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IN THIS ISSUE – “Significant Uncertainty”
State Dept. of Finance on California’s Cash Flow
- State Revenue $4.7 Billion Below Forecast for First 9 Months of FY22-23
- California’s FY23-24 Budget Adds Up to “A Serious Political Dilemma”:
- Deficit Jumps to North of $30 Billion…
- …While Hospitals, Public Transit & Others Line Up for Financial Help
- Legislature Readies Changing of the Guard; Two Leaders Eye Statewide Office
- Surprise Fireworks Sparked at Legislative Hearing
- State Allocates 100% of Water Supplies, First Time Since 2006
- San Joaquin Valley Races to Beat Rising Flood Waters…With Mixed Success
- Tech & Biotech Job Cuts Widen in Bay Area
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 APRIL 21, 2023
State Revenue $4.7 Billion Below Forecast for First 9 Months of FY22-23
Dept. of Finance
Preliminary General Fund agency cash receipts for the first nine months of the 2022-23 fiscal year were $4.684 billion below the 2023-24 Governor’s Budget forecast of $126.675 billion.
Fiscal year-to-date shortfalls were largely due to lower personal income tax and corporate tax receipts.
The Governor’s Budget monthly cashflow reflects the expected impact of delayed payment and filing deadlines for Californians in most counties to May 15 due to winter storms and flooding in January.
These deadlines were further delayed to October 16, adding significant uncertainty to the interpretation of cash results. Adjustments were made to personal income tax estimated payments in January to reflect taxpayers delaying their payments.
Personal income tax cash receipts for the first nine months of the fiscal year were $4.449 billion below the forecast of $76.222 billion and were $828 million below forecast in March.
This follows eight months of consecutive year-over-year declines averaging -5.2 percent from July 2022 to February 2023.
Personal income tax receipts are weak as indicated by withholding trends, however, gauging the magnitude of the overall shortfall is difficult since payments’ variance relative to the forecast could be overstated or understated since taxpayers’ behavioral response to the delayed tax deadlines may differ from the assumptions made in the Governor’s Budget.
Corporation tax cash receipts for the first nine months of the fiscal year were $877 million below the forecast of $19.944 billion and were $95 million below forecast in March.
Sales and use tax cash receipts for the first nine months of the fiscal year were $215 million above the forecast of $25.325 billion.
WAGES
Following an increase of 7.8 percent in 2021—the highest growth rate since 1984—California real Gross Domestic Product (GDP) grew by 0.4 percent in 2022. The state’s deceleration was sharper than the U.S., as the nation’s real GDP growth slowed from 5.9 percent in 2021 to 2.1 percent in 2022. California’s share of U.S. real GDP fell to 14.4 percent in 2022 from 14.7 percent in 2021, but remained just above its pre-pandemic level of 14.3 percent in 2019.
Also in 2022, California personal income increased by 0.4 percent after 7.7-percent growth in 2021, while U.S. personal income grew by 2.4 percent after 7.5-percent growth.
Total wages and salaries continue to be the main driver of personal income growth for both the state and the nation, with California total wages (not adjusted for inflation) increasing by 5.7 percent in 2022 and U.S. total wages increasing by 9.1 percent (the highest growth rate since 1984), following growth of 11.4 percent and 8.9 percent in 2021, respectively. California’s share of U.S. personal income decreased to 13.8 percent in 2022, in line with its 2019 share, after increasing to 14.1 percent in both 2020 and 2021.
HOUSING
Year-to-date through February 2023, California permitted nearly 105,000 units on a seasonally adjusted annualized rate (SAAR) basis, down 6.4 percent from January 2023, and down 13.4 percent from February 2022. February 2023 total permits consisted of over 45,000 single-family units (up 4.9 percent from January 2023, but down 34.9 percent year-over-year) and nearly 59,500 multi-family units (down 7.5 percent from January 2023, but up 15.9 percent year-over-year).
The statewide median price of existing single-family homes increased to $791,490 in March, up 7.6 percent from February 2023, but down 6.8 percent from March 2022. Sales of existing single-family homes in California totaled 281,050 units (SAAR) in March 2023, down one percent from February 2023, but down 34.2 percent from March 2022. The average 30-year mortgage rate for March 2023 was 6.54, up from 6.26 in February 2023 and up from 4.17 in March 2022.
https://dof.ca.gov/wp-content/uploads/sites/352/2023/04/Finance-Bulletin-April-2023.pdf
California’s FY23-24 Budget Adds Up to “A Serious Political Dilemma”:
Deficit Jumps to North of $30 Billion…
CalMatters commentary from Dan Walters
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.
The numbers bolster contentions by the Legislature’s budget analyst, Gabe Petek, that the state’s fiscal situation was unhealthier than Newsom was admitting.
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 Newsom and legislators from succumbing to stakeholder pressure by using them.
A deficit north of $30 billion, which is a real possibility, is no joke and coming after such huge – and probably irresponsible surplus estimates – poses a serious political dilemma for politicians who would much prefer to be showering money on their constituents as they did last year.
…While Hospitals, Public Transit and Others Line Up for Financial Help
CalMatters commentary by Dan Walters
As Gov. Gavin Newsom and legislators contend with a deficit-ridden state budget they face increasingly strident demands from providers of two very important public services for billions of new dollars to prevent financial collapse.
The pleas are coming from hospitals and public transit systems which, their leaders say, have never recovered from the financial ravages of COVD-19.
While hospitals strained to care for hundreds of thousands of COVID-19 patients – and then saw visits plummet below pre-pandemic levels – transit ridership plunged to record-low levels and has recovered only partially as many Californians continue to work from home rather than commute.
Last week, the California Hospital Association released a study indicating that a fifth of California’s hospitals are in danger of closing, in part because reimbursements from Medicare, the federal medical care program for the elderly, and Medi-Cal, the federal-state system of care for the poor, fail to cover costs of services.
The report said that in 2022, California hospital care costs ballooned by $23.4 billion over pre-pandemic levels, leading to losses of $8.5 billion, on top of $12 billion in pandemic-related losses.
“The real cost of this crisis – if help does not arrive soon – will be borne by the people of California, whose health care services will erode, slowly in some areas, and all at once in others,” Carmela Coyle, the hospital association’s president, said in a statement.
A hospital in Madera County closed after Attorney General Rob Bonta blocked its sale to a larger health care organization, and several other rural hospitals are reported to be on the brink of closure.
The hospitals’ chief demand is that the state increase payments for services to Medi-Cal enrollees. The system now covers a third of the state’s nearly 40 million residents, but reimbursement rates have been virtually frozen for years.
Hospital managers are traipsing a trail to the Capitol already blazed by transit system executives who say their services are teetering on the edge of a “fiscal cliff” that needs big injections of cash to avoid – specifically $6 billion over five years.
They cite data from UCLA’s Institute of Transportation Studies that monthly transit ridership statewide declined from 100 million in February 2019 to about 20 million in June 2020 as the pandemic raged and since has rebounded to scarcely half of the pre-pandemic level.
Transit officials say that if they reduce service to cut costs, it becomes a vicious cycle because less frequent or slower service would also make Californians even less likely to use transit, while increasing fares would hurt low-income workers who rely on transit to get to their jobs.
Transit system problems don’t necessarily begin and end with ridership and revenue, however. Some have locked themselves into unaffordable labor contracts and many Californians are afraid to use transit due to fears of becoming crime victims.
Given the scopes of their operations and their impact on the lives of millions of Californians, Newsom and legislators can scarcely afford to ignore pleas from hospitals and transit systems. However, their size means relief could cost the state tens of billions of dollars it doesn’t have.
It’s an exquisitely vexing dilemma.
https://calmatters.org/commentary/2023/04/hospitals-transit-california-budget-deficit/
Legislature Readies Changing of the Guard; Two Leaders Eye Statewide Office
Sacramento Bee
Next year marks a changing of the guard in the California Legislature, with Assembly Speaker Anthony Rendon Senate President pro Tem Toni Atkins both leaving office in 2024. While Rendon is likely to be succeeded in the speaker’s chair by Assemblyman Robert Rivas this summer, Atkins’s successor has yet to be selected. But Californian voters likely won’t be seeing the last of either Democratic lawmaker. Both Atkins and Rendon aspire to statewide elected office. Atkins, 60, has formed a committee to run for lieutenant governor in 2026, when incumbent Democratic Lt. Gov. Eleni Kounalakis is term- limited out of the office.
Atkins formed the committee in 2021 and has been accruing thousands of dollars in campaign donations ever since. Recent contributors include the California Water Association, the Pechanga Band of Indians, Nike, Home Depot, the California Faculty Association, the Federated Indians of Graton Rancheria and Align Technology. Spokesman Evan Westrup said in an email statement that “Senator Atkins is open to exploring all opportunities that may arise in the future, but for these next two years — and with California’s values and reproductive rights under almost daily attack — she is laser focused on one job: leading the Senate.” Rendon, 55, also eyed a run for lieutenant governor, but terminated that campaign committee on Feb. 13, according to the Secretary of State’s Office. Now, it appears that he is looking to replace Fiona Ma as California State Treasurer in 2026. Since forming the committee to run for treasurer in late February, Rendon has racked up thousands in contributions from the Redding Rancheria, the San Miguel Band of Mission Indians, the Gardens Casino, the California State Retirees PAC, the Pechanga Band of Indians, the California Statewide Law Enforcement Association, the California Faculty Association, the Southwest Mountain States Regional Council of Carpenters and the California Correctional Peace Officers Association, among others. Rendon’s campaign team did not respond to a Bee request for comment. Neither Atkins nor Rendon have begun openly campaigning yet.
https://www.sacbee.com/news/politics-government/capitol-alert/article274505331.html#storylink=cpy
Surprise Fireworks Sparked at Legislative Hearing
CalMatters
You never know when fireworks will happen at a legislative hearing. Case in point: On Tuesday, a bill by state Sen. Aisha Wahab to limit lobbying by former legislative staff faced strong opposition from leaders of the state Capitol’s #MeToo movement against sexual abuse and harassment in the workplace.
To curb conflicts of interest and “bolster the integrity” of the legislative process, the original bill from the Fremont Democrat would have required an employee who leaves a legislative job to wait two years before taking on a new position as a lobbyist, at a lobbying firm or with a lobbyist employer.
But Samantha Corbin and Alicia Benavidez, co-founders of We Said Enough, showed up at the Senate elections committee hearing to oppose the bill, saying it would limit career opportunities. The organization later tweeted that the legislation would “trap staff in hostile or abusive” work environments.
In response, Wahab said that her bill was not about “victims rights” and that she found it “insulting and harmful” to those who experience sexual assault or discrimination for organizations to use their trauma to oppose the bill.
Wahab: “To be using victims as a prop to not have lobbying reform in the state of California is disgusting and not fair to them.”
Wahab’s comments drew the ire of another We Said Enough co-founder, Adama Iwu, who accused Wahab of “bullying” from the dais.
Other opponents include the group of legislative staffers currently seeking to unionize and the unionization bill’s author, Democratic Assemblymember Tina McKinnor from Inglewood. They argue it’s unfair to put stricter restrictions on legislative staff than on the lawmakers they work for, who are required to wait only one year before taking lobbying positions. McKinnor said Wahab owed the We Said Enough founders “a public apology.”
Wahab said later that she hopes to “continue to engage” with the bill’s opponents. At the hearing, she agreed to amend the bill to shorten the cooling-off period and to narrow it to certain staff.
Wahab, in an email to CalMatters: “I respect everyone’s right to speak their truth on matters that impact them…. I have always been and will always be a supporter of victims and survivors of sexual assault, harassment, and abuse.”
State Allocates 100% of Water Supplies, First Time Since 2006
Sacramento Bee
As parts of California brace for an influx of melting snow after a record winter, state water officials announced Wednesday that they would boost water supplies for agencies serving 27 million residents. This time, they promised the full measure.
The Department of Water Resource’s announcement marked the first time since 2006 that its canals, pumps and reservoirs would deliver 100% of requested water supplies to cities and agricultural operations across the state.
“Water supply conditions and careful management of reservoir operations during this extreme winter allows DWR to maximize water deliveries while enhancing protections for the environment,” said agency director Karla Nemeth in a statement. “DWR is moving and storing as much water as possible to the benefit of communities, agriculture, and the environment.”
The State Water Project is a concrete system of reservoirs, canals and pumps that moves water from water-rich regions of the north state to Southern California. Operations of the system, and the availability of water, can shift radically between dry and wet years.
Over the course of months, water is delivered through this system daily to local water agencies in the Bay Area, Central Valley, greater Los Angeles and San Diego. Wednesday’s announcement of 100% allocations is up from 75% in March. At full allocations for its 29 contractors, the project would deliver a whopping 4.2 million acre-feet of water. That’s enough to supply the city of Sacramento for 28 years. Before this winter brought a series of atmospheric rivers and record snowfall in the Sierra Nevada, DWR warned it could only give 5% of requested supplies in 2023.
That’s after the state experienced three of the driest years on record. This winter immensely improved drought conditions. But it will take years for the Central Valley’s overdrafted groundwater basins to recover from agricultural overpumping.
The agency said the San Luis Reservoir in Merced County is now full. Oroville, the state’s largest reservoir, and reservoirs in Southern California are expected to be full by the end of May. Statewide, reservoir storage is currently at 105% of average. As reservoirs try to catch and store melting snow, water officials have said flood danger could last through the year in the San Joaquin Valley. February and March rains already impacted several communities and sparked the resurgence of Tulare Lake.
In another sign of the improving water situation, a new federal report estimates that the near-record snowpack in the Colorado River basin could raise the level of Lake Mead by more than 30 feet and of Lake Powell by more than 50 feet by the end of 2023. Both lakes are key water sources for California, as well as Arizona and Nevada. The states are tussling over reduced water allocations from the Colorado River.
https://www.sacbee.com/news/politics-government/capitol-alert/article274543171.html#storylink=cpy
San Joaquin Valley Races to Beat Rising Flood Waters…With Mixed Success
CalMatters
After months of atmospheric rivers, storms and record floods, the long-dry Tulare Lake is rising again from the San Joaquin Valley floor. It will be fed, experts said, by an historic snowpack melting in the Sierra Nevada.
Will California be ready?
So far, the track record for state and local emergency response has been mixed, especially in the San Joaquin Valley, where local agencies have struggled to mediate conflicts between landowners and flooded communities, and where state officials have yet to clarify their oversight role.
Farmers, workers and residents in several flooded communities complained that it took weeks for the state to gain federal help through a disaster designation. Even with that, many farmworkers won’t qualify for federal cash assistance because they are undocumented.
“The reality is the Central Valley has a lot of frontline communities that have borne the impacts of climate and weather extremes, whether it’s drought, smoke, flood,” said John Abatzoglou, climatology professor at the University of California, Merced. “Unfortunately, they have not had the resources to prepare for these extreme events, and that’s why they’re vulnerable.”
Several regions could experience higher-than-usual flood risk from snowmelt, experts said, but the Tulare Basin’s reservoirs are smaller than the central and northern Sierra reservoirs so they hold much less water, Abatzoglou said. It’s an unfortunate mismatch with the high snowpack in the southern Sierra.
Despite intermittent flooding over the years, the region’s levees, canals and dams may not be able to handle such large and rapid water flows, experts said. Floodwaters in some areas are not sinking into the ground, recharging underground water stores.
“We just don’t have the systems in play to put water in places where you can really get a lot of groundwater recharge while minimizing the impacts to communities and agriculture,” Abatzoglou said.
“I think a year like this, hopefully, will be a catalyst for the state to find ways to be more resilient to climate variability and the extremes of climate change — because this is not likely to be the last rodeo that we’re gonna go through.”
But Gov. Gavin Newsom’s office said some people could receive help through local partnerships using the state’s Rapid Response Fund. The state has not announced which local partners it was funding.
State officials said they are bolstering infrastructure, such as levees and canals, and raising some roads while coordinating with agencies to help people cope with floods and prepare for possible evacuations.
Brian Ferguson, spokesperson for the Governor’s Office of Emergency Services, said state officials have been meeting with emergency managers for each affected region, coordinating area-specific evacuation plans and flood prevention measures, trying to get everyone on the same page.
“We’re paying particular attention to the Tulare basin because there’s already so much water in the system and that’s where the snowpack is really concentrated,” he said. “Humans, in many cases, are the hardest part of any disaster to control.”
Some of the country’s biggest farms operate in this region. Tulare, Kern and Kings counties are top-producing dairy counties in the state.
The Tulare Lake basin’s vast farmland had suffered a severe drought, like most of California. Now floodwaters envelope it, looking like an inland sea when winds whip waves over swallowed houses, farms and rural Highway 43.
Nearly all of the four rivers, countless creeks and thousands of miles of canals linked to Tulare Lake are swollen and at capacity. The valley ground has soaked up so much water that every passing rainstorm floods yards and asphalt roads, even in urban centers like Bakersfield and Fresno.
The Biden administration declared California’s second major disaster of the year on April 3, deploying the Federal Emergency Management Agency and allowing several counties, including Tulare and Kern, to apply for additional federal assistance. Because of the declaration, families and residents in seven counties can apply for Disaster CalFresh food benefits, the state announced Friday.
Though Kings County had 47,000 acres of farmland flooded, according to the California Farm Bureau’s online publication, that county was not included in the latest emergency declaration. State officials said it could be added later. Kings County officials told the Fresno Bee flooding will ruin 41% of the county’s $2.43 billion crop value and cause another $1 billion in damages.
In California’s request for the declaration, Newsom’s office estimated $60 million in agricultural losses in Tulare County and $70 million in Kern Counties alone.
Ferguson, the state emergency services spokesperson, said the current break in storms is giving emergency management officials a rare chance to prepare for the possible coming disaster.
They are assessing potential toxic hazards from agricultural or oil sites in the flood path, he said, so they can prevent contaminating nearby farmland or waterways. For example, officials may build a dam around a waste treatment plant run by the Los Angeles County Sanitation Districts in Kings County, according to a KVPR news report.
They’re also reaching out to underserved communities to help people access emergency information in their native languages.
And state officials are working with local water managers and county emergency personnel, planning for worst-case scenarios, he said.
“It may be that this water is not such that there are enough sandbags, or you can’t physically stop it,” Ferguson said. “You might be doing water jiu jitsu to move it, to flow with it, as opposed to trying to physically stop it … to move it in the smartest possible way to keep as many people safe as possible.”
That may involve finagling a compromise from local agencies and land owners who have been working at cross purposes. In Kings, Kern and Tulare counties decisions about handling flood waters have devolved into local tugs-of-war, with individual farmers influencing where waters go.
In a local conflict that made national headlines, the historic Black town of Allensworth, nearby Alpaugh, and farmers along the Tulare Lake bed were flooded after a large landowner refused to allow his property to flood. As Allensworth residents pleaded for official intervention and scrambled to save their community, SJV Water, a nonprofit newsroom, reported that the landowner had placed heavy farming equipment in the way of a water manager’s efforts to use the farmer’s private canal.
The creek recently burst into the canal anyway, after it also overflowed a bridge and road.
State officials have been coordinating with local emergency forces to shore up levees and distribute sandbags.
Although state officials are exploring options for taking a more active role in managing flood waters, local authorities have the jurisdiction to determine where floodwaters go, said Karla Nemeth, director of the Department of Water Resources.
Several communities in southern San Joaquin Valley had opted out of the Central Valley Flood Protection Plan, so the ultimate authority over where water goes — and whose property floods — can reside with county officials, small flood districts and even individual property owners.
“At the moment all of those issues need to be addressed at the local level,” Nemeth said. “We are checking into our state authorities on flood management kinds of decisions.”
The governor’s office recently issued an executive order that temporarily waives several state codes related to environmental protections around the Tulare Lake basin. But the order doesn’t allow state officials to step in and arbitrate these conflicts, a governor’s spokesperson said.
Small communities in the Central Valley, especially on the eastern edge of Tulare County near the mountains, have flooded repeatedly this year.
In Cutler and Orosi, two towns in the foothills of the Sierra Nevada, more than 131 homes flooded in mid-March, after water breached an overwhelmed canal in eight places and left many homes uninhabitable.
MORE:
https://calmatters.org/california-divide/2023/04/california-flooding-farms/
Tech & Biotech Job Cuts Widen in Bay Area
San Jose Mercury
Tech and biotech job cuts have widened in the Bay Area with a fresh batch of layoffs being revealed by companies operating in the crucial engines of the region’s economy.
Tech companies, starting in July 2022, have revealed plans to eliminate more than 20,200 jobs in the Bay Area, according to this news organization’s analysis of hundreds of WARN notices on file with the EDD.
Biotech companies since mid-2022 have disclosed plans to lay off more than 4,000 Bay Area jobs, the official state labor agency filings show.