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IN THIS ISSUE – “Now comes the hard part.”

Political journalist after the convening of the new Legislature

Capital News & Notes (CN&N) harvests California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.

FOR THE WEEK ENDING DEC. 9, 2022

 

Assembly Dems Outline Austere Budget for FY23-24

CalMatters

A journey of a thousand miles begins with a single step — like the one Assembly Democrats took Wednesday, when they unveiled their budget priorities for the upcoming fiscal year.

The move marks a start to months-long negotiations between Gov. Gavin Newsom and state lawmakers over how money should be divided between key programs — an exercise that can prove contentious even in the best of times, and could pose especially tough political questions this go-around as the state stares down an estimated $25 billion budget deficit after enjoying years of unprecedented surpluses.

Although the Assembly Democrats’ blueprint emphasizes that California is better positioned to weather an economic downturn than it has been in the past — with $120 billion in available cash across all funds, including $37 billion budgeted in general fund and rainy day fund reserves — it also adopts some of the cautionary recommendations outlined last month by the Legislature’s nonpartisan fiscal advisor. They include:

  • Potentially shifting billions of dollars in expenditures to later years,and re-evaluating the timing of one-time spending.
  • Considering low-cost borrowing from special fundsif California keeps collecting lower-than-expected tax revenue.
  • Evaluating the impact of inflation on certain state expenditures.

Because the Legislative Analyst’s Office estimate of a $25 billion budget deficit didn’t account for soaring inflation rates, actual state costs are likely to be higher than estimated.

“We have spent a decade preparing for revenue shortfalls, and with the robust General Fund reserves and Rainy Day Fund, California is prepared to weather future economic downturns while still prioritizing the gains that we have made in K-12 and early childhood education, our higher education institutions, homelessness support and health care,” Democratic Assemblymember Phil Ting of San Francisco, who leads his chamber’s powerful Budget Committee, said.

The next major step in the budget marathon: Newsom releasing his blueprint for the fiscal year beginning July 1, which he’s slated to do on or before Jan. 10. He will then unveil a revised proposal in May after negotiations with lawmakers and updated revenue estimates.

They must reach a spending deal by June 15, though that deadline is squishier than it seems: During the last budget cycle, lawmakers passed what amounted to a placeholder budget to keep receiving their paychecks while they worked out final details with Newsom.

Another noteworthy budget priority highlighted by Assembly Democrats: Asking voters in 2024 to weigh in on a ballot measure to “craft a modernized Gann Limit … to encourage building reserves and reducing debts.”

The Gann Limit is an obscure provision in the California Constitution that prevents the state from spending more per person than it did in 1978, once adjusted for inflation, and requires it to send the excess money back to schools and taxpayers.

As the economy continues to grow, the Gann Limit will pose an increasingly large problem for state government, according to a March report from the Legislative Analyst’s Office — leaving the Legislature with just two choices: Reduce taxes to reduce revenue growth, or ask voters to change the limit.

Assembly Democrats’ FY23-24 Budget presentation:

https://abgt.assembly.ca.gov/sites/abgt.assembly.ca.gov/files/2023%20Budget%20Blueprint%20Final.pdf

 

State Economic Outlook “Uncertain,” New UCLA Forecast Finds

UCLA Anderson School of Business

UCLA’s Anderson Forecast latest economic outlook for California is uncertain and, as with the national economy, the source of that uncertainty is national economic policy. The December forecast for the state — like the December U.S. forecast — consists of two scenarios. The difference between the state and the nation in both scenarios is that economic forces from sectors including construction, non–information technology fields and defense will lead the state to a more moderate outcome.

The good news is that the actions taken by the Federal Reserve will have a milder impact on California’s economy.

The employment picture in California remains in flux. The state’s non-farm payroll jobs now exceed its February 2020 pre-pandemic level by 31,000 jobs, although many of the new jobs are in different sectors than those in which job loss was the most acute. Specifically, about 170,000 payroll jobs in leisure and hospitality and other services sectors have not returned.

In the logistics, technology and health care sectors, rapid job creation has more than made up for those losses. This explains, in part, why California’s GDP growth has been faster than that of the U.S. Rapidly growing sectors like tech and logistics are typically high-income sectors, while the slow-growth sectors are generally low-income.

Over the past three months, the picture has evolved slightly as the three sectors of health care and social services, leisure and hospitality, and education have shown the largest gains in jobs. And despite the statewide gains in leisure and hospitality employment, the landscape for that sector remains difficult in the major employment centers of San Francisco and Los Angeles. Ongoing flex work arrangements by California companies and the continued lack of Asian tourists arriving in the state have resulted in an incomplete recovery in both cities. With neither of those factors likely to change in the coming months, the recovery is expected to remain on a shallow trend.

The gain in education is partly a result of schools reopening after pandemic-era closures. The number of payroll employees in education has now returned to pre-pandemic levels, and significant additional gains are not expected.

Higher interest rates have led to a downturn in California’s housing markets. The median price of single-family homes in the state has declined on a seasonally adjusted basis. As of October 2022, the median price was 8.4% below its previous peak but had returned to early 2021 levels. Nevertheless, California housing is not overbuilt. The surge in construction of accessory dwelling units as well as new infrastructure and continued growth in construction of industrial space will shield the state from the more severe interest rate–induced contraction expected in the rest of the nation.

With employment growth in green tech, medical tech, aerospace and construction fueled by the infrastructure and defense budgets, and a healthy rainy-day fund in Sacramento, the 2023 forecast for California is for more a moderate slowing or, in the case of a recession, a milder downturn than for the U.S. overall.

https://www.prnewswire.com/news-releases/ucla-anderson-forecast-says-resilient-us-economy-is-approaching-crossroads-301696610.html

 

California Export Trade Drops by More Than 30%

Beacon Economics Report

California accounted for 8.7% of the nation’s merchandise export trade in the latest numbers (October), continuing a string of subpar months for the state’s exporters, according to Beacon Economics’ analysis of U.S. trade statistics released this morning by the U.S. Census Bureau.

California otherwise accounts for about 14.5% of the nation’s gross domestic product and around 12% of its population. Its shippers once accounted for more than 15% of the nation’s export trade.

The state’s share of the $180.41 billion in overall U.S. exports in October was down from an 8.8% share in September but up from an 8.6% share in August. However, one year ago, in October 2021, the state accounted for 9.7% of all U.S. merchandise exports, a percentage more consistent with the state’s immediate pre-pandemic export share.

Nominally, California exported goods valued at $15.671 billion in the year’s tenth month, a 1.5% decline from the $15.912 billion recorded in October 2021. Exports of manufactured goods this October nominally rose by 5.5% to $9.949 billion from $9.432 billion one year earlier.

The state’s exports of agricultural products and raw materials plunged by 27.2% to $1.905 billion from $2.615 billion. Re-exports, meanwhile, slipped by 1.3% to $3.817 billion from $3.866 billion. Year-to-date, the state’s exports have totaled $155.613 billion, 6.7% ahead of the $145.861 billion recorded at this point one year earlier.

https://beaconecon.com/publications/ca-trade-report/

 

New Legislature Convenes; First of Hundreds of Bills Introduced

CalMatters

Now comes the hard part.

That was the main takeaway from Monday’s largely ceremonial flurry of activity in the state Capitol.

Joined by their families, newly elected lawmakers were sworn into office after opening speeches that at times ventured into the metaphysical, with Assembly Speaker Anthony Rendon at one point comparing the challenge of political change to that of postmodern architecture: “Although you can tear down what came before you, you still need a structure in which to live.”

Lawmakers also convened Gov. Gavin Newsom’s special session on oil company profits, and then just as quickly adjourned it: In the Assembly, organization of the special session lasted three minutes.

Newsom, meanwhile, unveiled the text of his proposal to enact a price gouging penalty on oil companies about two months after first floating the idea — but many blanks still have to be filled in.

According to the Newsom administration, the bill would permit the state to fine oil refiners with “excessive profit margins” and funnel the penalty money back to Californians. But some of the bill’s most contentious aspects — including the size of the penalty and the definition of “excessive” margins — remain unclear and will have to be worked out in negotiations with the Legislature.

Some lawmakers were hesitant to embrace the half-formed proposal,  “It would certainly be problematic if in the short term it leads to higher prices for consumers,” said Democrat Assemblymember Jacqui Irwin of Thousand Oaks.

Other legislative news you should know: 

  • The speakership deal is official:The Assembly approved a resolution formalizing a leadership transition plan greenlighted by Democratic members last month: Rendon will remain speaker through June 30, 2023, at which point Assemblymember Robert Rivas of Hollister will take over.
  • The Senate gets a new minority leader:Republican Sen. Brian Jones of Santee will replace Scott Wilk of Santa Clarita as leader of the Senate Republican Caucus.
  • Lawmakers introduceda torrent of new bills — though, again, the hard part will come next year, when they’ll face votes and debates. Key proposals include:
  • The latest attempt to allow legislative workers to unionize.“We ask our staff to write legislation and staff bills that expand collective bargaining rights for other workers in California, yet we prohibit our own employees from that same right,” Democratic Assemblymember Tina McKinnor of Inglewood, the bill’s author, said in a statement.
  • The latest attempt to impose new excise taxes on guns and ammunition,authored by Democratic Assemblymember Jesse Gabriel of Woodland Hills.
  • A bill to specify a timeline for schools to implement LGBTQ+ cultural competency teacher trainingunder development by the state education department, authored by new Democrat Assemblymember Rick Chavez Zbur of West Hollywood.
  • A bill to push Californiacloser to its goal of offering debt-free college by allowing income-eligible UC and CSU students to receive expanded financial aid awards to help cover such non-tuition costs as housing, books, food and transportation — authored by Democrat Assemblymembers Kevin McCarty of Sacramento and Sabrina Cervantes of Riverside.
  • Assembly Republicansunveiled a package of bills called the “California Promise,” which call for suspending the state gas tax, offering property tax bonuses to local governments that approve more housing, banning homeless encampments near schools, increasing penalties for fentanyl dealers, giving working families a tax credit and expanding the renters’ tax credit, promoting transparency in school curriculum, and expediting environmental review for water storage projects, among other things.

 

 

 

Latino Delegation Reaches Nearly One-Third of Legislature

Sacramento Bee

The Legislature has its largest class of Latinos in history, increasing from 32 to 39 lawmakers. All but five of them are Democrats. Latinos will now make up 32.5% of the California Legislature, which consists of 80 Assembly seats and 40 Senate seats.

Across the nation, Hispanics lawmakers are expected to reach historic gains from the November election, with the largest Latino class in Congress and more than 500 Hispanic state legislators. The California Latino Legislative Caucus particularly benefited, reaching 34 Democratic members. That’s also a new record. The caucus now has 10 senators and 24 Assembly members.

The number of Latinos in the Legislature grew despite six incumbents likely not returning. While Sens. Ben Hueso, Assembly members Rudy Salas, Cristina Garcia and Jose Medina all termed out, Assemblywoman Suzette Valladares and Sen. Melissa Hurtado are behind in close races. David Shepard of Visalia, a Republican Latino, is leading Hurtado.

“We want to reach parity with the 40% of the population,” said Sen. Maria Elena Durazo, D-Los Angeles, chair of the caucus. “But we’re definitely getting closer there.” Nearly 40% of Californians identify as Latino or Hispanic, according to the latest census data.

Durazo said the increased representation makes a tangible difference, citing recent laws that expand Medi-Cal to all remaining undocumented adults, make it easier for United Farm Workers to hold elections and ease regulations for street vendors.

She said the caucus plans to prioritize policies that tackle extreme heat for farmworkers, unemployment insurance for the undocumented and homelessness. Incoming members to the Democratic caucus include Sens. Marie Alvarado-Gil of Amador, Steve Padilla of San Diego and Caroline Menjivar of San Fernando Valley, and Assembly members Liz Ortega of Alameda County, Esmeralda Soria of Fresno, Juan Carrillo of Antelope Valley, Blanca Pacheco of Downey, Avelino Valencia of Anaheim and Rick Chavez Zbur of Santa Monica.

Assembly members Juan Alanis of Modesto, Kate Sanchez of Orange County, Josh Hoover of Folsom will join Sen. Rosilicie Ochoa Bogh of Yucaipa as the only Latino Republicans in the Capitol.

Menjivar, 33, will be the youngest senator serving in the Legislature. Menjivar, who is an LGBTQ Marine Corps veteran, noted the growing diversity of the Latino caucus.

The record number of Hispanic members comes 60 years after Phil Soto and John Moreno became the first two Latinos elected to the Legislature in modern history. It would take another 11 years until the Latino caucus formed. The caucus will celebrate its 50th anniversary next year.

https://www.sacbee.com/news/politics-government/capitol-alert/article269226512.html#storylink=cpy

 

Newsom’s Labor Secretary Abruptly Exits; No Reason Announced

Sacramento Bee

Gov. Gavin Newsom’s top adviser on California labor issues abruptly left her post this week under uncertain circumstances. Natalie Palugyai, who Newsom appointed as secretary of the California Labor and Workforce Development Agency in July 2021, is no longer with the department, a spokesperson from the governor’s office confirmed Wednesday. In the interim, Undersecretary Stewart Knox is serving as Acting Labor Secretary.

The governor’s office and labor agency did not provide a reason for her departure or any other details. Palugyai could not immediately be reached for comment. “We thank Natalie Palugyai for her work in the administration and wish her well in her next chapter,” a spokesperson for the governor’s office wrote in an email.

The state’s labor secretary is a cabinet position in the governor’s administration. The secretary oversees state departments and boards that enforce labor laws, combat wage theft, provide state disability and unemployment insurance benefits and fund workforce training and apprenticeship programs.

The labor secretary provides insight and advise the governor on those issues. The governor’s next appointee to the position will be tasked with implementation of important new legislation It includes a law allowing farmworkers to vote by mail in union elections and another — if it is not placed in limbo by a referendum challenge — to create a government-backed council to set pay and workplace safety standards across California’s fast-food industry, known as the FAST Recovery Act.

Palugyai,was the first Latina to serve in the role. She was earning a salary of more than $227,000. Prior to joining the agency, she held positions at the U.S. Department of Labor, FEMA and Johns Hopkins University.

https://www.sacbee.com/news/politics-government/capitol-alert/article269734041.html#storylink=cpy

 

First Offshore Wind Power Auction Below Expectations; Uncertainties Abound

CalMatters

The first-ever auction for leases to build massive wind farms off California’s coast netted final bids of $757.1 million today, signaling the beginning of a competitive market for a new industry producing carbon-free electricity.

The auction — the first on the West Coast — included five sites about 20 miles off Morro Bay and Humboldt County, totaling 583 square miles of deep ocean waters. The leases from the federal government are the first step in a years-long regulatory process that could culminate in the nation’s first commercial-scale floating wind turbines off California’s coast.

The results of the auction offer the first key signs for gauging how strong the market is for producing offshore wind energy off California.

The total amount — to be paid by five energy companies — was considerably smaller than the record-breaking $4.37 billion that companies paid for six offshore wind leases off New York and New Jersey’s coasts in February. That was the largest amount ever paid for U.S. offshore energy leases — including for oil and gas. The funds are paid into the U.S. Treasury’s General Fund.

While calling the lease sale a “huge success,” Adam Stern, executive director of Offshore Wind California, a trade group for the industry, said the lower lease sales could be due to the uncertainty companies may feel about offshore wind development on the West Coast. The lease area off New York/New Jersey also was 30% larger and will generate about 50% more electricity.

Forty-three companies were eligible to bid on the leases offered by the U.S. Bureau of Ocean Energy Management, which oversees offshore energy and mineral projects. The winners were RWE Offshore Wind Holding, California North Floating, Equinor Wind US, Central California Offshore Wind and Invenergy California Offshore.

The offshore waters included in the auction have the potential to host several hundred turbines that produce more than 4.5 gigawatts to power about 1.5 million homes.

Offshore wind projects are considered critical to meeting California’s goals to provide a new source of electricity, end reliance on fossil fuels and battle climate change.

Experts say construction is at least five to six years away, and an array of unknowns must first be addressed by the companies: the high costs of construction, the logistics of producing the energy and bringing it to shore, and the environmental risks to marine life and commercial fisheries.

Wind power tends to be stronger in the ocean than on land, making offshore wind a particularly valuable renewable energy source that could help the grid during times when other renewables like traditional wind and solar can’t produce energy.

Winds off the coast are strongest in the late afternoon and evening, which is exactly when – particularly in the summer – electricity demand surges as people go home and turn on appliances like air conditioners.

But several challenges exist with deploying the technology in deep ocean waters, including risks to marine life and concerns over natural disasters, such as earthquakes, said Dagher of the University of Maine.

The turbines off Eureka would be in waters 2,490 feet deep and for Morro Bay, 3,320 feet, he said. No project in the world exists in waters this deep. The deepest project to date is in Norway, in waters 721 feet deep, Dagher said.

“That adds costs and risk because no one’s building anything this big or this deep yet,” he said.

“There’s a lot of opportunities, but there’s also some challenges,” said Habib Dagher, executive director of the University of Maine’s Advanced Structures and Composites Center, who is helping develop the first offshore floating wind turbines in the U.S.

“California has deeper waters than any other areas with these floating turbines so far in the world,” he said. “How do you protect the environment, protect local stakeholders, protect the fisheries, protect indigenous communities, while also speeding up permitting so we make a difference with global climate change?”

Unlike current offshore wind turbines fixed to the ocean floor off the East Coast, California’s turbines — the first of their kind in the nation — would float on platforms anchored by cables in waters reaching about half a mile deep.

The turbines are hundreds of feet tall with blades that are bigger than a football field, but they would largely be out of sight from the shore, about 20 miles away. The Morro Bay lease area covers 376 square miles, while Humboldt’s is 207 square miles.

Assemblymember Dawn Addis, a Morro Bay Democrat, said in a statement: “While the sale of these leases is a critical and transformative step to providing clean energy to California, the development of offshore wind off the central coast will impact our communities in ways we can’t fully appreciate today. In the coming years, state and regional policymakers must seriously examine how offshore wind farms affect what makes the coast great — our fisheries, public beaches, native lands and our economy, including tourism.”

Much more:

https://calmatters.org/environment/2022/12/california-offshore-wind/?utm_source=CalMatters%20Newsletters&utm_campaign=6a22aaac34-WHATMATTERS&utm_medium=email&utm_term=0_faa7be558d-6a22aaac34-150181777&mc_cid=6a22aaac34&mc_eid=2833f18cca

 

By The Numbers:

Legislative Member Stats

Politico

Tracking legislative turnover was overwhelming this year as incumbents retired, resigned, or ran for something else, often prodded by redistricting. Here’s where we stand:

35: The number of new legislators, including Assembly members moving to the Senate, meaning nearly a third of seats feature fresh faces.

62 and 32 : The number of Democrats in the Assembly and the Senate, respectively. That puts Assembly Democrats 8 votes above the two-thirds threshold and Senate Dems 5 over.

51: The number of women legislators — an all-time high but still short of the 60 seats needed for gender parity.

Speaking of diversity: We count at least 12 LGBTQ legislators; 12 African-American lawmakers; 39 Latino lawmakers; 13 API lawmakers.

 

Dry Water Wells Hit Record

Dept. of Water Resources

This year, nearly 1,400 household wells have been reported dry — an increase of almost 40% over the same period in 2021, and the highest annual number reported since 2013, when the California Department of Water Resources launched the Dry Well Reporting System. The actual number of dry wells may be higher because reporting is voluntary.