Recall gives Reed Hastings a chance to mend fences with Newsom

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In the fight among California political donors to back Gov. Gavin Newsom’s fight against the recall, Netflix co-CEO Reed Hastings is near the top of the rankings – with an expensive mea culpa.

The $ 3.1 million in contributions Hastings and his wife Patricia Quillin made to Newsom are part of a kind of political reconciliation with the governor after the Silicon Valley executive backed the ‘Newsom’s opponent Antonio Villaraigosa in the 2018 gubernatorial primary.

“If I had advised Reed Hastings, I would have advised him to do the exact same thing,” said Mike Madrid, a political consultant who advised Villaraigosa. “He’s dealing with a sitting Democratic governor. He played against him in the [2018] primary. I think it is a wise decision and a wise consideration to say, “I will be behind you”.

Former Chairman of the State Board of Education, Hastings is known in California politics as a proponent of educational reform and has drawn on his net worth of $ 5 billion to help elect like-minded charter school candidates to national and local public office.

To the State Capitol, the streaming giant he co-founded has sent well-connected lobbyists to advocate for his interests, which in recent years has included efforts to repay or sell tax credits that the company received from the state but cannot use due to its limited California tax liability.

Quillin has also become a major donor for Election Measures campaigns related to his advocacy work for social and criminal justice.

Madrid and others consider it obvious for the wealthy political activist and businessman to support Newsom, an incumbent with no viable Democrat on the ticket to replace him. Despite this, Hastings had chosen to oppose the politician in the past, when many viewed Newsom as the heir apparent to the governor’s office.

Hastings’ reconciliation campaign began on the night of the 2018 primaries when Villaraigosa, whom he backed with $ 7 million, came third behind Newsom and Republican John Cox, garnering just 13% of the vote.

Although Newsom supported the charter school model as mayor of San Francisco, Hastings and other wealthy charter school advocates made a risky bet of $ 23 million to support Villaraigosa, who battled with teachers’ unions and attempted to take control of the Los Angeles Unified School District during its time in the Los Angeles mayor’s office.

Hastings texted Newsom a congratulatory text, calling him a ‘star’ and saying, ‘If you still have me, I would be honored to support you. according to a profile of Newsom in the New Yorker, which detailed the exchange of a flow of texts that he received the evening of the primary.

Newsom offered Hastings a cordial response and accepted $ 29,200 from him later that month, but the election turned ugly. The then lieutenant governor told reporters he was surprised at the negativity of the ads funded by charter school funders, which criticized his work ethic and sought to portray him as a dilettante. Newsom said at the time that the ads “distorted my 20-year record” and did not strengthen his relationship with charter supporters.

Just over a month after taking office the following year, Newsom accelerated legislation to force charter schools to adhere to new transparency standards, fulfilling a campaign promise to strengthen oversight. Then CTA chairman Eric Heins said at the time that Newsom’s action marked the start of a “change of ground” as previous governors had vetoed similar legislation.

In August, Newsom’s office again negotiated a peace deal between teacher unions and charter schools to give public school districts more power to dismiss petitions for new charter campuses, to establish demands. more stringent accreditation for charter teachers and create a two-year moratorium on the new virtual charter. schools.

Marshall Tuck, whom Hastings backed in his unsuccessful 2018 bid to become state superintendent of education, said Newsom’s intervention led to more balanced legislation than what lawmakers had originally introduced.

He praised Hastings’ decision to support Newsom.

“Reed has spent as much time, energy and money trying to improve public education for low-income children as anyone I know,” Tuck said. “I was not the least bit surprised that he came in big for this recall election.”

Via Netflix, Hastings declined an interview request for this story.

While the charters have lost some battles against the State Capitol unions since Newsom took office, some of Hastings’ other interests have been more successful.

Less than two months after Hastings made a one-time donation of $ 3 million to the anti-recall campaign in May, Newsom signed a budget bill that created a new program that could enable the Los-based streaming giant Gatos to qualify for millions of state grants.

It is not known how much Netflix pays in taxes in California, where companies are not required to publicly disclose this information.

But Netflix wrote in its annual report that as of Dec. 31, the company “had a carryforward of research and development credits in California of $ 250 million” and predicted that some of its credits would not be realized.

For years, Netflix and other mega-studios have lobbied state lawmakers unsuccessfully to change state law to allow them to pay back unused tax credits from the State or sell them to other companies, according to state filings and interviews with lawmakers, Capitol staff and lobbyists. But lawmakers have balked at paying companies for unused tax credits when they have little or no tax to pay in the state.

Spurred on by Netflix, a plan emerged in 2020 to expand the California Competes Tax Credit, a program designed to keep or attract businesses to the state and allow media production companies to repay tax credits. unused and use the money to build local infrastructure.

The legislation, which was introduced just days before the adjournment of the legislature for the year, would have allowed “a taxpayer with little or no income tax but other significant tax debts from the State of benefit ”from the credit, according to a legislative analysis of the bill.

The legislation failed and Newsom introduced an amended version of the 2020 proposal in a budget plan it unveiled in January, this time creating the California Competes Grant Program to allow the Governor’s Office of Economic and Business Development to award grants. grants to eligible companies in exchange for commitments. to hire workers or build infrastructure in the state.

The Office of Legislative Analysts, a non-partisan branch of the state legislature that provides lawmakers with tax and policy advice, suggested lawmakers oppose the first draft of the California Competes Grant program proposal in an analysis of Newsom’s budget proposal in January.

“California Competes is not an appropriate vehicle to combat the economic effects of the pandemic because it does not target the industries hardest hit,” LAO wrote in a report, suggesting instead that the money be targeted. on small businesses. “The idea of ​​adding grants to California Competes raises questions that require significant legislative deliberation.”

The final version signed by Newsom in July awarded $ 120 million to the new grant program, which “focused on companies that, due to insufficient tax liability, cannot benefit from the CalCompetes tax credit,” according to an overview of the legislation by the Ministry of Finance. .

While many businesses struggled in 2020, Netflix exploded when home orders created a captive audience for the streaming giant. The company added 36.6 million subscriptions and recorded $ 25 billion in revenue globally.

Statements from Netflix’s state lobbyists employer show the company hired a host of well-connected Sacramento operators as it lobbied the governor’s office and the legislature on tax matters, including a business run by Newsom friend and advisor Jason Kinney; and one in which the husband of the finance deputy policy chief is a partner.

Hastings’ wife is also said to be a driving force behind their political gifts.

Quillin is active in state politics and has donated more than $ 3.7 million in 2020 to successfully oppose an initiative to toughen criminal penalties and limit parole, to support a measure that allowed those on parole for felony convictions to vote and to support failed voting measures to abolish cash bond and restore affirmative action.

“Patty is very passionate about criminal justice reform and social justice issues,” said Brian Brokaw, a Democratic consultant who has been involved in several campaigns funded by the couple and also works with Newsom. “I think they’re both very supportive of Newsom for different reasons.”

People close to Newsom say Hastings’ support did more than bolster the governor’s campaign coffers: his money also sent a message to other Democrats who were quietly considering joining the race in the spring.

By winning over one of California’s richest donors and a former political opponent, the same deep funding pit that had been available to the governor’s intra-party rivals in the past would not be up for grabs this time around.

“Our campaign enjoys a broad coalition of support,” said Nathan Click, spokesperson for the anti-recall campaign. “Democrats are activated to vote no and defeat this Republican recall. ”

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