In summary

State claws back money from mask deal that went awry. Uber and Lyft sued by state, cities. State Supreme Court hears pension reform case.

Good morning, California. It’s Wednesday, May 6.

Hours after wiring $$, deal ended

Ground crew at the Los Angeles International airport unload pallets of personal protective gear from a China Southern Cargo plane on April 10. Photo by Richard Vogel, AP

Remember Gov. Gavin Newsom’s secretive, nearly $1 billion deal with Chinese company BYD for a monthly purchase of 200 million medical-grade face masks?

It turns out that less than two weeks before the governor announced that deal, another one had gone awry. On March 26, California wired $456.9 million for 100 million N95 face masks to a Delaware-based company that had been in business for just three days. But within hours, the deal was dead, and the money back in California’s account, CalMatters’ Laurel Rosenhall reports in an exclusive story.

The failed deal provides insight into how state governments are navigating the chaotic medical-supplies marketplace — and the potential for fraud — amid the coronavirus pandemic.

  • Thomas Tighe, president of nonprofit aid agency Direct Relief: “A strong desire to protect our health workers does lend itself to being exploited for financial gain by folks who are out to make money.”

It’s still unclear why the deal fell through, or why California felt comfortable sending nearly half a billion dollars to a brand-new company. Here’s what we do know:

  • The company, Blue Flame Medical LLC, was formed in March by two Republican operatives: Mike Gula of Washington, D.C., and John Thomas of Southern California.
  • Thomas said he and Gula founded the company to help the United States respond quickly to the pandemic. “We realized that I actually had some very good relationships with quite a few PPE manufacturers, all over the world,” Thomas said in an April 15 podcast.
  • Maryland canceled a $12.5 million deal with Blue Flame on Saturday — and ordered an investigation into the company — because the state hasn’t yet received the face masks and ventilators it ordered April 1.

For more information, read Laurel’s exclusive report.

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The Bottom Line: As of 11 p.m. Tuesday night, California had 58,724 confirmed coronavirus cases and 2,379 deaths from the virus, according to a Los Angeles Times tracker. (These numbers are different from those of the state Department of Public Health, which are updated less often.)

Also: CalMatters is tracking, by county, positive and suspected cases of COVID-19 patients hospitalized, and those in intensive care, throughout the state. We’re also tracking the state’s daily actions. And we have an explainer for everything you need to know about California’s response to coronavirus.

Other stories you should know

1. California takes Uber and Lyft to court over employee classifications

Drivers rally in support of AB 5 in Sacramento last Aug. 28. Photo by Anne Wernikoff for CalMatters

California is coming for Lyft and Uber. Attorney General Xavier Becerra, along with the city attorneys of Los Angeles, San Diego and San Francisco, sued the ridesharing companies Tuesday for classifying more than half a million drivers as independent contractors instead of employees —depriving them of employee wages and benefits while also avoiding paying into the state’s unemployment insurance fund, CalMatters’ Jackie Botts reports. If the court rules in California’s favor, the companies could be on the hook for hundreds of millions of dollars.

Becerra was empowered to take Uber and Lyft to court thanks to the January passage of Assembly Bill 5, which established stricter standards for what constitutes an “independent contractor.” Meanwhile, Uber, Lyft and other gig-economy companies are spending $110 million on a measure for California’s November ballot that would create a category of work in between “independent contractor” and “employee.”

2. California pension reform goes before state Supreme Court — again

Screenshot of the California Supreme Court in the age of social distancing

The future of California’s hundreds of billions of dollars of pension debt was the subject of a state Supreme Court hearing Tuesday, the latest in a decades-long battle between labor unions and state and local agencies over public employees’ retirement benefits. This time, the court is expected to issue a definitive ruling in the battle — which hinges on whether the state can reduce promised benefits and limit “pension spiking,” the practice of artificially boosting retirement benefits, in order to reduce debt. Unions say it’s illegal; public agencies say they could face bankruptcy if they don’t modify pension plans. Here’s more from CalMatters’ Ben Christopher.

  • Rei Onishi, Newsom’s legal affairs secretary: “The question presented by this case is whether on top of legitimate pension liability, should taxpayers along with their children, and even grandchildren, be forced to also shoulder the burden of financing abusive practices to artificially and unlawfully inflate pensions?” 

3. Pass/fail? All A’s? How coronavirus is impacting CA’s grading policies

Image via iStock, additional elements by Anne Wernikoff for CalMatters

How do you grade students’ work when it’s done remotely, amid the extraordinary circumstances of a pandemic, and with unequal computer or internet access? CalMatters education reporter Ricardo Cano, in an analysis of 102 California school districts’ policies, found the majority plan to issue credit/no credit marks instead of letter grades. Some schools aren’t issuing formal grades at all, and others are allowing students to choose between letter grades and credit/no credit marks. Statewide, no students will receive grades lower than what they had at the time of the school closures.

  • Colman Sun, Irvine Unified high school junior: “I think grades are a very superficial representation of what matters right now. What really truly matters in these times is unity, mental health and being there for each other.”

Support CalMatters’ nonprofit journalism

It turns out MailChimp messed with the donation link in yesterday’s newsletter, so I’m including an updated one today. (Fingers crossed it works!) If you have the means during this difficult time, consider making a contribution to our nonprofit newsroom so we can continue covering the issues that matter most to you in California. Donate here, and find more information about our donation policy here. Thank you.

CalMatters virtual events

Thursday at 1 p.m.: The pandemic is gutting local governments’ budgets, and voters don’t seem to be in a giving mood when it comes to new bond and tax measures. So where do California cities and counties go from here? Join CalMatters for a conversation with John Dunbar, board president of the League of California Cities and mayor of Napa County’s Yountville. Register here and submit questions here.

CalMatters commentary

CalMatters columnist Dan Walters: Republican Assemblyman Jay Obernolte is a dogged champion for accountability and transparency in local tax and bond measures. This year, he’s trying for win No. 2.

A divisive and discrimantory bill: Assembly Constitutional Amendment 5, the topic of a Tuesday legislative hearing, is misguided in that it proposes instant but wrong solutions to persistent social ills, writes Wenyuan Wu of the Asian American Coalition for Education.

Rethinking elections: If California had used ranked-choice voting on Super Tuesday, the votes would have been counted a lot sooner and we would have a different winner, write L. Sandy Maisel and David W. Brady of the Hoover Institution at Stanford University.

Health care provider immunity dangerous: Health care lobbying organizations want Newsom to sign an executive order granting broad immunity because of the COVID-19 pandemic — which would endanger Californians, argues Tony Chicotel of California Advocates for Nursing Home Reform.

Other things worth your time

California sees first decline in weekly COVID-19 deaths. // The Los Angeles Times

Newsom calls Yuba and Sutter counties’ decision to reopen businesses like restaurants and hair salons a “big mistake.” // The Associated Press

Are California businesses getting a fair share of federal coronavirus loans? // CalMatters

In an ominous sign for tech economy, Airbnb lays off 25% of staff. // Recode

California hospitals begin sterilizing and reusing N95 masks, but nurses say it’s unsafe. // KQED

Newsom taps high-profile players to help him navigate the pandemic. // Politico

California paid nearly $340 per COVID-19 test during first month of partnership with Verily Life Sciences. // The Sacramento Bee

California becomes first state to borrow from federal government to help pay unemployment insurance claims. // The Sacramento Bee

The liberal-moderate rift among Democrats has blown open in California. // Politico

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See you tomorrow.

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Emily Hoeven writes the daily WhatMatters newsletter for CalMatters. Her reporting, essays, and opinion columns have been published in San Francisco Weekly, the Deseret News, the San Francisco Business...