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IN THIS ISSUE – Newsom Recall: “Dark Path” v. “Dome Zone”
RECALL
- Election Set, Both Camps Fire Opening Salvos
- Recall Updates: Voter Turnout is Key; New Candidate; GOP Squabble
WATER & POWER & WILDFIRE
- Governor Expands Drought Emergency; Calls for 15% Voluntary Water Use Reduction
- California Grid Manager Invokes Emergency Steps for Extra Juice
- “Old Clunker” Power Plants – Blackout Preventers or Polluters?
- Rural Counties Seek Influence in Wildfire Rebuilding
DISASTER WEARY?
CAN TOO MUCH MONEY BE A PROBLEM?
- States Share California’s Budget Dilemma: “Cash is Raining Down”
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 service.
READ ALL ABOUT IT!!
FOR THE WEEK ENDING JULY 9, 2021
Election Set, Both Camps Fire Opening Salvos
Capitol Public Radio
Now that a date has been set for a highly anticipated recall election against Gov. Gavin Newsom, his often starkly divided supporters and critics appear to agree on one thing: California’s very future is at stake in the election.
Pro- and anti-recall teams paint very different pictures of the state’s direction if Newsom is ousted in the September 14 election.
If the governor loses, Democrats warn that California will forfeit progress made on housing access, protections for immigrants and securing broad voting rights.
“This Republican recall effort is powered by the same Republican forces who still refuse to accept results of the presidential election in 2020, and are pushing voter suppression efforts in statehouse after statehouse across the country,” U.S. Sen. Alex Padilla said at a press conference held by Democratic officials. “It threatens our values and seeks to undo important progress made in California under Gov. Newsom,” he added.
The day after the recall was set for mid-September, the message of urgency from Democrats was clear as they sought to tie the recall to right-wing extremists and Donald Trump’s supporters.
“Do we want to go on the dark path put forward by supporters of former President Trump? Or with Gov. Gavin Newsom, toward a brighter future?” asked Assemblymember David Chiu, a San Francisco Democrat.
On the flip side, Newsom’s critics are pitching the recall as a chance to start fresh with new leadership at the top.
Anne Dunsmore, campaign manager for the pro-recall group Rescue California, says Newsom hasn’t delivered on solutions for homelessness, crime and the state’s high cost of living.
“Those three things are just going to really, really come home to roost and he can’t fix those between now and September,” she said in an interview.
Dunsmore said Newsom is also out of touch with Californians outside the state’s political elite. It’s a symptom she called “the dome zone.”
“When people are in the Capitol dome, they tend to hear themselves and pretty much nothing else. And I think that’s what we’re looking at here with Gavin Newsom,” she said.
Polls have shown Republicans are much more energized by the recall than Democrats and independent voters. A May survey by the UC Berkeley Institute for Governmental Studies found 75% of Republicans reported a high level of interest in the recall, compared to just 36% of Democrats and 35% of No Party Preference voters.
“They’re not going to come out in the numbers Republicans will,” Dunsmore said. “I think [Newsom] knows that. I think that’s why he scheduled the election sooner rather than later.”
Democratic leaders brushed off the numbers.
“Every day there are more and more Californians who are fired up about the fact that this is an incredible waste of time and effort,” Chiu said. “But we can’t take anything for granted. We have to get the word out.”
If Newsom is recalled and replaced by a Republican, that new governor would likely face stiff resistance for new proposals from the Legislature, which is held by a Democratic supermajority. They would also have to begin campaigning almost immediately, as the office is up for election again in 2022.
The high-stakes, everything-is-on-the-line message could be seen as a way to energize voters to turn out for a special election in an off year. But Mark Baldassare, president of the Public Policy Institute of California, said he agrees the consequences are significant.
“You’re gonna hear it from me too, that our future is at stake,” he said, adding that he’s more concerned about voter engagement than candidate results.
Baldassare said turnout in the 2003 recall of former Gov. Gray Davis, also a Democrat, boasted higher turnout than the previous election the year prior.
“Whether [voters] participate in this process is going to be very important to the future of our democracy and California,” he said. “I’m going to be looking at it from the standpoint of, ‘Do we have a participation level? Is it representative of the state’s electorate? And will all sides view this as legitimate, particularly in this time in which we are recognizing just how fragile democracy is?’”
https://www.capradio.org/167484
Recall Updates: Voter Turnout is Key; New Candidate; GOP Squabble
CalMatters & Politico
When Newsom signed a bill to move up the date of his own recall election, it was an indication both he and the Democrat-dominated Legislature are banking on the idea that an earlier election could help him stay in office. But there’s also a chance the Sept. 14 date could backfire: Newsom now has less time to rally Democratic voters, who appear significantly less enthused about the election than Republicans. A recent poll from UC Berkeley’s Institute of Governmental Studies found a whopping 75% of Republicans are highly interested in the recall, compared to just 36% of Democrats, a discrepancy reinforced by a recent Public Policy Institute of California poll.
Mark Baldassare, CEO of the Public Policy Institute of California: “If the governor’s supporters remain less engaged in the upcoming election, then the recall could end up being closer than the polls to date have indicated.”
Steve Smith, a leader of the California Labor Federation, which is planning to send thousands of members to canvas for Newsom: “In every group (of undecided union members), people said, ‘I don’t know if (voting in the recall) is that important. He’s probably going to win anyways.’ People are completely tuned out.”
Assemblymember Kevin Kiley became the latest challenger to officially throw his hat into the ring — about a month after the Rocklin Republican first announced he was exploring a run for governor. Kiley — who emerged as one of Newsom’s chief antagonists amid the pandemic — will likely join former San Diego Mayor Kevin Faulconer as one of the more serious candidates in a race that currently includes at least 55 potential contenders, many of whom are random citizens.
Kiley, who’s endorsed by lead recall organizer Orrin Heatlie, has long been involved in the effort to oust Newsom from office. In addition to contributing nearly $11,000 to the recall campaign, he embarked on a statewide tour earlier this year to promote his book, “Recall Newsom: The Case Against America’s Most Corrupt Governor.” With GOP Assemblymember James Gallagher of Yuba City, Kiley sued Newsom in an attempt to limit his pandemic emergency powers. Though a superior court initially ruled in favor of Kiley and Gallagher, an appeals court overturned the ruling — prompting the two legislators to recently ask the California Supreme Court to reconsider the case.
Kiley’s entry comes precisely as the California Republican Party now faces a potentially divisive dilemma as it prepares to decide whether to bestow the party’s blessing on a single candidate.
Conservative activists charge that party leaders, including House Minority Leader Kevin McCarthy and state GOP chair Jessica Millan Patterson, are maneuvering to direct party support toward former San Diego Mayor Kevin Faulconer, who leads in polls and outside fundraising.
Never mind that Democrats love to circulate an Oval Office photo of Faulconer and former President Donald Trump. Conservatives say Faulconer is too moderate — and that party insiders are trying to co-opt the recall energy stemming from the base. Putting the party’s weight behind Faulconer, they argue, would dampen Republican turnout and help Newsom survive the recall.
Faulconer, speaking to POLITICO, says: “I believe that it’s important to get behind a candidate to have a process to do so.” And others, like former party chair Ron Nehring, who’s advising the Faulconer campaign, argue that an endorsement is hardly unusual: the CAGOP endorsed Arnold Schwarzenegger in the 2003 recall, and “that’s what party’s do.”
The tussle comes as members of the state party’s executive committee will meet in person on July 24 to vote on the bylaws and process that would pave the way for such an endorsement, which would be voted upon by all California Republican delegates sometime in August.
DATES TO WATCH: Recall contenders have until July 16 to file paperwork and five years of tax returns to qualify for the Sept. 14 recall ballot.
While prospective candidates face a time crunch, Newsom is staring down a deadline of his own: today marks the first hearing in his lawsuit against Secretary of State Shirley Weber over putting his Democratic Party affiliation on the Sept. 14 recall ballot.
Governor Expands Drought Emergency; Calls for 15% Voluntary Water Use Reduction
Sacramento Bee
Gov. Gavin Newsom expanded his drought emergency declaration Thursday and called on Californians to reduce water consumption by 15%.
In a pair of emergency orders issued during an appearance at parched Lopez Lake near San Luis Obispo, the governor added nine more counties to the list of those covered by his emergency declaration from two months ago. That makes the drought official in 50 of the state’s 58 counties — essentially, everywhere except San Francisco and urban Southern California.
The counties added to the list: San Luis Obispo, Inyo, Marin, Mono, Monterey, San Mateo, Santa Barbara, Santa Clara and Santa Cruz. Extending the emergency to a broader area makes it easier for the State Water Resources Control Board to cut off water rights to farmers who pull water from rivers and streams.
Newsom, who is facing a recall election in September, again refused to impose mandatory cutbacks, instead urging Californians to reduce their outdoor watering by one day a week, running dishwashers and laundry machines less frequently and taking other steps to save.
“Keeping showers under five minutes can save 12.5 gallons per shower when using a water-efficient showerhead,” his order read in part.READ MORE
Speaking to reporters at Lopez Lake, which is about one third full, the governor said Californians are getting the message about the need to conserve.
“We are encouraging people to do common-sense things,” he said, adding that his plea isn’t reflective of a “nanny state.”
“We’re not trying to be oppressive,” he said.
Heather Cooley, research director at the Pacific Institute, an Oakland water-policy think tank, said voluntary pleas can be effective at getting people to conserve, up to a point.
“Voluntary calls are a way to communicate with the public about how serious this is,” Cooley said. If conditions worsen, “it is a first step towards mandatory.”
Newsom’s predecessor Jerry Brown instituted 25% mandatory cutbacks on urban Californians in 2015, during the last drought — after his call for voluntary reductions fell well short of the goal he’d set a year earlier. Newsom and his top water advisors have said they could impose mandatory restrictions if California suffers through another dry winter.
The governor’s call for 15% conservation exceeds the pleas issued by some urban areas. This week the city of Sacramento asked residents to scale back consumption 10% this week, as did the Contra Costa Water District.
Many cities already have some restrictions on outdoor watering, rules left over from the last drought. The city of Sacramento limits watering to two days a week; much of Sacramento County is limited to three days a week.
In his new executive orders, Newsom directed state agencies to “identify unspent funds that can be repurposed to enable projects to address drought impacts to people, ecosystems and economic activities.”
The Legislature has already approved about $2.4 billion in new funding for water and drought-related projects, and lawmakers are talking with the governor’s office about proposals to add $2 billion more to the budget.
After signing the new emergency orders, Newsom blasted “science deniers” and said climate change is exacerbating water shortages and heat waves.
“This is jaw dropping, what’s happening across the Western United States,” he said. Temperatures are expected to reach 115 degrees this weekend in parts of the Central Valley.
https://www.sacbee.com/news/california/water-and-drought/article252651718.html?#storylink=cpy
California Grid Manager Invokes Emergency Steps for Extra Juice
Wall Street Journal excerpt
California’s power-grid manager is taking emergency steps to secure extra electricity as a hot, dry summer increases the risk of blackouts.
The California Independent System Operator is soliciting power producers across the West to sell more megawatts to the state in July and August in anticipation of regionwide heat waves that will substantially boost electricity demand.
Caiso, as it is known, said power supplies are lower than it expected, due to a reduction in hydroelectric generation caused by continuing drought conditions, power-plant outages and delays in bringing new generation sources online.
“The combination of these changes, and expected conditions, affect both supply and demand for the balance of the summer,” Mark Rothleder, Caiso’s chief operating officer, said on a call with market participants last week.
Mr. Rothleder said Caiso’s emergency effort is critical to reducing the risk of rolling blackouts this summer, which could occur if demand exceeds available supply. The grid operator resorted to such measures last summer during a regional heat wave that caused a surge in air-conditioning usage and constrained California’s ability to import power from other states.
The supply crunch was most acute in the evening, after solar production declined. In soliciting bids, Caiso has asked for supplies available between 4 p.m. and 9 p.m., if not for longer, to offset the decline in solar generation.
The grid operator hasn’t said exactly how much capacity it plans to procure, but noted that it is about 2,000 megawatts short of what it considers a comfortable margin between available supplies and demand at 8 p.m. local time, when solar production drops off. One megawatt can power roughly 750 homes, according to Caiso. The number fluctuates by season and time of day and varies by region.
The unusual call for extra power comes as other states across the country grapple with the prospect of electricity supply shortages this summer, especially if hot temperatures persist. A record-breaking heat wave in the Pacific Northwest last week strained the grid, forcing a small utility serving part of Western Washington to selectively cut power as demand surged.
Consolidated Edison Inc., a utility serving New York City and other parts of the state, asked city residents to conserve power during a heat wave there late last month. The Texas grid operator issued a similar plea in mid-June, citing rising temperatures and unexpected power-plant outages.
In California, a severe drought has reduced hydroelectric generation by about 1,000 megawatts. On top of that, about 300 megawatts of gas-fired generation is expected to be offline this summer. Other efforts to bring new resources online and expand state programs to reduce peak electricity demand have advanced more slowly than anticipated.
Jan Smutny-Jones, chief executive of the Independent Energy Producers Association, a California trade group, said many of the group’s members have already contracted to sell their output to utilities and other power providers, potentially limiting the amount of extra capacity available within the state.
“I’m not sure how much extra there is out there,” he said, adding that a regionwide heat wave similar to the one last August could again strain supplies.
The California Public Utilities Commission and the California Energy Commission last month urged the grid operator to take emergency measures to find more supplies, citing “significant changes in circumstances” within the past month.
“As these early heat events telegraph, the grid will be more strained than anticipated this summer due to record-breaking climate-change impacts across the West and elsewhere,” the agencies said in a joint statement.
The cost of procuring emergency power, likely needed only for the remainder of the summer, is expected to be relatively small and will be collected from customers of utilities within the Caiso footprint, which covers about 80% of California.
“Old Clunker” Power Plants – Blackout Preventers or Polluters?
Wall Street Journal excerpt
Three decades-old power plants whose lives were extended to get California through another sweltering summer broke down during June’s western heat wave, raising new questions about the state’s reliance on the facilities to avoid rolling blackouts.
California made it through the broiling week without the power cuts it experienced last August. But the plants’ failures underscore a problem for the state amid a hot, dry summer that is also expected to compromise its hydropower production. Natural gas plants — particularly the oldest ones — are prone to falter in the heat.
“We have a lot of old clunkers that are supposed to be around when the situation gets critical, and they are breaking left and right,” said Gary Ackerman, former executive director of the Western Power Trading Forum.
That they are breaking down in June “is not a good sign,” he said, as hotter months loom ahead.
State officials are under tremendous pressure to avoid a repeat of last summer’s blackouts. If they strike again, the crisis could prove politically costly to Gov. Gavin Newsom ahead of a recall election this fall.
During the peak of the June heat wave, almost 11,000 megawatts of capacity — enough to power 8 million homes if running at full steam — was offline due to outages, according to data from California’s grid operator. Many of those outages affected natural gas power plants.
The state has to make up for such shortfalls by reducing large-scale energy usage and importing power from other states, among other measures. But with intensifying heat waves scorching all parts of the west, California can’t rely as much on its neighbors for extra power.
As the state geared up for the worst stretch of a heat wave on June 17 and 18, plants statewide were asked to defer maintenance-related downtime so that they could generate as much power as possible. But units at three of the four plants whose lives were extended last year were out throughout that week, an analysis of plant outage data from the California Independent System Operator shows.
Those failures come as the state prepares to consider a second such extension for a facility in Redondo Beach over the objections of environmentalists, state lawmakers and the city’s mayor. The “once-through” cooling technology used by the four plants fouls ocean water, harms marine life and violates California’s own environmental regulations. But state water officials agreed to delay enforcement of the water-use rules last fall after the Public Utilities Commission said it needed the plants to meet demand during peak hours.
Keep the facilities online for up to three more years, the PUC said, until 3,300 MW of clean electricity comes online to replace them — enough to power nearly 2.5 million homes.
Assemblymember Al Muratsuchi (D-Torrance), who represents Redondo Beach, said the state can’t wait that long. “The energy demand for extreme heat caused by climate change should not be met by continuing to contribute to climate change with these unneeded natural gas power plants,” he said.
Muratsuchi tried to pass legislation last year to shut down all four of the old facilities. Now, he says, “all options are on the table.”
Two of the four plants also experienced outages last August, CAISO data shows — on the same days that power supply fell short of energy demand, triggering rolling blackouts for two nights, the first of their kind since the Enron-caused electricity crisis in the early 2000s.
“The state has put itself between a rock and a hard place by relying so much on these plants,” said Bill Powers, a mechanical engineer who works with the Clean Coalition, a group promoting renewable energy and grid modernization. “You don’t want that plant taking a final shot in the big ballgame.”
AES Corporation, a Virginia-based company that owns plants in Redondo Beach and Long Beach, confirmed its facilities’ mid-June outages — saying they were “adversely impacted” by high temperatures, boiler tube leaks and restricted cooling water inlet flows due to debris.
“AES has invested, and continues to invest, in preventative maintenance activities so that these plants are available when called upon by the CAISO to support system reliability needs,” Mark Miller, AES market business leader for California, said in a statement, adding that the plants still produced some power in June. The company’s Huntington Beach plant, which also uses once-through cooling, did not go down during the June heat wave.
The Houston-headquartered GenOn, which owns the Ormond Beach Generating Station in Oxnard, didn’t respond to requests for comment. Both of Ormond Beach’s units experienced unplanned outages on June 17. A day later, one Ormond Beach unit was still offline.
Preliminary federal data for 2020 show that the three plants generated 855,000 megawatt-hours of electricity from June through September, which their owners say shows they are still needed.
Until mid-June, CAISO made little information available about such outages, disclosing only self-reported company data from a point-in-time snapshot around 8:30 a.m., hours from evening peak demand. The daily reports didn’t list the cause of each outage, when it started or how long it lasted. Now the grid operator discloses more details, including the cause and duration of each outage and what time it occurred.
On June 17, the hottest day of the heat wave, more than half of the outages recorded at the three once-through cooling plants were caused by equipment failures or equipment in danger of imminent failure, the new data show. Some outages were reportedly for “plant maintenance,” despite the request from CAISO asking facilities to defer scheduled maintenance until after the heat wave.
State Sen. Ben Allen (D-Santa Monica) said the outages undermine the justification for keeping the four plants alive. His district includes the Redondo Beach Generating Station, which had units down throughout the week of the June heat wave.
“This is becoming a pattern,” Allen said. “And from my perspective, it proves the city’s point that it’s not a necessary part of the region’s grid resiliency.”
The State Water Resources Control Board voted last September to extend the lives of the four aging plants by delaying enforcement of the state’s water-use rules. The facilities’ owners have said they would likely shut them down rather than undergo the costly process of converting them to comply with the regulations.
Now the Water Board is considering a proposal to extend, for the second time, the life of the Redondo Beach plant, which is slated for closure at the end of the year. Last fall, the Huntington Beach, Long Beach and Ormond Beach plants were allowed to operate through 2023, while the Redondo Beach facility got a one-year extension.
Water Board spokesperson Ailene Voisin said in a statement that its decision to take up the Redondo Beach proposal in October was recommended by the multi-agency Statewide Advisory Committee on Cooling Water Intake Structures. That committee said the plant is needed to help address uncertainty with 2023 power supply.
The Water Board deferred questions on the plants’ reliability to CAISO, which said those questions should be answered by the facilities’ owners.
Energy officials are working toward the goal of zero-emission electricity by 2045, but some of that technology can be costly and lacks the scale necessary to replace fossil fuel power in the near-term. The PUC took a step in that direction in late June, with the eventual closures of the once-through cooling plants in mind. It ordered utilities to buy 11,500 MW of clean energy from 2023 through 2026.
Allen — who has pushed for microgrids, energy storage and other decentralized solutions to replace fossil fuels — said it’s frustrating that the old plants are still around. “This is old-school technology that’s really damaging to local flora and fauna,” he said. “Shining a light on this data is really good, and showing that [outages] aren’t just a one-off.”
Rural Counties Seek Influence in Wildfire Rebuilding
Capitol Weekly
Representatives of California’s counties are urging improved measures to cut wildfire risks in the state’s less populated areas, but questioned plans to impose widespread building restrictions.
This action, led by the rural counties, comes within days of Gov. Gavin Newsom retreating on $1 billion of wildfire prevention efforts, cutting the figure by more than half.
The Rural County Representatives of California, the California State Association of Counties, and the Urban Counties of California urged the Board of Forestry and Forest Protection to include rural representatives in significant decisions and update current rules set forth for wildfire rebuilds in fire-prone areas.
Tracy Rhine, senior legislative advocate for Rural County Representatives of California, says some regulations established by the Board of Forestry and Fire Protection negatively affect rural communities wishing to rebuild after fire damages and create extra expenses.
“The ostensible exemptions of wildfire rebuilds and accessory dwelling units from these requirements are fatally unclear. Rebuilding an existing home or business creates no new impact, no heightened fire risk, and no increased fire serve a need. There is no nexus to require upgrades to existing public roads as a condition of rebuilding these structures,” the letter stated.
When a private citizen wants to rebuild on their property after fire damage, they must take extra steps to ensure all roads meet requirements, like width and grading or steepness, Rhine said. If any bridges are deemed flammable that connect to a main road, they need to be removed.
“All of these things are upgraded at the landowner’s or homeowner’s expense,” Rhine added.
Echoing Rhine’s fears of added stress to fire-prone areas of California, Staci Heaton, senior regulatory affairs advocate for the rural counties, said funding for rebuilds and pre-fire property management is a big issue. This includes funds to clear and dispose of fire fuel, like timber.
“Our counties preparing for fire seasons expect the worst and prepare for evacuations. In the interim, they try to do as much fire preparation as they can. How do they fund all of this? Most fire-prone counties are also our most rural and remote; those that have the fewest resources and the most challenges competing for grant money,” Heaton said.
Heaton says rural areas are concerned about Newsom backing down from the $1 billion fire budget, ultimately securing just $458 million over the next year, Capital Public Radio reported.
She said that while state and local governments are in communication, she is worried about the progress.
“It’s the same thing every year. We have been talking about the need for forest resilience and fire prevention. With us coming off the worst fire season in the state’s history, what is it really going to take? This is a public safety issue, a climate change issue, a public health issue, and a water supply issue,” Heaton added.
But with many residents moving out of cities and building new homes in rural areas, particularly in the foothill areas, more areas are now prone to wildfire damage, Cal Firesays.
New housing developments in high-prone fire areas are popping up around the state, the L.A. Times editorial board noted. Efforts to eradicate this include previous California Attorney General Xavier Becerra.
More recently, Senate Bill 12, authored by Senator Mike McGuire, D- Healdsburg, would prohibit cities and counties from approving new housing developments unless they are protected from wildfires.
Rhine said Senate Bill 12 sets forth rules for building in high fire areas and aims to look at how to mitigate wildfire risk and alleviate some pressures private citizens face.
“Local governments need to come to the table with the state to have these conversations. We need more affordable housing, and we need to mitigate the wildfire risk to individuals and communities that develop in that area,” she added, saying the bill looks at wildfire-prone areas from a macro level.
“What should these communities in high fire areas look like? Should we build in these areas? What would happen to those communities when modest expansions of business or home building will trigger these regulations?” she added.
And amid the risks of building in these areas, insurance companies may soon be dropping insurance coverage for those in these fire-prone areas, beginning November, according to Cal Matters.
“California faces a massive backlog of forest management work. Millions of acres are in need of treatment, and this work — once completed — must be repeated over the years,” Cal Fire stated in a 2019 report.
Cal Fire also reports this 2021 fire season will be longer than last year. More than 4.2 million acres of California were scorched in 2020. As Capitol Weekly previously reported, California already is experiencing a 26% increase in wildfire activity over last year and a 58% increase in acres burned compared to 2020, state officials reported.
As of July 5, the Lava Fire in rural Siskiyou County burned more than 25,000 acres and is being fought by over 1,600 personnel, according to the U.S. Forest Service.
To date, Cal Fire reported seeing higher than average activity this fire season, resulting in increased staffing earlier than usual.
“As of June 20, California has experienced over 3,700 wildfires that have burned nearly 30,000 acres,” Cal Fire said in an email to Capitol Weekly. This time last year, Cal Fire reported just over 3,000 wildfires that burned just over 20,000 acres.
“This will result in a longer fire season generally and, historically, the months of September and October are when we experience the largest and most destructive fires. We still have a long way to go,” Cal Fire added, stating the return of drought conditions and 100 plus degree days.
The Governor’s office was not available for comment.
Legislative Analyst Confirms CA Exodus
Legislative Analyst’s Office
New IRS data show that California experienced more net outmigration of tax filers to other states from 2017-2019 than from 2012-2016, and this outmigration is increasingly concentrated among older, more affluent people.
Our office previously commented on how IRS data show a persistent, long-term net outmigration of tax filers from California to other states. The IRS recently released data for tax year 2019 showing interstate migration among filers at different age groups and income levels. This post summarizes the new IRS data.
The figure below shows total net migration of filers (defined as the number of exemptions claimed on returns, including the filer plus spouse and/or dependents) between California and the rest of the nation since 2000, aggregated among all age groups and income levels. A return is counted as a 2012 (for example) California inflow if the filer’s mailing address was in another state in 2011 and in California in 2012, and as a California outflow if their address was in California in 2011 but in another state in 2012.
Net outmigration surged in the mid-00s as housing became increasingly unaffordable, then plummeted after the housing bubble burst. It increased somewhat in 2016 and more sharply in 2017, and has since stayed elevated. For context, the state’s net outflow of 165,355 between 2018 and 2019 represented 0.52 percent of the state’s 2018 filer population of 31.7 million.
The increased net outflow from the state has been most pronounced among older and more affluent residents. In fact, the five groups with the biggest relative net outflow in 2019 were all over the age of 55 and had income of over $75,000. Outmigration among filers between ages 26 and 54 has also increased, with the 35-44 group generally having the biggest absolute net outflows as this group tends to have the most kids at home.
In contrast, the state has seen a consistent net inflow among higher-income filers younger than 26, although the high relative net inflows among this group do not translate into a large absolute net inflow: as the left hand column suggests, these groupings are very small and in fact fewer than 1 percent of statewide exemptions in 2019 were claimed on returns of filers who were under age 26 and over $50,000 of income.
Compared to other datasets used to measure migration (such as the American Community Survey), the IRS data offer a more consistent and reliable measure of income, as well as lower statistical error. That said, a limitation of the IRS data is that they do not cover people who do not file federal income tax returns. Nonfilers—who typically have lower incomes—likely account for roughly 20 percent of the population, as the state population in 2018 was around 39.5 million and 31.7 million personal and dependent exemptions were claimed on income tax returns.
More:
https://lao.ca.gov/LAOEconTax/Article/Detail/675?mc_cid=963c1cec5e&mc_eid=2833f18cca
States Share California’s Budget Dilemma: “Cash is Raining Down”
Politico
As the coronavirus tore across America last spring, elected leaders and economists feared the worst: the pandemic and resulting financial turmoil would devastate the budgets of states across the nation. Governors pleaded with Washington for a massive bailout. States borrowed billions to close the gap. And Mitch McConnell told them all to go bankrupt.
Now, cash is raining down on state capitals as the economy rebounds faster than virtually anyone expected.
The rich got richer as the stock market boomed. Businesses are begging workers to come back, juicing pay and raising prices to cover the costs. And Congress, in the end, did come through with a mountain of aid meant to plug deficits from Honolulu to Augusta.
Governors and lawmakers, who months ago thought they would be making deep cuts to their budgets, are instead facing the very unusual problem of how to spend bundles of money. These state leaders, emboldened by the brighter tax revenues and the hundreds of billions of dollars provided by the federal government, are launching transportation projects, cutting stimulus checks and even paying down debt.
“No one would have ever dreamed that we would have this kind of funding,” said New Jersey Senate President Steve Sweeney, a Democrat whose state just enacted a budget with a multibillion-dollar surplus.
That’s not to say the needs weren’t significant, or that every state has since seen the same surge in revenue. All incurred massive costs from the pandemic, and the need for social programs only increased as the poorest Americans were hit the hardest.
But from coast to coast, governors and lawmakers who were preparing to make difficult, politically-challenging moves are now faced with a surprise windfall. This is leading to partisan and intraparty feuds in statehouses over what to spend the cash on, and when, and setting up kitchen-table debates over what’s more important: Spending money now to boost the economy or saving for future problems.
New Jersey had so much extra money that it not only made its first full payment into the state’s pension system in 25 years, but exceeded it by $505 million. That’s on top of earmarking $3.7 billion for debt relief and funding half a billion dollars in one-off spending initiatives.
California Gov. Gavin Newsom, a Democrat facing a recall election in September, is using a surge of extra cash — more than $100 billion in surplus revenue and federal aid — to give stimulus checks to two-thirds of residents, build housing for people experiencing homelessness and provide Medicaid coverage for undocumented residents over age 50.
And in Florida, the additional funding helped pay for much of a $200 million program to deliver books to kids’ homes and likely provide $1,000 bonuses for teachers and principals, a priority for Republican Gov. Ron DeSantis.
There were good reasons for the sky-is-falling economic predictions of the past year: the shutdown of businesses led to staggering unemployment rates, and the fate of the economy was uncertain.
States sharply reduced their revenue forecasts when the pandemic hit, some by as much as 20 percent, according to Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers. Since that time, cash collections have come in above forecasts in nearly all instances, he said.
Then multiple rounds of federal stimulus funding were successful in lifting up the nation’s economy, and in turn, helping states stabilize and even increase tax collections. Direct and indirect aid to states came on top of that. In all, states and localities saw some $350 billion in direct aid from the American Rescue Plan that must be spent by the end of 2024, plus additional aid to support schools and vaccine distribution.
The pandemic also exposed some tough truths: the turmoil disproportionately hurt low-wage workers, who pay much less into the states’ tax coffers, while middle- and high-income earners fared much better, resulting in the better than anticipated tax receipts for 2020 and a strong rebound this year.
“What we’ve seen, by and large, is that this downturn has impacted low wage workers, and high wage earners haven’t been nearly as impacted,” said Sigritz, adding that most states depend on a “progressive structure which is more reliant on high income earners.”
Those same earners were spending on taxed goods while they were holed up for the better part of a year — just as many states had begun collecting sales tax for online purchases. That led to a spike in sales tax collections.
To be sure, not all states are in such a rosy position. Places that are highly reliant on tourism, like Nevada and Hawaii, were hit harder than most other states. According to the Urban Institute, from the time period of April 2020 through March 2021, actual revenue collections are still below what they were a year earlier in 17 states.
The unusual nature of this recession has created a headache for state treasurers.
“I closely watch what states are forecasting in terms of revenues, and I also closely watch what other groups are forecasting,” said Lucy Dadayan, a senior research associate with the Urban-Brookings Tax Policy Center. “And you know, everyone got it wrong.”
New Jersey’s Gov. Phil Murphy, a Democrat, was among those who feared for the worst.
In April 2020, Murphy met with then-President Donald Trump at the White House saying he thought the state would need anywhere from $20 billion to $30 billion in assistance. Months later, Murphy then struck a deal with New Jersey lawmakers to borrow some $4 billion to offset anticipated revenue losses from the pandemic.
The state’s fiscal picture was steadily improving. Then in June, with weeks until the budget was due, state forecasters delivered an astounding report: New Jersey’s tax collection estimates had improved by about $5.2 billion, more than 10 percent of the final budget.
The result was a flurry of behind-the-scenes haggling over how to spend the money. Some Democrats, whose party controls both houses of the Legislature, wanted to pay down the state’s bloated debt load or pay more into the pension system.
In the end, they did both — delivering a $46.4 billion spending plan that earmarks $3.7 billion to pay down or avoid debt, a $6.9 billion pension payment and $500 million in “add-on” spending requested by individual lawmakers.
“This budget presented us with an extraordinary and somewhat unprecedented opportunity to reimagine what we’d like our economy, our schools, our workplaces, and our communities to look like thanks to the dramatic about-face our economy has taken in recent months,” state Treasurer Elizabeth Maher Muoio said before the governor signed the budget into law.
The fiscal turnaround story in Florida was also remarkably quick. In March, lawmakers were staring down a nearly $3 billion projected budget shortfall.
Then, in early April, state economists told lawmakers they would have $2 billion in unexpected revenue. That money, bundled with billions from the federal government, helped pay for things like $2 billion for state transportation projects and $500 million for a new program to combat sea level rise and flooding issues.
The record spending put Florida Republicans in the uncomfortable position of acknowledging that their state was helped by billions of dollars from a Democratic administration.
In California, state lawmakers were deluged with so much money that they were unable to figure out how to spend it all by the start of the fiscal year. The state’s fiscal analyst advised them to wait on many decisions because the bureaucracy isn’t equipped to launch so many new programs at once with the proper oversight in place.
They have moved closer to a deal with Newsom but still lack a full agreement nearly a week into the fiscal year.
Assemblymember Vince Fong, who serves as the Republican vice chair on the Assembly Budget Committee, said that the sheer amount of money that’s being considered in such a short amount of time is making the budget process even more opaque. Major issues like drought or wildfire prevention, education or broadband needs are not being considered carefully enough.
“Everything’s being rushed in my personal opinion, we’re not having a fully fleshed out discussion,” Fong said in an interview Tuesday. “I don’t think it’s productive, nor is it useful from the standpoint of actually solving problems.”
Even Rhode Island, a state that has a revenue forecasting system that is considered a gold standard by ratings agencies, saw income outpace expectations. Lawmakers there made a number of changes with the extra money, enacting a budget on Tuesday that exempts more businesses from state taxation on Paycheck Protection Program loans and socks away more money for affordable housing in the state.
General Treasurer Seth Magaziner said the more than $13 billion budget is much higher than prior years, but does not include the some $1.1 billion the state will be getting from the American Rescue Plan. Lawmakers are waiting until the fall to develop a proposal to spend that money, and Magaziner would like to see more done on priorities like education, workforce training and infrastructure.
“This is a real, once-in-a-generation opportunity, I think, for Rhode Island and different states across the country to use these resources to do forward looking transformational things,” he said. “I hope that Rhode Island is able to seize this opportunity, and I hope that states across the country are able to as well. This is a real chance for us to do better.”