Budget Troubles Won’t Change California Gov. Gavin Newsom’s Goals for 2nd term, He Tells AP

SACRAMENTO, Calif. (AP) — Throughout the various crises in California Gov. Gavin Newsom’s first term — devastating wildfires, the bankruptcy of the nation’s largest utility, the deadly COVID-19 pandemic — the state’s record-smashing budget surpluses were always there to smooth things over.

Now, as Newsom moves to build his national profile for political aspirations beyond the governor’s office, looming multibillion dollar deficits could threaten to unravel the things on which he’s staked his reputation, including free kindergarten for every 4-year-old and free health care for low-income residents regardless of their immigration status.

On Monday, after signing a budget that cut, delayed and borrowed to cover a $31.5 billion deficit, Newsom convened hundreds of agency officials, department heads and deputies for an all-day meeting to stress the importance of protecting those commitments.

“I have a sell-by date, three and a half years. The clock’s ticking,” the Democratic governor told The Associated Press in an interview the next day. “I’m a milk carton, you know? And I don’t want to get sour.”

Newsom spoke broadly about his plans for navigating the state’s challenges during his second and final term in office, which runs through January 2027, with deficits that could reach a combined $81 billion over those four years.

How Newsom governs the nation’s most populous state through the budget downturn may serve to bolster or diminish his credibility on the national stage. Newsom has repeatedly said he’s not running for president in 2024. But he’s increasingly stepping beyond California as a surrogate for President Joe Biden — and future standard bearer of the Democratic Party. He’s burnishing those credentials by raising money for Democrats in red states and casting himself as a political and cultural foil to Republican rivals like Florida Gov. Ron DeSantis.

Newsom told AP that California’s budget troubles won’t change his agenda or stop him from taking big policy swings, such as overhauling how the state spends money on and treats people with mental illness and more quickly building clean energy and water projects.

He indicated he supports legislation that would let more people be detained against their will because of mental illness or drug addiction, though he stopped short of committing to sign it.

The bill, by Democratic state Sen. Susan Eggman, has the support of mayors from California’s largest cities, who say they need it to better care for the nation’s largest homeless population.

“We’ve made it crystal clear to her privately that we are supportive of the direction she’s going,” Newsom said. “That said, you know, it depends what comes out.”

Newsom said he wants to be sensitive to concerns from some mental health advocates about the potential for depriving people of fundamental rights.

“I’m very sensitive that we don’t want to go back to the old ways,” he said. “I’m confident that in her bill she will be sensitive to those broader concerns as well.”

More broadly, Newsom wants voters to approve a $4.6 billion bond to build 10,000 new clinic beds and homes for people with mental illnesses. He has also proposed changing how the state spends money from a nearly two-decade old ballot measure that raised taxes on millionaires to fund mental health services.

Newsom doesn’t see his second term as playing defense to prevent cuts to some of his priorities. Instead, he said, his job is to implement the promises he made in his first term. But some adjustments are inevitable.

Newsom has committed to spending more than $50 billion on climate projects and protections over the next few years, an unprecedented amount of environmental spending. But he reduced that commitment by a few billion dollars this year to balance the budget, drawing criticism from some environmental groups who accused him of backtracking.

This year Newsom paired the climate spending with an overhaul of building and permitting codes to speed up how long it takes to put up things like wind turbines and solar farms. Newsom said the changes were necessary because the climate spending “meant nothing unless we could deliver on it.”

Still, some environmental groups initially opposed them, seeing them as a ploy to benefit projects they say have no ecological benefit, like building new reservoirs. They’ve grown increasingly critical of Newsom’s environmental policies over the years, with one advocate calling him the state’s worst governor on water and endangered species issues.

The dispute is personal for Newsom, who said he bonded with his father, a California judge who died in 2018, from a young age over support for environmental causes.

“You find me a governor in the country with a record like ours, and yet (environmental groups) are still so quick to criticize. I don’t know how that advances the cause,” he said. “I don’t think they’re building more trust around here.”

Newsom still has his eye on national politics, including plans to lobby other state legislatures to pass an amendment to the U.S. Constitution that would impose a waiting period for all gun purchases, ban assault rifles, require universal background checks and raise the minimum age to buy a gun to 21.

Click here to read the full article in AP News

California’s New Budget Covers $32 Billion Deficit While Extending Tax Credits for Film Industry

California lawmakers approved a $310.8 billion budget on Tuesday that closes a nearly $32 billion budget deficit while also extending a lucrative tax break for the state’s iconic film and television industry.

The nation’s most populous state has had combined budget surpluses of well over $100 billion in the past few years, enabling the Democrats in charge to greatly expand government.

But this year, revenues slowed as inflation soared and the stock market struggled. California gets most of its revenue from taxes paid by the wealthy, making it more vulnerable to changes in the economy than other states. Last month, the administration of Democratic Gov. Gavin Newsom estimated the state’s spending would exceed revenues by over $30 billion.

The budget approved by lawmakers covers that deficit by cutting some spending — about $8 billion — while delaying other spending and shifting some expenses to other funds. The plan would borrow $6.1 billion and would set aside $37.8 billion in reserves, the most ever. Newsom has said he will sign it into law.

Despite the deficit, lawmakers agreed to extend tax credits for movie and television productions that film in the state. Those credits will reduce state revenues by up to $330 million per year. The big change is that those tax credits will be refundable. That means if a movie studio has credits that are worth more than what it owes in taxes, the state will pay the studio the difference in cash.

“It’s real hard to justify doing this when we’re not doing that for a lot of people who are struggling in California,” Republican Assembly Leader James Gallagher said.

Others said the improved tax credits are needed as California faces competition from other states seeking to lure TV and movie productions out of California, which has long been synonymous with the glamor of Hollywood.

“It’s something I know people can argue over whether it benefits California or not, but it is iconic and it creates jobs,” Senate President Pro Tempore Toni Atkins said.

California’s budget reflects the partisan divisions that permeate the country’s politics. Democrats praised the budget for avoiding painful cuts to health care and public education programs, two of the biggest areas of state spending. But Republicans criticized the budget as unsustainable. Republican Assemblymember Vince Fong noted the budget Democrats approved on Tuesday assumes much higher tax revenues than the projections from the nonpartisan Legislative Analyst’s Office.

“If revenues come closer to the independent legislative analyst’s projections and if a recession occurs, not only will the deficits be larger, they will consume most, if not all, of our reserves,” Fong said.

The budget is a complex array of nearly two dozen bills that include much more than just spending decisions. It includes protections for the Joshua tree, a native desert plant at the center of a long debate about how to safeguard it from threats driven by climate change without adding unnecessary roadblocks to housing and solar development projects in areas where the tree grows.

The state will charge a fee to developers who remove the trees, pledging to use the money to conserve the species. Chuck Bonham, director of the California Department of Fish and Wildlife, called the bill an “innovative approach” to balancing tree preservation and development efforts.

But Assemblymember Tom Lackey, a Republican representing Palmdale, a Southern California city in the Mojave Desert where many of the trees grow, worried the bill will hinder housing development in his district.

“There’s never been a bill that’s more impactful to my desert community than this one,” Lackey said.

The budget includes a lifeline for public transit agencies struggling to survive following steep declines in riders during the coronavirus pandemic. It allows transit agencies to use some of the $5.1 billion in funding over the next three years for operations.

Still, some San Francisco Bay-area lawmakers said the spending wasn’t enough to forestall painful service cuts over the next few years. On Monday, they proposed legislation that would increase tolls on seven state-owned bridges — including the San Francisco-Oakland Bay Bridge — by $1.50 over the next five years.

Civil liberties groups were upset that the budget allows state officials to withhold some records related to investigations of police misconduct until 2027, a delay the Commission on Peace Officer Standards and Training said was necessary as it prepares to handle an estimated 3,400 cases each year.

Lawmakers agreed to impose a new tax on the private companies that contract with the state to administer Medicaid benefits. The tax will bring in an estimated $32 billion over the next four years, with some of the money going to doctors while other funding will go to rural hospitals struggling to avoid bankruptcy.

Click here to read the full article in AP News

What You Need to Know on the California Budget Deal

Just in time for the start of a new fiscal year July 1, Gov. Gavin Newsom and legislative leaders announced Monday night that they have reached a deal on the state budget — a $310 billion spending plan that they say protects core programs and covers a $30 billion-plus deficit without dipping into key reserves. 

Despite largely agreeing on the overall structure for weeks, budget negotiations were delayed by the governor’s demands to include a sweeping infrastructure proposal that many lawmakers resisted. The final compromise narrows the types of projects that can take advantage of an expedited approval of permits, leaving out a contentious proposed water conveyance tunnel under the Sacramento-San Joaquin River Delta. 

“We are accelerating our global leadership on climate by fast-tracking the clean energy projects that will create cleaner air for generations to come,” Newsom said in a statement.

Senate President Pro Tem Toni Atkins, a San Diego Democrat, said she was “heartened” that the leaders agreed on the infrastructure package, and “in a way that focuses on equity by laying the groundwork to ensure that our most vulnerable communities will be hired first on impactful state infrastructure projects.” 

The governor and legislative leaders also touted that they were able to preserve money for education and social service programs, and increase money for childcare providers.

Newsom also noted that the budget includes accountability measures for transit and homelessness, and tax credits for some industries. 

This is a budget for the future,” said Assembly Speaker Anthony Rendon, a Lakewood Democrat who is scheduled to hand over the speaker’s gavel to Assemblymember Robert Rivas, a Salinas Democrat, on Friday under a negotiated transition.  

If all goes to plan, the main budget bill will be approved by both the Assembly and Senate today and signed by Newsom soon after. The Legislature began publishing a series of budget-related bills — reflecting agreements in specific policy areas — online Saturday morning to fulfill a requirement that they be available for public review for 72 hours before any votes.

Democratic lawmakers already passed a budget, reflecting their own priorities, on June 15 in order to meet a constitutional deadline. That kicked off a 12-day window for Newsom to sign or veto the bill, increasing pressure on the two sides to reach a deal by Tuesday.

This year’s negotiations were more fraught due to a $31.5 billion deficit, a sharp contrast with record budget surpluses the last two years. The deficit is the result of a downturn in the stock market — a volatile but significant source of California’s state revenues because of its reliance on income taxes, especially those of high earners. Bracing for potential further revenue declines, the budget deal allows the governor to delay, with notification to the Legislature, one-time spending commitments before March 1.

The budget process this year was also made more complicated when many Californians were granted until October, instead of April, to file income tax returns because of storm-related disaster declarations, which made it hard to pin down a precise figure on the state’s revenue. 

Add to that Newsom’s insistence that legislators approve his recent proposal to overhaul the permitting process for major infrastructure projects by changing the landmark California Environmental Quality Act, a move that some housing advocates and developers have demanded for years. 

The governor wanted a package of 11 measures, alongside the main budget bill, that aim to streamline the permitting process among federal, state and local governments; limit the time courts have to hear challenges on environmental reviews; and increase funding to state agencies.

Lawmakers pushed to consider the plan outside of the budget process so they would have more time to review its potential effects and to exempt the proposed Delta tunnel from the changes. That contentious $16 billion project would send water from the Sacramento-San Joaquin Delta south to 27 million people and 750,000 acres of farmland. 

Here are some other highlights of the deal — how much the state plans to invest in other key policy areas that have been sticking points since Newsom kicked off the budget process in January with his initial proposal

Social services and the safety net

Low-income families who receive state subsidies to pay for child care would see a near-elimination of copayments known as “family fees” under the budget bills that are part of the Legislature’s agreement with Newsom. 

The fees, which can be hundreds of dollars a month for families, have been waived throughout the pandemic but were set to return at the end of September. Under the tentative agreement, families would not have to pay more than 1% of their incomes toward the fees. 

The budget bills also include funding to raise pay for child care providers, who have demanded an immediate 25% increase in reimbursement rates (amounting to $1 billion a year) and a long-term plan to overhaul how those rates are calculated. 

But how the funding gets doled out — whether the funding is a permanent raise or a temporary stipend — remains a sticking point between Newsom’s administration and the child care providers’ union. The parties are still bargaining a new labor contract for providers days before the current one expires.

In addition to other funds intended to help communities across the state recover from this year’s storms and flooding, the budget plan would provide direct relief to the towns of Planada and Pajaro. Both towns were partially under water after the winter storms. Now they are slated to receive $20 million each to help residents recover, regardless of their citizenship or legal status.

The agreement kills a proposal to create an unemployment insurance program for undocumented workers, who are ineligible for jobless benefits. Advocates had hoped to start a pilot program; then pushed instead for a working group to study the issue. Neither got the administration’s agreement in the budget.

The tentative agreement also includes $500 million to make permanent a temporary 10% increase in welfare benefits for recipients of CalWorks, the state’s cash aid program. But lawmakers couldn’t reach an agreement with Newsom’s administration on an Assembly proposal to loosen work requirements and lessen financial penalties for recipients, which could have weakened the ties between welfare and work and focused more on supportive social services that could help a family in crisis.

The Legislature did get its way in the agreement by rejecting a Newsom proposal to use half of the state’s $900 million in reserves for social safety net programs, with lawmakers reasoning the reserves should be saved for worse budget years. 

— Jeanne Kuang and Nicole Foy

A hit on climate programs

California’s efforts to battle climate change — particularly programs to help switch to zero-emission vehicles and clean energy — appear poised to take a substantial hit in the budget agreement between Newsom and the Legislature.

Based on the June 15 budget approved by the Legislature, an estimated $5 billion, or 9%, will be cut out of $54 billion in climate climate projects established in the 2021 and 2022 budgets. The Legislature and the governor were still working out final details.

Newsom has said his budget proposals give priority “to communities that face disproportionate harm from pollution and the climate crisis.” But environmentalists say the reductions will keep California from meeting its targets for cutting greenhouse gas emissions and other air pollutants.

“These climate budget rollbacks undercut our state’s ability to meet our climate goals — pure and simple,” Mary Creasman, chief executive of the advocacy group California Environmental Voters, said in a statement. “The climate crisis isn’t taking a break in 2023, that much is clear, and neither can our climate action.”

Click here to read the full article in CalMatters

June 2023 Budget Bills

There are still 3 trailer bills that are not yet in print, along with the Governor’s infrastructure package

The Legislature has put into print 2 Budget Bills Junior (amending the 2021, 2022, and 2023 Budget Acts), along with 17 Budget Trailer Bills. These bills became public just after 10am on June 24 and will be considered in the respective Assembly and Senate committees on Monday, followed by Floor action on Tuesday.

There are still 3 trailer bills that are not yet in print, along with the Governor’s infrastructure package.

The Assembly Budget Committee will meet Monday at 11am and the Senate Budget and Fiscal Review Committee will meet Monday at 3pm.

On Tuesday, Assembly and Senate Floor Sessions are expected to begin during the lunch hour or shortly thereafter.

The Budget Bill, SB 101 (Skinner), is already on the Governor’s Desk and must be acted upon by midnight on June 27, or it would become law without his signature.

Below is a chart listing all of the Budget Bills Junior and Budget Trailer Bills by bill number, topic, and status:

Click here to read the full article in California Globe

California’s Budget Whiplash: From a Record-Setting Surplus to a Massive Shortfall In One Year

This time last year, there was excitement and possibility over how to spend a record $97.5 billion budget surplus, a shocking figure coming at the end of a bruising COVID-19 pandemic. But this year, excitement has turned into a fight over what not to cut as the state stares down a $31.5 billion budget gap.

How did this budget whiplash happen? To understand how the state could, in one year, have a revenue swing of about $128.5 billion requires a look at how the state raises money for the general fund — the big pot of money that funds most state programs — and a few other complicated aspects of how California juggles competing budget requirements.

California collects taxes to fund state programs. The kinds of taxes the state relies on to fill its coffers has changed over time, and that has increased revenue volatility. The state’s major revenue sources have shifted from retail sales and use taxes making up the bulk of major revenue to personal income taxes.

Here is a breakdown of some of the major revenue sources:

Personal Income Tax

California has a progressive income tax, where the state’s top earners pay at a higher rate and provide a bulk of that tax revenue. Over the years, income taxes have become the largest major source of general fund money. Capital gains — money made from investments such as stocks  is also taxed, but that stream of revenue is highly volatile. We’ll talk more about that in a moment. 

Corporate Tax

There is a flat 8.84% tax on the gross taxable income of businesses and corporations doing business in California, excluding some types of business such as sole proprietors and partnerships. Other rates apply to certain types of businesses, such as financial institutions. 

Starting in the 2021 tax year, Californians who are shareholders of S Corps. or who have business partnerships could pay into a newly created tax, which effectively allows them to get income tax credits. This has shuffled what could have been income tax revenue into corporate tax revenue as far as the state is concerned, while allowing those individuals to get around federal deduction limits on state and local taxes passed in the Trump administration. 

Retail Sales and Use Tax

This tax covers the purchase of most physical merchandise  including vehicles  regardless of whether the merchandise was bought at a physical store in California or an out-of-state retailer. While the current statewide sales and use tax rate is 7.25%, that rate can be higher depending on additional taxes levied by cities and counties. Of all the major revenue sources, this one continues to shrink over time.

When Gov. Gavin Newsom was asked to explain how the state has a record surplus one year and has to make budget cuts the next, he answered “progressive taxation.” He was referring to the way California’s tax law is structured so that wealthy residents pay far more than anybody else. In fact, the top 1% of income earners paid nearly half of all personal income taxes in 2021, according to the governor’s recent budget proposal.

And the state relies heavily on capital gains — the profit a person gets when they sell stock for a higher price than they bought it for — of those wealthy folks more than ever. In 2021, a record-setting year for the stock market, capital gains accounted for 11.3% of personal income in the state. That’s good when the financial markets are doing well, but shocks to the income of this relatively small group of taxpayers can have a significant impact on the state’s revenue.

In putting together a budget, legislators pay attention to the end-of-the-year balance — the difference between expenses and available tax revenue and the previous year’s ending cash on hand. The state has a budget surplus when the difference is positive and a deficit when it’s negative. That number is usually a big number, but small relative to the overall budget. But that all changed with the COVID-19 pandemic, as emergency expenses soared along with tax revenue and federal assistance. The average ending balance from 2006 through the 2019-20 fiscal year was a surplus of about $2.8 billion; for 2020 through 2022-23 it was more than $37.5 billion.

In 1979, voters approved a limit on how much money the state can spend each year — beyond how much is in its bank account. Proposition 4 created the state’s spending limit, sometimes called the “Gann Limit,” which says that if the state’s tax revenues increase too quickly for two consecutive years, the government has to either change tax rates, reduce spending or give taxpayers a rebate. The check-cutting isn’t triggered often, but it was the reason thousands of California families making as much as $75,000 a year got Golden State Stimulus checks in 2022 so that the state wouldn’t exceed the Gann Limit in 2020-21 and 2021-22 fiscal years.

Since voters enacted Proposition 98 in 1988, the state is required to fund K-14 education at a minimum level based on which of two tests is higher — about 40% of general fund revenue for the year, or the previous year’s Prop. 98 funding, adjusted for student attendance and the per capita income of Californians. How much general fund revenue needs to be spent is based on how much money school districts receive from local property taxes: More property tax revenue means less general fund money is required to provide the minimum level of funding. 

What does this mean in the context of revenue volatility? 

It means each year, some portion of the general fund will have to go toward making up what local property taxes can’t provide for school funding. And that amount is tied to other complex factors that can make budget planning difficult and lock out a chunk of revenue from being spent on other priorities, including plugging budget holes. 

And the formula for determining the minimum level of K-14 education funding keeps changing as new requirements are added. For example, voters passed Proposition 28 last year, which guarantees an additional 1% of what Prop. 98 provides toward arts and music education. That’s estimated to be an additional $941 million in this year’s budget.

Click here to read the full article in CalMatters

Governor Newsom’s Budget Deficit Has Climbed To $31.5 Billion

California budget balloons to record $306 billion

Governor Gavin Newsom announced Friday that the state’s budget deficit has ballooned by $9 billion, going from the initial January estimate of $22.5 billon to $31.5 billion, leading to more major cuts being implemented next fiscal year.

In total, the state budget is now looking to be around $306 billion, up from an estimated $297 billion in January. While Gavin Newsom proposed many major cuts at the beginning of the year, multiple factors quickly made the situation worse and called for more. Initially, big cuts had been planned for state flood prevention programs, as the state was in a major drought and those funds would not be needed. However, record rain and snowfall throughout the state in the first three months of 2023 quickly quashed those plans, with more money actually being poured into those programs because of the resulting floods and poor winter conditions.

The storms also dealt the state a major funding delay, as the state allowed most residents to pay taxes later in the year from due to problems associated with the storms and subsequent flooding. While this will help the 2024-2025 fiscal year, it also means that  billions less would be going into the state this coming year, as the deadline is now in October rather than the usual April.

As around half of California’s income comes from the top 1% of earners as well as major businesses in the state. Higher federal inflation rates, a chaotic stock market, and many wealthier Californians leaving the state also came together and added to the increased deficit.

With an even larger deficit looming, Newsom announced plans for major cuts to the budget on Friday, in addition to moving around expenses, using emergency funds, and increasing the amount borrowed. While not specifically mentioned by Newsom on Friday, recent decisions, such as not supporting cash payments in possible reparations and rolling back on previous state commitments on environmental funding, are likely tied to Newsom’s increased frugality because of the increased deficit.

“We are walking into a budget where we need to maintain our prudence,” Newsom said on Friday. “We have a $31.5 billion challenge, which is well within the margin of expectation and well within our capacity to address.”

For the last few years, California coming back from the COVID-19 pandemic brought in tens of billions of “surplus cash,” including one year seeing a record $97.5 billion. However, much of this was spent on stimulus funding for residents and other one-time spending projects, including major homeless initiatives. Now stuck with an even larger deficit than originally planned, Newsom also showed where major cuts would likely be happening.

Most surprising was his reversal on climate and energy projects, with Newsom, saying that $6 billion will be cut in the coming year. If approved by the Legislature, it would amount to a 11% cut in climate-related programs. This would include a $1.1 billion cut to electric vehicle transitioning programs. Environmental groups quickly went after Newsom on Friday, seeing these cuts as something of a betrayal.

Major cuts, funding halts on the horizon

“While we’re grateful to Governor Newsom for avoiding further cuts to climate and clean energy investments, California has major challenges ahead,” said Nicole Rivera, Government Affairs Director for The Climate Center, in a statement. “Winter storms and flooding cost the state billions of dollars this year and an El Niño system is expected to bring record-breaking heat and deadly wildfires this summer and fall. We’re in a climate emergency and we need to do everything we can to prepare, not slash funding for programs designed to keep Californians safe from climate extremes.”

“We urge Governor Newsom and the legislature to find ways to close the deficit without cutting $6 billion in climate investments. It is encouraging that state leaders are exploring a climate bond to generate revenue. We hope they will also commit to eliminating the millions of dollars in subsidies and tax breaks for fossil fuel corporations. Governor Newsom and state lawmakers have a choice to make — hold fossil fuel corporations accountable for the mess they made or pay the price in lives in dollars for years to come.”

Other cuts include temporarily delaying subsidized child care program expansions, funds for small businesses to help with lingering debt, further cuts to education by reducing arts funding, and ending middle class tax refund and low-income utility assistance programs early. While other solutions have been proposed, such as increased taxes on corporations, Newsom has shut them down, favoring the cut and increased bond plan to keep the state afloat for a year.

“We had a $54 billion deficit in 2020, huge surpluses in 2021 and 2022, and now are back down to a big deficit,” explained accountant Lee Greenman, a California-based accountant who helps city and other regional entities fix budget problems, to the Globe on Friday. “It’s crazy. And the state doesn’t think long-term. For cities, mot have a rule of thumb to put surplus money away during good times to help out during the leaner years or to avoid having to go to residents to pass some emergency measures in November.”

“The state, wow, they just see a surplus and decide to just spend it rather than save it for times just like this. It’s not that sustainable. Yet they continue to do so. But they’ve chased out many wealthy people, raised taxes, put a squeeze on businesses, drastically increased spending, then thought it was a good idea to just give a stimulus. And that’s only some of the things. All of it added up to something bad happening, and, well, here we are.”

Click here to read the full article in the California Globe

Jon Coupal: By All Means, Let’s Talk About ‘Junk Fees’

In last month’s State of the Union address, President Joe Biden chose to spend an inordinate amount of time on matters that most Americans don’t care about. Not much was said about the important issues of border security, inflation, crime, or China’s surveillance balloon that traversed over the entire U.S. before – belatedly – our Commander in Chief decided that it should be shot down.

Among the more trivial topics that Biden focused on is so-called “junk fees.” He urged Congress to pass a new “Junk Fee Prevention Act” which would curtail extra fees on the sale of online entertainment tickets; certain airline fees; early termination fees for TV, phone, and internet service; and resort and destination fees.

To be sure, these add-on charges can be annoying, but there is a huge difference between whether such fees should be disclosed in advance (they should) or whether banning such fees is government overreach at its worst. As noted by the Wall Street Journal in a February 13, 2023, editorial (The Junk Economics of “Junk Fee” Politics), prohibitions of additional services at higher costs actually reduces consumer choice. Even worse, it “will result in higher prices or fewer services for lower income Americans.”

Not to be outdone, California’s progressive politicians quickly jumped on the Biden “junk fee” bandwagon, introducing several bills targeting what they claim are either deceptive or excessive charges imposed by private businesses. For example, SB 611 (Senator Caroline Menjivar, D – Panorama City/San Fernando Valley) would require landlords to clearly state to potential renters what their up-front and monthly payments will be, including all required fees, to rent the apartment. But, under current law, this information is already required to be disclosed by the landlord.

Another, AB 1222 (Tina McKinnor, D -Inglewood) purports to provide greater transparency by ensuring that rental car companies quote rental rates that contain the entire amount, including all applicable taxes and additional fees or charges, necessary to rent the vehicle. But, like SB 611, this bill is more posturing than substantive. As anyone who has booked a rental car knows, the amount of the charge is clearly disclosed prior to the rental.

More insidious is SB 680 (Senator Nancy Skinner, D – Berkeley) which would prohibit auto dealers from charging above the Manufacturer’s Suggested Retail Price for electric vehicles. All this bill would accomplish would be to ensure that highly popular vehicles that are in limited supply would be shipped to other states where a market-based sales price could be negotiated. If the goal was to put more EV’s on the road in California, this bill could easily have the opposite effect.

Even a cursory review of the half dozen or so bills targeting “junk fees” exposes that most are simply posing as solutions without any real impact or substance. Those that are substantive are more likely to produce unintended consequences at best or, at worse, outcomes that are the exact opposite of what they claim.

But, if the California legislature is serious about “junk fees,” we have an idea. Let’s go after all the extraneous fees, charges and assessments imposed by government that frequently do no good nor provide any benefit to taxpayers or ratepayers. The list is endless.

Fees imposed by the state include lumber “fees” imposed on all retail sales of most wood products, Electronic Waste Recycling Fee, Energy Resources Surcharges, California Tire Fee, Natural Gas Surcharges (because the price of natural gas apparently isn’t high enough), Marine Invasive Species Fee, Childhood Lead Poisoning Prevention Fee (imposed on businesses that don’t produce products containing lead), and literally hundreds of additional fees.

Local governments are notorious for imposing a myriad of miscellaneous fees usually disconnected from any benefits conferred on taxpayers. For example, some local governments are imposing “vacant lot” fees based on the theory that vacant properties need to be “inspected” periodically. These fees are imposed whether any inspections ever occur. The same is true of other “inspection fees” such as rental housing fees and fire inspection fees.

California homeowners are all too familiar with “junk fees” every year when they receive their property tax bills. On top of the regular property tax, limited to 1% thanks to Proposition 13, homeowners see a list of “below the line” items that include flood control assessments, lighting and landscaping assessments, Mello-Roos taxes (in many neighborhoods) and a litany of other miscellaneous fees, charges, taxes, and assessments.

Click here to read the full article in the OC Register

Gov. Gavin Newsom’s Phony Budget

If it’s January it must be budget time in California, or so it would seem. Gov. Gavin Newsom held a press briefing to unveil his proposed budget, and it certainly looked official.

Mainstream media have variously reported that the governor’s budget proposal is “austere,” “fiscally responsible,” and even “conservative” as the state tries to close a projected $22.5 billion deficit. But there are things taxpayers should know before breaking out the champagne to celebrate the governor’s handling of what he has called a “modest shortfall.”

A spending problem, not a revenue problem.

The governor’s proposed $297 billion budget is only about 3.6% smaller than last year’s record-setting budget of $308 billion. The state has long spent beyond its means, but it has kicked it into overdrive in recent years. In just the last three years alone, spending has increased by almost $100 billion dollars despite warnings from economists, the Legislative Analyst’s Office, HJTA and many others that the state was spending beyond sustainable revenue levels.

This is not the real budget.

They may call this a budget, but it is just a wish list. It is a way for the governor to signal his priorities to the Legislature as budget negotiations begin, and legislators from the governor’s own party have already been critical of the cuts he is proposing.

We also do not know what the actual dollar amount will be yet. In November, the budget shortfall was estimated to be around $24 billion. The governor now says it is $22.5 billion. We will have a better idea of where the state stands financially when the governor does his “May Revise” of the budget.

That is not the real budget either.

The May Revise is also not the budget, it is just another step in the negotiation process. It gives us a better idea of what the actual numbers are, and the governor will adjust his wish list accordingly, but it is the Legislature that passes the budget, and they have until June 15th to do it.

That is not really the budget either.

While the Legislature will pass a “budget” by June 15th, it also is not really the budget. That is because Proposition 25, entitled the “On-Time Budget Act of 2010,” says legislators forfeit their pay if they do not pass the budget “on time.” The problem with that is, the courts have ruled that it is the Legislature itself that defines what is and is not the budget.

What we will get then is not a true annual spending plan for the state but a 1,000-page sham, drafted largely in secret and full of blanks to be filled in later through hundreds of “budget trailer bills” after substantial provisions of the budget are negotiated behind closed doors among just three people: The two Democratic legislative leaders and Gov. Newsom.

On Wednesday, 121 of these budget-related bills were introduced in the state Legislature, completely blank except for a line of placeholder text expressing the “intent” to fill them in later. They are numbered SB 100 through SB 220. You can “read” them for yourself at leginfo.legislature.ca.gov.

Eventually, those budget-related bills will spring to life with new language replacing the placeholder text. Then they sail through the process without hearings, or amendments or debate.

A balanced budget in name only.

Click here to read the full article in the OC Register

Calif. Legislative Analyst ‘Calls Bull’ on Newsom Budget Projections

Gov. Newsom got a reality check from the Legislative Analyst on Friday

Last week, California Governor Gavin Newsom presented a $297 billion 2023-2024 budget plan on Tuesday, with a projected deficit of $22.5 billion. He shaved $3 billion off his last budget, in the face of a recession, and the $22.5 billion deficit.

In November, the Legislative Analyst’s Office reported California revenue is $41 billion below expectations, likely resulting in a massive $25 billion shortfall in the upcoming 2023-2024 state budget – on the heels of reveling in a $31 billion surplus? How?

“Gavin Newsom (D-Fantasyland) got a reality check from the Legislative Analyst on Friday, when the nonpartisan office called for greater spending cuts and disputed the Governor’s contention that the state won’t face a recession in the coming years,” reads a press statement from the California Assembly Republican Caucus. “Legislative Analyst Calls Bull on Newsom Budget Projections,” the title says.

This is Priceless.

But they are right. The Legislative Analyst’s Office did indeed present a report to the governor recommending other cuts, and offering their solutions to the Legislature if the governor won’t budge.

The LAO identifies these problematic areas with Gov. .Newsom’s budget projections:

  • $14 Billion in Higher Revenues
  • $3 Billion in Higher School and Community College Spending
  • A $4 Billion Set‑Aside in the SFEU. The Governor proposes the Legislature enact a year‑end balance in the Special Fund for Economic Uncertainties.
  • $2 Billion in Discretionary Spending
  • $800 Million in Other Differences

Specifically, the Legislative Analyst’s Office is concerned that Gov. Newsom is planning for spending more despite lower revenues. They say it a little differently: “Our estimates suggest that there is a good chance that revenues will be lower than the administration’s projections for the budget window, particularly 2022‑23 and 2023‑24. Nonetheless, the Governor’s budget trigger restoration proposals implicitly place more emphasis on revenue upside—suggesting the administration anticipates that revenues are more likely to be higher, not lower, than their current projections.”

Could Gov. Newsom have a serious case of recession budget denial?

The Legislative Analyst says:

“Recent budgets have allocated or planned tens of billions of dollars for one‑time and temporary spending purposes in 2021‑22, 2022‑23, and 2023‑24. The Governor’s budget identifies one set of recent augmentations to reduce or delay in order to address the budget problem. The Legislature can select entirely different spending solutions. To assist the Legislature in this effort, we have provided a list of large augmentations provided in recent budgets in Appendix 4 and a set of criteria for evaluating them for reduction or delay in “Chapter 2” of this report. The Legislature could apply these criteria through its budget oversight hearings throughout the next few months.”
The LAO’s report describes a “heightened risk of recession” and urges the Legislature to “plan for a larger budget problem by identifying more spending reductions,” the caucus said.

The LAO said:

“As the Legislature works to address the budget problem, we suggest policymakers consider the unique impacts of inflation on each of the state’s major spending programs in conjunction with possible budget solutions. (See our report, The 2023‑24 Budget: Considering Inflation’s Effect on State Programs, for more information.) 
“Meanwhile, economists surveyed by the Wall Street Journal say there’s a 61% chance of the economy tipping into recession within the next year,” the caucus said.  
“If the governor and legislative Democrats don’t accept the reality that the economy is in trouble, middle-class Californians will pay the price for their fiscal recklessness,” Assembly Republican Leader James Gallagher (Yuba City) said.

Here’s one area the LAO lays out as a problem – “new discretionary spending”: “The Governor’s budget also includes $2 billion in discretionary spending proposals that are not currently reflected under current law or policy,” the LAO reports.

“In addition to addressing a budget problem, the Governor’s budget proposes $2 billion in new discretionary spending mainly in capital outlay financing, resources and environment, and other miscellaneous program areas. Because of revenue shortfalls, these new spending amounts contribute to a larger budget problem and necessitate additional budget solutions. That is, for each dollar of new proposals, another dollar of solutions would be required. While the Legislature might share some of these priorities, it need not adopt all, or even any, of the associated proposals. Rejecting them would reduce the budget problem and the number of solutions necessary.”

Assembly Republican Leader James Gallagher is right, and it is likely to be worse based on the Wall Street Journal survey of economists:

  • Economists expect GDP to stagnate this year, posting growth of just 0.2% in the fourth quarter of 2023 compared with the fourth quarter of 2022.
  • Employers are expected to cut jobs starting in the second quarter through the end of the year.
  • Economists view high inflation, and the Fed’s efforts to tame it, as a top risk to the economy this year.
  • When asked which category of inflation will be the hardest to tame in 2023, a quarter of economists picked housing. A further 18% said healthcare and another 18% picked personal services.
  • Economists in the survey expect the Fed will need to raise the benchmark federal-funds rate target to 5% this year, in line with central-bank officials’ own projections.

The perfect storm for a recession may be upon us with high inflation, high taxes, high energy costs, high food costs, a sizable budget deficit, and now tens of thousands of big tech layoffs, which is the other issue California lawmakers and governor need to address. Meta, Twitter, Salesforce and now Amazon are all cutting thousands of staff. The potential for, or early economic ramifications to the cities and counties in which they reside, as well as the state, and the ripple effect these could have on startups and investment banks, looks to be immense.

Click here to read the full article in the California Globe

California’s Budget Black Hole: Where Did the $97.5 Billion Surplus Go?

A review of California Governor Gavin Newsom’s State Budgets 2019-2023

In June of 2022, the California legislature passed Gov. Gavin Newsom’s $300 billion budget – the largest in state history.

In June 2021, the California Legislature passed Gov. Newsom’s $262.6 billion 2021-2022 budget.

In June 2020, the California Legislature passed Gov. Newsom’s $202.1 billion state budget, confirming state spending for the 2020-2021 fiscal year.

In May 2019, Gov. Gavin Newsom released his revised budget, highlighting the largest tax revenue windfall in California history. Gov. Newsom’s first budget approved in June of 2019 contained a record number of local pork-barrel projects injected by individual legislators into California’s largest state budget ever (at the time) of $215 billion. California Globe covered in great detail this record making budget.

For context, when Gov. Jerry Brown returned to office eight years earlier in 2011, his first state budget was $98 billion, and increased to $200 billion by 2018 — a 110 percent increase in eight years, with a population increase of just three million.

In just his first five months in office, Gov. Newsom increased the state budget $5 billion – even with a tax revenue windfall.

One year ago in November 2021 the Globe reported, “California will have a $31 billion surplus next year,” according to the 2022-2023 California state budget Fiscal Outlook report compiled by the Legislative Analyst’s Office.

The tide completely turned in one year.

By November 2022, the Legislative Analyst’s Office reported California revenue is $41 billion below expectations, likely resulting in a massive $25 billion shortfall in the 2023-2024 state budget. The LAO recommended lawmakers start cutting the budget as they begin the January session.

The perfect storm for a recession may be upon us with high inflation, high taxes, high energy costs, high food costs, a sizable budget deficit, and now tens of thousands of big tech layoffs, which is the other issue California lawmakers and governor need to address, the Globe reported. Meta, Twitter, Salesforce and Amazon are all cutting thousands of staff. The potential for, or early economic ramifications to the cities and counties in which they reside, as well as the state, and the ripple effect these could have on startups and investment banks, looks to be immense.

Apropos, Gov. Gavin Newsom presented a $297 billion 2023-2024 budget plan on Tuesday, just $3 billion less than last year, but with a projected deficit of $22.5 billion. That’s down from a stunning $97 billion surplus last year. Where did the surplus go?

The 2023-2024 budget is $82 billion more than Newsom’s first budget in 2019, which was $215 billion. And California is is not growing – the state is bleeding businesses and losing hundreds of thousands of residents to other states.

In 2019, State Sen. Jim Nielsen noted that the state budget was flush $21 billion in surplus revenue. “But that’s not enough for some in the majority party,” Nielsen said. “They want more. They want to raise taxes on water, fertilizer, dairy, tires, guns and businesses.” Nielsen asked, “Why does the state need to raise taxes when there’s $21 billion in surplus? They are spending their way into another crushing deficit that will harm the poor, blind and disabled, and squeeze the middle class once again.”

Sen. Nielsen was right – that spending was the pork-barrel projects injected by individual legislators into California’s 2019-20 state budget.

Responses to Gov. Newsom’s 2023-2024 budget

Remember, last year California Democrats spent a historical budget surplus of $97 billion. “California Governor Gavin Newsom said Friday that his state has a record $97.5 billion operating surplus, as high tax rates on its wealthiest residents mean he has more cash to fund liberal priorities such as education and health care,” Bloomberg reported just last May. “That figure surpasses the staggering $38 billion that they had at their disposal during the previous budget season, then considered the biggest.”

How exactly did the governor and State Democrats make a $125 billion swing in revenue in one year from budget surplus to budget deficit?

“Where did that f-ing money go?” one local taxpayer asked me Tuesday as we discussed the budget.

According to Bloomberg, Newsom’s spending plans included:

  • $11.5 billion to every eligible registered vehicle owner, capped at two $400 checks per individual
  • $2.7 billion for emergency rental assistance
  • $2 billion for affordable housing production
  • $1.4 billion for overdue utility bills
  • $933 million for hospital and nursing home staff
  • $750 million for free public transit
  • $125 million to bolster access to reproductive health services

The Globe will research exactly how the surplus was spent.

Senator Shannon Grove (R-Bakersfield) responded to Gov. Newsom’s 2023-24 state budget proposal:

“Governor Newsom’s budget is a band aid on the damage that his over-taxing, over-regulating, and over-spending has done to California’s families and businesses. His budget continues to push the same policies that have resulted in the highest cost of living, the highest poverty, historically high crime rates and a worsening homeless crisis. Where is the accountability? He has spent $30 billion of our tax dollars on housing affordability proposals, but California still has the most unaffordable housing market in the country. Tens of billions have been spent on homelessness but California has the nation’s highest number of homeless.”

Gov. Newsom says he “prioritized the issues that matter most to Californians — despite declining revenues.” Oh, and he’s “transforming education.” Yikes.

One Twitter follower replied, “Transforming education by what, adding a daycare? Seriously? How about improving math and literacy scores?”

Assemblyman Vince Fong (R-Central Valley), Vice Chairman of the Assembly Budget Committee said:

“The Governor’s rhetoric does not match reality. Facing a $22 billion deficit, Governor Newsom’s budget continues his misguided habit to overspend with little accountability. Newsom’s budget again fails to adequately build water storage and conveyance infrastructure to store water and move it across the state. And this budget framework perpetuates ill-conceived energy policies that will stifle needed affordable and reliable energy supplies when Californians are demanding relief.”

Assembly Republican Leader James Gallagher (Yuba City) said:

“Democrat politicians have wasted a record surplus on new social programs and pork projects, while allowing our aging infrastructure to crumble. Now we are faced with a $22 billion deficit as a result of their fiscal recklessness. It’s high time we refocus our budget on the core functions of government.”

“As California bounces between flooding and drought, it is abundantly clear that we need new water storage, and yet there is still no dedicated funding this year or next to meet that need. Instead the Governor protects failed programs that haven’t made a dent our state’s highest-in-the-nation poverty rate.”

Senate Budget Vice Chair, Senator Roger Niello (R-Fair Oaks) said:

“California’s assumption of unending higher revenue, combined with overspending on misguided priorities, led the state down the path to the deficit we have today. And this is in contrast to other states that are considering tax rebates at this same time.”

“Republicans fought to fill the Rainy Day Fund, and we applaud today’s commitment to not tap into it. Recent on-going spending by the governor must be re-evaluated. The governor continues to celebrate how much he spends, but California has yet to see the results.

California Senate Minority Caucus Chair, Senator Janet Nguyen (R-Huntington Beach) released this statement prior to Governor Newsom’s budget proposal announcement:

“Drive down the street,” said Senator Nguyen. “Turn on the news. Go to the gas pump. There are harsh realities facing Californians up and down this state. Taxpayers cannot afford more empty promises and failures. We want results.”

Under Gov. Newsom’s watch, homelessness has increased exponentially, crime is historically high, freedoms have been restricted, taxes greatly increased, non citizens receive health care for free, public school kids’ math and literacy scores are in the toilet, the government-created water shortage has gotten worse…

Click here to read the full article at the California Globe