schwarzenegger is expected to support the initiative, and decried during the campaign the cost imposed on consumers when thousands of frivolous lawsuits against businesses are filed. The initiative requires that private attorneys must follow "class action" rules before filing mass lawsuits for unfair competition in cases where there is no client and no person has been harmed. The Attorney General and district attorneys would still be allowed to file lawsuits in these cases. Business interests and trial lawyers each expect to spend $20 million to wage this battle. Legislative efforts at reform have failed every year in recent memory.

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