How Will Newsom, Legislators Deal With Growing Revenue Shortfalls?

When Gov. Gavin Newsom proposed a 2023-24 budget in January, he acknowledged that the revenue estimates made six months earlier were way too optimistic and that the state had evolved from a nearly $100 billion surplus to a $22.5 billion deficit.

Never mind. Nine months into the current fiscal year, it’s evident that revenue, principally from personal income taxes, will fall well short of that downward revision. The deficit could hit $30 billion as he and legislative leaders begin to focus on a final version for adoption in June.

Through February, the administration reported, revenues were running nearly $5 billion below expectations and they fell short by nearly $1 billion more in March.

The numbers bolster contentions by the Legislature’s budget analyst, Gabe Petek, that the state’s fiscal situation was unhealthier than Newsom was admitting. In his initial response to the January budget, Petek said, “Our estimates suggest that there is a good chance that revenues will be lower than the administration’s projections for the budget window, particularly in 2022-23 and 2023-24.”

The next stop for the annual budget process will come in May, when Newsom must unveil revised revenue estimates and appropriations. The worsening revenue data set the stage for what could be contentious negotiations with a June 15 constitutional deadline for passing a budget.

The essential problem is that when Newsom was forecasting an immense surplus and bragging that “no other state in American history has ever experienced a surplus as large as this,” he and the Legislature spent much of it on rebates to taxpayers and expansions of programs, especially those benefiting the poor.

Although Newsom insisted at the time that much of that spending was one-time in nature and therefore wouldn’t make unsustainable long-term commitments, it nevertheless raised expectations of permanency. Thus, when Newsom offered a new budget in January, he clawed back many of those allocations, particularly those that hadn’t yet been spent, sparking complaints from would-be recipients.

As revenues continue to fall short, expectations will have to shrink further, the competition for money among budget stakeholders will become more intense and the pressure on Newsom and legislators will increase.

They may be tempted to do something that Newsom says he doesn’t want to do and that Petek says would be foolhardy: tap into the state’s “rainy day” reserves to relieve stakeholder pressure.

The reserves are meant to be used during a severe economic downturn, but California’s fiscal problem is occurring during a relatively prosperous post-pandemic recovery. The shortfall in revenues is occurring because of the state’s narrowly based revenue system, one that is largely dependent on earnings of high-income taxpayers, particular in the shaky technology sector.

The stock market has reacted negatively to the Federal Reserve System’s interest rate increases, which are meant to combat inflation. Declines in the market manifest themselves in lower taxable earnings by investors who are such a large factor in the revenue stream. The system is so narrowly based that lower incomes for just a handful of wealthy Californians can have a big effect on revenues.

Dipping into reserves to cover the revenue shortfall would weaken their ability to cushion a recession if and when that occurs, which is why Petek strongly discourages New

Click here to read the full article in CalMatters

California Faces a Housing/Wildfire Conundrum

California must ramp up housing construction to reduce the ever-widening gap between supply and demand and ease the high shelter costs that drive families into poverty and contribute to the state’s homelessness crisis.

However, given the seemingly nonstop series of uber-destructive wildfires California is experiencing, prudence dictates that we should also avoid housing construction in what’s called the “wildland urban interface” where fires are most likely to have cataclysmic impacts.

The friction between those two imperatives is played out in the political arena, where officialdom makes land use policy.

A case in point: Two years ago, by overwhelming bipartisan majorities, the Legislature passed a bill that would have required local governments to make fire safety a major factor in approving housing developments in fire-prone areas by compelling developers to include protective features.

The measure was passed in response to a wave of killer fires, including the Camp Fire that destroyed the rural community of Paradise in 2018, killing 86 people.

Gov. Gavin Newsom vetoed the bill, saying that while he supported its aims it “creates a loophole for regions to not comply with their housing requirements.”

“Wildfire resilience must become a more consistent part of land use and development decisions. However, it must be done while meeting our housing needs,” Newsom wrote.

In the absence of clear policy from the Legislature and the governor on limiting construction in fire-prone areas of the state, Attorney General Rob Bonta has intervened.

This year he joined forces with environmental groups to stall a huge housing and golf resort project in Lake County, where wildfires are a constant threat. A Lake County judge declared that local authorities and the developer had not paid sufficient attention to the Guenoc Valley project’s vulnerability to fires.

The ruling “affirms a basic fact: Local governments and developers have a responsibility to take a hard look at projects that exacerbate wildfire risk and endanger our communities,” Bonta said. “We can’t keep making shortsighted land use decisions that will have impacts decades down the line. We must build responsibly.”

This week, Bonta took another step, issuing a set of guidelines that local authorities should follow in assessing the potential wildfire dangers of proposed developments.

It declares that it’s “imperative that local jurisdictions making decisions to approve new developments carefully consider wildfire impacts as part of the environmental review process, plan where best to place new development, and mitigate wildfire impacts to the extent feasible.”

Unveiling the policy in San Diego County, whose fast-growing inland communities are in constant peril from wildfire, Bonta said, “This is the new normal. When it comes to development, we can’t continue business as usual. We must adjust. We must change.”

Bonta’s guidelines don’t have the force of law, but they contain the implicit threat that his office will intervene if they are ignored, as it did with Guenoc Valley.

Avoiding housing in areas of extreme fire danger would seem to be common sense, but except for a narrow strip of land fronting the Pacific Ocean, the flatlands of the Central Valley and the deserts of Southern California, the state is mostly a tinderbox.

Moreover, Californians prefer, if they can, to live in single-family homes in scenic locales and therefore developers want to comply with those preferences, which is why they propose projects such as Guenoc Valley.

Click here to read the full article in CalMatters

COVID-19 School Closures Undermined Learning

Whether California’s schools should remain open or be closed was a hot issue when the COVID-19 pandemic was raging in 2020 and 2021.

Although medical authorities quickly concluded that children had a much smaller risk of being infected or experiencing severe effects if infected, California schools were mostly closed, in large measure because teachers and their powerful unions insisted on it.

With schools closed, local administrators scrambled to provide on-line classes, what became known as “zoom school,” but they were poor substitutes for the real thing — especially for English-learner students and those from poor families.

Those children — roughly 60% of the state’s nearly 6 million public school students — were already trailing their more privileged contemporaries academically when the pandemic hit. The closures made it worse, for obvious reasons.

They tended to lack internet access and proper equipment for on-line classes. Their parents were often compelled to work outside the home to make ends meet, so kids were often left to fend for themselves. Absenteeism from on-line classes was widespread.

Affluent parents, particularly those who could easily work from home during the pandemic, made certain that their kids attended on-line classes, helped them with their school work, formed informal collaboration groups and/or hired tutors. Thus, the ill effects of closures were mitigated. And, of course, private schools, such as the one Gov. Gavin Newsom’s kids attend, either remained open or minimized closures.

For months, politicians from Newsom downward quarreled over how the schools should function and angry parents formed the core of a movement to recall him from office. Newsom survived the recall, but the educations of millions of kids did not, as new data confirm.

While the state Department of Education has not released 2022 academic test data that would allow comparisons with pre-pandemic results, individual school districts are doing so and the numbers from the state’s largest school district, Los Angeles Unified, are stunning.

About 72% of the district’s students are not meeting state standards in math and 58% are behind in English, essentially wiping out five years of progress that it had recorded prior to the pandemic.

“The pandemic deeply impacted the performance of our students,” LAUSD Supt. Alberto Carvalho said. “Particularly kids who were at risk, in a fragile condition, prior to the pandemic, as we expected, were the ones who have lost the most ground.”

While the district released gross data, it did not break down the test results by ethnic or economic subgroups. The Los Angeles Times, however, gleaned the detail from a school board document marked “not for public release.”

Why the secrecy? Apparently it was to mask the particularly disturbing data about Black and Latino kids.

“About 81% of 11th-graders did not meet grade-level standards in math. About 83% of Black students, 78% of Latino students and 77% of economically disadvantaged students did not meet the math standards,” the Times reported.

We won’t know how the state as a whole fared until — and unless — the Department of Education finally releases 2022 complete “Smarter Balance” test results. But there’s no reason to believe that what happened — or, more accurately, what didn’t happen — in Los Angeles isn’t also true of other systems, particularly those with large numbers of at-risk students.

Click here to read the full article at CalMatters

Can Superagencies crack California’s housing logjam?

An acute shortage of housing, particularly for low-income families that must devote much of their paltry incomes to rent, is clearly one of California’s most pressing and vexing issues.

The Legislature passes laws and appropriates billions of dollars and state officials rag on local governments to become more accommodating to development, but very little, if any, progress is made on closing the gap between supply and demand.

Everyone involved seems to be looking for the silver bullet solution, but no one has come up with it yet.

Several years ago, the San Francisco Bay Area’s civic and political leadership devised a new approach – a regional agency empowered to raise revenues that would jump-start much needed construction while protecting existing housing stocks and helping poor tenants remain in their homes as rents increased.

The Bay Area Housing Finance Authority, created by legislation, came into being just before the COVID-19 pandemic struck and it impeded the agency’s startup plans. A $10 billion regional bond issue for housing was being planned, but due to the economic turmoil of the pandemic, including widespread unemployment, its sponsors delayed action indefinitely.

The agency is just getting going again, using some seed money advanced by the state, and is resurrecting the $10 billion bond proposal in the nine Bay Area counties, possibly for the 2024 ballot. That would be enough, officials say, to produce and/or preserve 45,000 affordable housing units, assuming that it would leverage another $15 billion from other sources. But such a bond would require a two-thirds region-wide vote, which is by no means certain.

Simply put, the Bay Area Housing Finance Authority is still a work in progress. No one knows whether it will, or even could, make a significant dent in the region’s housing shortage.

Nevertheless, Los Angeles County leaders want to emulate the Bay Area experiment. They persuaded the Legislature, in the final hours of its session last month, to create the awkwardly named Los Angeles County Affordable Housing Solutions Agency with very similar powers, and also some limitations that could hamstring its effectiveness.

The agency will have a 21-member board composed of local officials, including all five county supervisors, and their appointees.

Essentially, the new agency could raise money with voter-approved parcel taxes on property, a tax on business gross receipts or a tax on property transfer documents and could also issue bonds. The revenues would mostly be given to the county’s cities to be spent on housing, although the agency could undertake some projects of its own.

However, it could play no role in zoning issues, could not acquire property by eminent domain (seizure) and is forbidden to build housing for the homeless. To gain legislative approval, Senate Bill 679 also was drafted with a requirement that any housing built or financed by the agency be considered public works subject to the state’s prevailing wage law, with larger projects required, in essence, to use only unionized labor.

While the Bay Area’s housing agency covers nine counties, the new one in Los Angeles is limited to just that county, which raises a question: Why is it needed, since the county government already has authority to do what the new entity would do?

Click here to read the full article at CalMatters

Newsom Calls GOP Governors “Bullies,” But What About Him?

Politicians who claim to have an elevated moral purpose risk being branded as hypocrites if they fail to live up to the standards they set for others.

California Gov. Gavin Newsom runs that risk as he denounces the Republican governors of other states, particularly Ron DeSantis of Florida and Greg Abbott of Texas, as “bullies” for their states’ policies on abortion, gay rights and other issues.

Newsom has run ads critical of the two governors and donated $100,000 to DeSantis’ challenger, Charlie Crist. At the very least, Newsom is raising his national political profile. But it could be the beginning of a presidential campaign, which he denies.

“People keep asking why I’m calling out DeSantis and these Republican governors,” Newsom tweeted late last month. “The answer is simple: I don’t like bullies.”

Newsom’s tweet contained his interview with ABC news, including a lengthy rant beginning with “I can’t take what’s going on in this country.”

“I can’t take what these governors are doing state after state affecting minorities, affecting vulnerable communities, threatening the Special Olympics with fines, going after the LGBTQ community, saying if you’ve been raped by your father you don’t have the right to express yourself and rights over your own body,” Newsom told ABC’s Matt Gutman.

“My entire life I don’t like bullies,” Newsom added. “I don’t like people who other other people. I don’t like people who demean other people and that’s being celebrated in American politics today and you got to call it out. DeSantis is the worst of it but Abbott and these other guys, they’re right there and forgive me, I’m naming them because we have to and I think people need to understand what’s going on in this country and there’s too much at stake.”

On the issues that Newsom cites, particularly abortion and LGBTQ rights, his criticism is more than warranted. But calling rival governors “bullies” is over the top. After all, they were duly elected to their positions, as was Newsom, and like him, probably will be re-elected this year. Their positions on these hot button issues would not fly in California, but they apparently do in their states.

That’s not bullying; it’s governing, which often means compelling people to do things they’d rather not do. Newsom has done a lot of it since becoming governor nearly four years ago, especially during the COVID-19 pandemic, when he was governing by decree.

Was Newsom being a bully or governing when he ordered thousands of small businesses to shut down to stop the spread of the deadly coronavirus? Those affected, including more than 2 million workers who lost their jobs, might say he was being a bully, since larger businesses were often exempted.

Likewise, parents complained that Newsom arbitrarily closed schools and forced their children into “Zoom school” even though COVID-19’s threat to children was scant.

Many of California’s city officials have complained that Newsom is bullying them into building high-density housing that their constituents don’t want, threatening legal action or financial sanctions if they don’t comply. Newsom says the state must act aggressively to solve its housing shortage.

California gun owners complain constantly that Newsom and the Legislature impose nonsensical, harassing regulations on their constitutional right to bear arms.

Click here to read the full article at CalMatters

California Taxpayers Will Subsidize New A’s Ballpark

As the 2021-22 state budget was being finalized in June of last year, a $279.5 million appropriation was quietly inserted into the massive spending plan before it was sent to Gov. Gavin Newsom.

“Funds appropriated in this item shall be for the Port of Oakland for improvements that facilitate enhanced freight and passenger access and to promote the efficient and safe movement of goods and people,” the budget declared.

Seemingly, the Legislature was responding to numerous pleas from the shipping industry for upgrades to maintain the port’s viability in the face of intense competition for international trade.

However, when the port commission recently approved a list of specific projects the money would finance, its long-suspected true purpose became clear. The money would not be spent to improve cargo-handling, but rather to subsidize development of a new stadium for the Oakland A’s baseball team on a disused container site known as Howard Terminal near Jack London Square.

The money would pay for facilities to make it easier for baseball fans to access the new stadium. They apparently would be the “passengers” the appropriation cited.

The commission acted shortly after the San Francisco Bay Conservation and Development Commission officially removed Howard Terminal’s designation as a cargo site.

For years, A’s owners, citing inadequacies of the Oakland Coliseum, have yearned for a new stadium while threatening to move the team if its demands were not met. At one point, the team tried to move to San Jose, but that city was part of the San Francisco Giants’ designated territory and the Giants refused to relinquish it.

Oakland officialdom, having lost the Raiders football team to Las Vegas and the Warriors basketball team to San Francisco, is desperate to keep the A’s in Oakland and a number of potential stadium sites have been explored.

Finally, the city and A’s owner John Fisher, a scion of the family that owns clothier Gap, settled on the 55-acre Howard Terminal site, not only for a new baseball stadium but a $12 billion residential and commercial complex.

The decision didn’t sit well with the shipping industry, which saw it as an intrusion on cargo-handling operations.

As Fisher was negotiating with city officials over the project last year, state Sen. Nancy Skinner, a Democrat who represents Oakland and chairs the Senate Budget Committee, slipped the $279.5 million appropriation into the budget bill and it eventually was approved by the full Legislature and Newsom.

It’s just a tiny fraction of a 2021-22 state budget that approached $300 billion but would have been enough to build affordable housing for more than 500 low- and moderate-income families.

Moreover, it represents two common but unseemly practices in the state Capitol.

The first is using the state budget, which is largely drafted in secret with little opportunity for the media and the public to peruse its details, as a vehicle to deliver goodies to those with political pull.

After the budget and its attendant “trailer bills” are enacted each year, we learn — too late — exactly who has received special attention, either in the form of money or some beneficial change of law.

The second is the slavish attention that California politicians devote to the welfare of professional sports teams and their wealthy owners. Every major sports arena project in recent years has received some sort of help from the Capitol, mostly exemptions from the environmental red tape that other big projects must navigate.

Click here to read the full article in CalMatters

Newsom Mental Health Plan Needs Full Airing

Beginning in the 19th century and continuing well into the 20th, California maintained an extensive network of state mental hospitals to which people deemed to be dangers to themselves or others were committed, often for decades.

In the mid-20th century, however, the concept of involuntary commitments came under fire with critics saying that the hospitals were more like prisons than treatment centers, with their patients denied basic civil rights.

The upshot was legislation, signed by Ronald Reagan shortly after he became governor in 1967, with a declared goal to “end the inappropriate, indefinite, and involuntary commitment of persons with mental health disorders.”

The Lanterman-Petris-Short Act, named for Republican Assemblyman Frank Lanterman and Democratic Senators Nick Petris and Alan Short, set forth an elaborate process that would have to be followed for involuntary commitments, limiting them to the profoundly disabled.

Companion legislation was aimed at replacing the hospitals with community-based mental health programs. The package drew support from those who wanted to reduce the hefty costs of the hospitals, such as Reagan, and advocates for the rights of the mentally ill.

It never worked out as planned because successor governors and legislators didn’t provide enough financial support for local mental health services and the process for commitment essentially allowed the mentally ill to refuse treatment.

One by one, the state hospitals were closed, some converted to other uses, such as California State University Channel Islands in Camarillo, and others razed.

In some measure — we’ll never know how much — what followed the Lanterman-Petris-Short Act contributed to California’s explosion of homelessness, because many of those living on the streets of the state’s cities are severely mentally ill.

The debate over the situation has raged for years, pitting those who believe that forcing the mentally ill into treatment is a regrettable necessity against those who contend that involuntary commitments violate civil rights.

Click here to read the full article at CalMatters

California Needs Details on Hydrocarbon-Free Future

Well, that was awkward.

Gov. Gavin Newsom stalled for weeks on attending last week’s global conference on climate change in Glasgow, then announced at the last moment that he would, only to just as suddenly announce that he wouldn’t “due to family circumstances” which were never explained.

Instead, Lt. Gov. Eleni Kounalakis led a couple of dozen administration officials and legislators to the conference, and they were largely confined to the sidelines.

Newsom’s last-minute decisions stymied California reporters who had planned to cover his performance on the international stage, because they came too late to apply for press credentials.

Journalists could only monitor from afar, which rendered California’s tertiary participation to almost a non-event, from a news standpoint.

Kounalakis told CalMatters reporter Emily Hoeven, who had planned to accompany Newsom to Glasgow: “The overall message is the strength of California’s subnational leadership and the power of our innovation economy to help the world scale up on climate solutions.”

Kounalakis took that message to one of the panel discussions in which she participated, saying that “California has been the tail that has wagged the dog on environmental protection.” She cited Newsom’s order to ban the sale of gasoline-powered cars by 2035, contending that “We are the largest consumer market in the United States, and this standard is most certainly already shaping the future.”

Having the lieutenant governor travel all that way, by hydrocarbon-powered transport at no small expense, to merely echo what Newsom has been saying for the past three years was pretty lame.

That said, it’s high time that Newsom put some meat on the bones of his sweeping promises that California will lead humankind into a brave new hydrocarbon-free future.

If California is to ban sales of gasoline-powered cars in the next 14 years, how will it be done? While California leads the nation in the sale of battery-powered vehicles, they still are only a tiny percentage of overall auto purchases.

Will California have an adequate infrastructure of charging stations? Will it even have enough electrical power available for charging, given that it sometimes cannot meet current demand during hot summer days?

Simultaneously, Newsom wants to eliminate all power generation from natural gas and other hydrocarbon sources, so what’s the plan for that conversion? Can we develop enough solar and wind power to meet all demands for juice?

What will we do when the sun doesn’t shine and the wind doesn’t blow? We would need immense banks of batteries or other storage facilities to take up the slack. Will there be enough lithium to construct those batteries without depending on other nations?

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Newsom also wants to stop oil and gas production in the state by 2045? Where are the details and how will the impacts on the petroleum industry’s thousands of workers — in the fields, in the refineries and in the gas stations — be mitigated?

If California is to be hydrocarbon-free in just a few decades, will that mean banning diesel-powered ships from California’s ports and jet planes from the state’s airports? Will we even have airports anymore?

If we can no longer buy gasoline-powered lawnmowers and other tools, how will we do the work they now perform? Will homes, hospitals, schools and other vital buildings be left without backup power from standby generators when the grid goes down? Will firefighters no longer have chain saws and bulldozers to battle wildfires?

These are serious questions and issuing sweeping decrees without telling us how hydrocarbons will be eliminated and what the effects will be on our lives is political malpractice.

This article originally appeared on CalMatters.org

Are Big Tax Increases Coming to California?

TaxesGavin Newsom’s election as governor and the expanded Democratic Party majorities in the Legislature have raised hopes in some quarters and fears in others that big tax increases may be on the horizon.

During his campaign for governor last year, Newsom pledged support for a variety of expensive public services, including universal health insurance coverage and universal pre-kindergarten care and education.

His initial budget offered only token appropriations for those and other items on his wish list, but were he to seriously pursue them, they would require tens of billions of dollars in new taxes each year.

Newsom has proposed a new tax on water to pay for cleaning up municipal water supplies in impoverished communities. Several other targeted taxes have also been introduced in the Legislature.

Meanwhile, an initiative has qualified for the 2020 ballot to undo some of Proposition 13’s property tax limits. The measure would create a “split roll,” removing the 2 percent annual cap on increases in assessed valuation for non-residential, non-agricultural commercial property, such as office building and shopping centers.

If passed, it would raise property taxes by perhaps $10 billion a year – a lot of money, certainly, but far short of what the most ambitious service expansions would need. However, the initial polling on the split-roll measure doesn’t bode well for its passage, and the commercial real estate industry has pledged to spend $100 million to defeat it.

The more likely avenue for big tax increases would be some version of tax reform, which Newsom has endorsed in principle.

However, it must contend with the simple fact that we Californians are, in the aggregate, already carrying one of the nation’s highest tax burdens and quite possibly the highest.

The Tax Foundation, a Washington-based organization that charts taxation trends, has California at No. 6 in state and local tax burden as a percentage of personal income, the most accepted method of comparison. It pegs Californians’ burden at 11 percent of personal income.

However, that’s based on 2012 data, so it is seven years out of date, and it does not include all forms of taxation.

A more up-to-date estimate is that California’s state and local governments collect about $325 billion a year in taxes, and that works out to 12.5 percent of personal income, estimated by the state as $2.6 trillion this year, thus putting us very near the top of the states.

So, assuming that Newsom and his fellow Democrats in the Legislature want a bigger tax bite to finance their expansionist ambitions, what form would it take?

Income taxes? They already supply 71 percent of the state’s general fund revenues, half of them are paid by the top 1 percent of taxpayers and California already has the nation’s highest marginal tax rate, 13.3 percent on incomes over $1 million.

Sales taxes? We’re at or near the top in those rates as well, 10 percent in many communities.

Property taxes? That would require not just a split roll for commercial property, but voter permission to virtually repeal Proposition 13’s protections for homes, which polling indicates would be close to impossible.

The real world effect of a big tax increase, moreover, would be magnified by new federal tax laws that sharply limit deductions for state and local taxes, raising the likelihood of a political backlash.

So are we going to see a big tax increase? However much Newsom, et al, might want it, the political lift would be daunting.

This article was originally published by CalMatters.org

How Democrats Plan to Take Over Local Elected Offices Through Redistricting

Democrat DonkeyA new law setting up a redistricting commission in Los Angeles County is the first move by Democrats hoping to take as tight a grip on local elected offices as they have under the capitol dome.

Dan Walters’ Monday column in the Sacramento Bee did an excellent job of dissecting the flaws in Senate Bill 958 authored by Sen. Ricardo Lara and signed into law by Gov. Brown. The statute sets up a 14-member redistricting commission for Los Angeles County with the commission membership reflecting partisan makeup of county voters. As Walters rightly notes, “It’s a recipe for officially bringing party politics into what officially has been, for many decades, nonpartisan local government.” 

Why the move? Because Republicans who have a terrible track record of electing statewide officers, have fewer and fewer representatives in the Legislature and whose percentage of total voters has dropped to an all time low, do pretty well on the local level. Just under half of locally elected officials in county and city government and other local agencies are Republicans.

Local races don’t designate which party a candidate represents. The Republican brand has taken a hit in California. However, when local officials deal with issues, local voters often embrace solutions offered by Republicans and they are elected to office.

How to undercut this trend of Republicans showing strength at the local level? Change the rules of the game and create a system that favors Democrats. That’s what SB958 does. Expect more of the same as Democratic political strategists attempt to choke off the building of a Republican bench, the goal of Republican party state chairman Jim Brulte, who is attempting to rebuild the party from the bottom up.

This piece was originally published by Fox and Hounds Daily