For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “All of it is fascinating, and also humbling, We’re literally predicting the future.”
National Weather Service meteorologist on volatile new rain patterns
- Lean Times for State Budget in FY23-24, Governor Says
- Newsom Inaugural “Disdains Journalists”
- Record Rains Hit: La Nina…El Nino…?
- Soooo…What is California’s Water Supply Status?
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 JAN. 13, 2023
Lean Times for State Budget in FY23-24, Governor Says
Wall Street Journal & State Dept. of Finance
California Gov. Gavin Newsom proposed a leaner budget Tuesday that would cut spending on climate change and transportation programs in response to a projected $22.5 billion budget shortfall.
The $297 billion spending plan released Tuesday represents an $11 billion decrease from the current year’s budget. It comes just months after the Democrat signed a record-busting $308 billion budget, buoyed by a more than $100 billion surplus. Mr. Newsom said that the whiplash demonstrates the effects of California’s progressive tax system on state revenues, which rely heavily on personal income taxes, particularly from the ultrawealthy.
The governor’s proposal signals the start of a six-month cycle of negotiations with legislators and revisions in the spring before a balanced budget must be passed by June 15. The state’s cloudy economic forecast will likely change during that time and force Newsom to update his plan and make concessions to lawmakers.
If the shortfall materializes, it would be the state’s weakest revenues since the 2007-09 recession in 2008, according to the nonpartisan state Legislative Analyst’s Office.
California’s projected deficit comes as many other states are enjoying large surpluses, in large part due to a deluge of federal funds over the past three years to fight the coronavirus pandemic. On Monday, Texas announced a record $188.2 billion in general fund revenue and projected it would have a $32.7 billion surplus over the two-year period ending in August 2023. In West Virginia, Gov. Jim Justice is proposing tax cuts to spend some of the $1.3 billion surplus there.
An October analysis of the 15 largest states by Fitch Ratings showed California was the only state experiencing year-over-year tax revenue declines. While the state’s employment has rebounded over the past 14 months, personal income tax withholding is down, in part because salary bonuses and initial public offerings have declined, according to the LAO, which forecast the deficit in November.
That has led to a $29.5 billion decline in expected state revenues over three budget years, according to Mr. Newsom’s budget proposal, which assumes continued but slowing economic growth. An economic downturn would worsen conditions; a mild recession could leave California coffers $20 billion to $40 billion poorer, while a more severe downturn could lead to more than $60 billion in revenue loss, the governor said.
State law requires California to enact a balanced budget, and Mr. Newsom said he wants to do so—at least initially—without tapping tens of billions of dollars in budget reserves.
Instead, Mr. Newsom intends to cover the shortfall with a patchwork of funding delays, spending reductions to programs and spending shifts. He also proposed trimming the state’s transportation and climate budgets.
Environmental advocates say that would erase recent gains in funding for climate-change programs.
“Given how far behind we are, we have to sustain our commitment to climate action every year,” said Mary Creasman, CEO of advocacy group California Environmental Voters in a statement. “To further delay these investments will further compound the climate crisis and the cost of inaction will be far worse.”
The governor sought to maintain recent reinforcements of the state’s social safety net, including the expansion of the state’s Medicaid program to all eligible residents, regardless of immigration status, as well as the state’s phase-in of universal preschool. Mr. Newsom also promised no proposed cuts to funding for homelessness programs, though he stressed that his administration would seek to tie distribution of those funds to greater local accountability.
If state revenues come in higher than anticipated, or if officials receive additional federal funding they’re pursuing, other, Mr. Newsom said those cuts could be reversed.
“We’re not touching the reserves because we have a wait-and-see approach,” Mr. Newsom told reporters at a briefing Tuesday morning.”We are in a very volatile moment.”
The proposal represents the opening volley in a monthslong negotiation between Mr. Newsom and the Democratic-controlled Legislature. Leaders of both houses stopped short of directly addressing Mr. Newsom’s proposed cuts. In a statement, Assembly Speaker Anthony Rendon signaled he might push for a deal that would dip into state budget reserves, saying they could be important for protecting “California’s progressive investments.”
Mr. Newsom said his proposal will give leaders the flexibility to tap those reserve accounts if the state experiences an even bigger downturn, or restore cuts if tax collections rebound. Mr. Newsom is expected to release an updated budget proposal in May, once the state revenue picture becomes clearer.
According to the state Department of Finance, roughly 49% of personal income tax collected by California in 2020 came from just 1% of tax filers. Mr. Newsom opened the briefing Tuesday with a chart showing that capital gains as a percentage of personal income in California was down to 5.52% from nearly 10% in the 2022-2023 budget year.
State income tax collections in 2022 were significantly lower than 2021, partly due to a lagging stock market.
In 2020, Mr. Newsom signed a budget that anticipated a $54 billion budget deficit, an estimate pegged to ongoing uncertainty around widespread unemployment during the coronavirus pandemic. But stay-at-home orders that decimated service jobs and closed businesses didn’t affect the income and investments of wealthy Californians as acutely, leading to record surpluses for the following two years.
The budget deal struck between legislators and the governor last year spent much of the windfall on one-time programs. Mr. Newsom also vetoed dozens of other bills that he said would have added $10 billion in ongoing spending to the state’s ledger, citing budget uncertainties.
Governor’s FY23-24 State Budget Summary:
https://ebudget.ca.gov/budget/2023-24/#/BudgetSummary
Newsom Inaugural “Disdains Journalists”
CalMatters commentary by Dan Walters
Last Friday, Gavin Newsom was sworn in for a second term as California’s governor, standing on the Capitol’s steps after leading a march down Capitol Mall. It was meant to commemorate the violent assault on the nation’s Capitol exactly two years earlier by fervent Trump supporters, seeking to block Congress from ratifying Joe Biden’s election as president.
Newsom devoted much of his 22-minute inaugural address to depicting California as a model of tolerance and freedom and Republican-led states as bastions of repression.
Afterwards, Newsom’s press office described the speech as “lifting up California’s work to protect and advance the fundamental rights and freedoms under attack across the country amid rising extremism and oppression, and underscoring the state’s commitment to continue leading the way forward to prosperity and progress for all.”
The message, however, didn’t ring true for the journalists who were covering Newsom’s carefully staged inaugural celebration because the governor’s operatives had been harassing them for trying to do their jobs.
During the march, Angela Hart, a reporter for Kaiser Health News, tweeted, “@Gavin Newsom leading a march for ‘freedom’ and ‘democracy” ahead of his inauguration, however the governor and his team has restricted press access to the march after the photo opp (and) we’re not allowed to follow the march and do our jobs.”
CalMatters reporter Alexei Koseff echoed Hart, tweeting, “Governor’s press office and campaign largely focused on keeping the media away from this media stunt of a march to kick off Newsom’s second inaugural, including threats that we would be blocked from attending the speech.”
This was not an isolated instance of Newsom’s disdain for the professional journalists who cover his governorship. He is notoriously thin-skinned about coverage that portrays him in other than a heroic light – such as Koseff’s revelation in 2020 about his notorious maskless and hypocritical partying with lobbyists at a high-end Napa restaurant.
Newsom’s media operatives give special access to reporters deemed to be friendly while minimizing contact with others who might ask questions that he doesn’t want to answer.
So much for California being a beacon of openness and freedom.
Record Rains Hit: La Nina…El Nino…?
NYTimes
As rain has deluged our parched state since New Year’s Eve, many Californians have found themselves asking a familiar question: Is this somehow because of El Niño?
In the California imagination, the climate pattern known as El Niño has an almost mythological status as a harbinger of prolonged wet spells, while its counterpart, La Niña, is associated with drought. The past three years have been La Niña years.
The continuing procession of storms this winter has drawn comparisons to the famed wet winter of 1997-98, when rain driven by El Niño drenched the Golden State. Californians are bracing for one of the season’s most intense storms to date on Monday and Tuesday.
But Daniel L. Swain, a climate scientist at the University of California, Los Angeles, said that El Niño hasn’t taken over — yet.
“As much as it walks and talks like El Niño, it ain’t,” he said of this winter’s pattern. “We still have La Niña conditions, despite rumors of its demise.”
Even so, long-range forecasts suggest that California will transition into El Niño in the autumn.
So how does this all work? How do we know if El Niño has taken over?
Swain explained, simplifying a bit, that El Niño is essentially one side of a pendulum swing and La Niña is the other. During El Niño, trade winds are weaker, and warm water in the Pacific sloshes toward the western coasts of North America and South America. During La Niña, stronger trade winds push warm water in the other direction, toward the coast of Asia. Ocean temperatures affect the weather.
This dynamic means that the effects of El Niño and La Niña vary in different parts of the world. In parts of the western Pacific, like Indonesia, for example, El Niño tends to produce drier conditions, rather than rain.
In California, the relationship between wet years and El Niño depends on the strength of the pattern, and to some degree on chance. In other words, an El Niño year loads the dice in favor of a wet year, but does not guarantee one.
The latest heavy storms and flooding remind Jan Null, a meteorologist and former lead forecaster for the National Weather Service, of the winter of 2016-17, which was also a La Niña year.
“Every El Niño is not wet, and every La Niña is not dry,” Null said.
Complex advanced predictive tools are showing that by next summer or fall, El Niño will probably be in place, and this time the pattern could be “a pretty strong one,” Swain said. That could bode well for California and the West’s water outlook.
“All of it is fascinating, and also humbling,” he said. “We’re literally predicting the future.”
https://www.nytimes.com/2023/01/09/us/california-la-nina-rain.html
Soooo…What is California’s Water Supply Status?
Sacramento Bee & State Dept. of Water Resources
California’s drought is not over, but a cavalcade of atmospheric river storms over the past three weeks has brought substantial relief to the state’s water crisis in at least the short term, with big recent boosts to snowpack and reservoir levels.
Less than half of 1% of California is now classified in either “extreme” or “exceptional” drought conditions, according to a weekly update Thursday from the U.S. Drought Monitor – down from 27% just one week earlier and from 41% at the start of the current water year on Oct. 1.
After the recent downpours, seven of California’s 17 major reservoirs are now above their historic average, up from only one reservoir above average to start December, according to the California Department of Water Resources. Folsom Lake is close to its average at 98%, compared to 64% on Dec. 1.
The state’s two largest reservoirs, Shasta Lake and Lake Oroville, are still below average but have also seen solid increases. Shasta Lake is now at 72% of its average for the date, up from 57% on Dec. 1; and Lake Oroville is at 90%, up from 55%. Storms have dumped feet of snow in the Sierra Nevada mountains, whiting out highways at times. Statewide snowpack stood at 227% of normal for this point in the year, state water officials reported Thursday, with the central Sierra range at 229% of normal.
https://www.sacbee.com/news/california/water-and-drought/article271092672.html#storylink=cpy
WATER DATA GALORE…the famed “bucket chart” of major reservoir levels is in the right-hand column, 4th title down: