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IN THIS ISSUE – “The governor really put himself out there. It didn’t have the intended effect.”
Mark Baldassare, veteran pollster, on Newsom’s narrow Prop. 1 victory
- Governor & Senate Agree on Quick Budget Deficit Fix; Assembly Slow Rolls
- State’s Cash Flow & Employment Remain Sub Par
- Newsom’s Ballot Measure Wins a Squeaker; His Voter Approval Dips
- Courts & State Water Board Work on Delta Flows
Capital News & Notes (CN&N) curates 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 MAR. 22, 2024
Governor & Senate Agree on Quick Budget Deficit Fix; Assembly Slow Rolls
Politico California Playbook & CalMatters
Gov. Newsom and the two top Democrats in the Legislature this week agreed they would like to come to an agreement on early budget action. With a looming deficit estimated to be as much as $73 billion,
Newsom, Senate President Pro Tem Mike McGuire and Assembly Speaker Robert Rivas jointly announced that they would seek $12 billion to $18 billion in savings ahead of passing the full state budget in June.
The Governor, in a statement: “Despite the uncertainty due to the federal tax deadline delay last year, historic reserves and fiscal responsibility will assure a balanced budget that meets California’s needs.”
But Speaker Robert Rivas indicated the Assembly — which has yet to release its own proposal, or endorse the Senate’s — is taking a more deliberative route when it comes to the budget.
Rivas has vowed to build consensus whenever possible, and has opened the budget process up to more members — an approach that doesn’t exactly lend itself to speed.
The agreement was a deal in the loosest sense of the word, but it underscores the pressure on the governor and lawmakers to show that they’re tackling the problem — especially as the Legislature departs for spring recess today.
February revenues came in higher than expected, according to the Department of Finance, but the yearly total is about $5.6 billion below Newsom’s January estimate.
(See next story for fiscal details.)
The governor clearly wants to get this done expeditiously — and before his May deadline to present a revised budget plan, which will include an updated deficit figure.
He made rare public visits to the Legislature earlier this week, spending time in the offices of both Rivas and McGuire to go over budget details.
Aside from approving an increase in the Managed Care Organization tax, which will need to be done before the end of the month, however, there’s no urgent policy reason to close the deficit months before the June budget deadline.
Rivas said he hopes to hold a vote on a preliminary package after the Legislature returns on April 1. He stressed the importance of the legislative process, pointing to the number of budget hearings on the April calendar.
“The Assembly’s budget work continues, including more than two dozen budget and oversight hearings scheduled next month,” he said. “There are tough choices on the horizon, which is why our process is so critical.”
Describing the budget process as “degraded,” Sen. Roger Niello, a Republican from Roseville and Senate Budget Committee vice chair, argued that Wednesday’s agreement, was made “behind closed doors by one political party.”
State’s Cash Flow & Employment Remain Sub Par
Dept. of Finance
California’s cash flow continued below par, as the State Dept. of Finance released the monthly economic statement for February:
CASH FLOW
Preliminary General Fund agency cash receipts were $288 million, or 3 percent, above the Governor’s Budget forecast for February, and were $5.6 billion, or 4.3 percent, below the 2024-25 Governor’s Budget fiscal year-to-date forecast of $131.1 billion.
The primary driver of the cumulative shortfall was personal income tax estimated payments, which were $4.7 billion below forecast fiscal year-to-date through February, indicating weakness in receipts relating to tax year 2023.
Personal income tax withholding, which is more indicative of current activity in tax year 2024, were $670 million above the fiscal year-to-date forecast. Additionally, fiscal year-to-date corporate tax cash receipts were $1.1 billion below forecast due to $970 million in higher corporate refunds.
Personal income tax cash receipts were $579 million above forecast in February due to withholding exceeding the forecast by $1.2 billion, partially offset by higher refunds of $706 million.
This brings the fiscal year-to-date shortfall in personal income tax receipts to $4.1 billion, or 5.1 percent. Withholding receipts were $670 million above forecast cumulatively through February. While withholding reflects more of a real-time indicator of economic activity than estimated payments, single-month readings can be misleading: calendar changes can affect when payments are recorded, and the timing of stock-based compensation can also affect payments, therefore, withholding should be evaluated over multiple months for longer-term trends.
Personal income tax estimated payments were $65 million below forecast in February, bringing the fiscal year-to-date shortfall to $4.7 billion.
Corporation tax cash receipts were $165 million below forecast in February and $1.1 billion, or 5.3 percent, below the fiscal year-to-date forecast. The February shortfall is due to refunds exceeding the forecast by $418 million in February, partially offset by higher corporation tax payments of $253 million. Corporate refunds have been consistently running above forecast, which is partially due to higher-than-expected refunds related to overpayments of the Pass-Through Entity Elective Tax.
Sales and use tax cash receipts were $148 million below forecast in February and $347 million, or 1.5 percent, below the fiscal year-to-date forecast. February sales and use tax receipts reflect part of the final payment for calendar year fourth quarter taxable sales, which was due on January 31.
JOBS
Following annual benchmark revisions to state employment numbers, California total nonfarm employment as of December 2023 was revised down by 231,800 jobs from nearly 18.2 million to just under 18 million.
The over 2.7 million pandemic-related job losses were recovered in July 2022, a month later than previously estimated in June 2022, and the unemployment rate peak remained unchanged at 16.1 percent in April 2020, following the revision and bottomed out at 3.8 percent only in August 2022 (not in both July and August 2022 as previously estimated).
California’s unemployment rate rose 0.1 percentage point to 5.2 percent (US is 3.9 percent) in January 2024 as civilian household employment decreased by 8,000 and civilian unemployment increased by 23,300 people. California added 58,100 nonfarm payroll jobs in January 2024.
Ten sectors added jobs: private educational and health services (18,100), professional and business services (15,700), government (10,800), trade, transportation, and utilities (4,900), information (3,400), construction (2,200), leisure and hospitality (1,700), other services (1,300), financial activities (700), and mining and logging (100). The manufacturing sector lost 800 jobs in January. California accounted for 25.4 percent of the 229,000 U.S. nonfarm jobs added in January in 2024.
HOUSING
Year-to-date through January 2024, California permitted 99,000 housing units at a seasonally adjusted annualized rate (SAAR), up 16.7 percent from December 2023 and up 9.3 percent from a year ago in January 2023. January year-to-date total permits consisted of 67,000 single-family units (up 14.7 percent from December 2023, and up 56.2 percent year-over-year) and 32,000 multi-family units (up 21.1 percent from December, but down 33.2 percent year-over-year).
The statewide median sale price of existing single-family homes decreased to $788,940 in January 2024, down 3.8 percent from December 2023 but up 5 percent from one year ago. Sales of existing single-family homes in California were 256,160 (SAAR) in January 2024, up 14.4 percent from December 2023, and up 5.9 percent from January 2023.
https://dof.ca.gov/wp-content/uploads/sites/352/2024/03/Finance-Bulletin-March-2024.pdf
Newsom’s Ballot Measure Wins a Squeaker; His Voter Approval Dips
CalMatters & Politico’s California Playbook
After days of uncertainty, the results are finally in: Californians, by a slim majority, have voted to throw their support behind Gov. Gavin Newsom’s latest effort to overhaul how the state cares for people with serious mental illness.
The Associated Press on Wednesday declared that Proposition 1 passed by the narrowest of margins, 50.2% to 49.8%.
The passage of the two-pronged ballot measure will give Newsom funds to fulfill promises he has made while rolling out a series of other mental health policies in recent years – more housing, more treatment beds and a concerted focus on unhoused people with serious mental illnesses.
The initiative includes a $6.4 billion bond to pay for treatment beds and permanent supportive housing. It also requires that counties spend more of the mental health funds they receive from a special tax on income over $1 million on services for people who are chronically homeless.
While the ballot measure initially seemed a shoo-in, public support wavered in recent months. In part, that’s because the state’s ballooning deficit came into stark focus — with the Legislative Analyst’s Office projecting last month that it might be as big as $73 billion.
Opponents of the ballot measure had also raised concerns that it could siphon money from community mental health organizations, possibly causing some to close.
Public concern about homelessness and a multi-million dollar advertising campaign eventually carried the measure to victory —but just barely.
“It’s still not a huge vote of confidence,” said Thad Kousser, a UC San Diego professor of political science.
He says Newsom failed to convince voters of just how effective other billion-dollar investments in helping unhoused people have been.
“To me, given the strong message, the money behind the message, the lack of organized opposition, I would have guessed at the beginning of this campaign it was headed for a 60-40 win,” Kousser said.
Nevertheless, it did squeak by. And under the just-approved ballot measure, counties are now required to invest 30% of the money they receive from the state’s “millionaire’s tax” into housing programs, including rental subsidies and navigation services. Half of that will be used to target individuals who are chronically unhoused or living in encampments. Up to a quarter of the money could be used to build or purchase housing units.
The second part of the measure, the bond, is divided into two parts. About $4.4 billion will go toward inpatient and residential treatment beds. The rest is earmarked for permanent supportive housing, half of which would be set aside for veterans.
Prop 1’s limp to the finish line comes amid a series of headwinds for Newsom.
His approval ratings in a key public poll have sagged to their lowest level since 2010, with just 48 percent of likely voters approving of his performance. He faces a looming and massive budget deficit.
The governor has faced some criticism over his national bully pulpit — especially from Republicans, who say he’s focused on his national profile at the expense of governing the state.
Newsom’s allies counter that he has always maintained a robust state agenda, and that he isn’t sweating this moment.
Newsom was Prop 1 biggest cheerleader and barnstormed the state in February promoting it, to the point that he lost his voice during the final weekend of campaign. But opposition to the complex measure only grew in the final stretch. A small but significant percentage of primary voters skipped the question entirely — more than 144,000 voters in deep-blue Los Angeles County alone didn’t weigh in on Prop. 1.
“The governor really put himself out there on this in the final weeks. It didn’t have the intended effect,” said Mark Baldassare, a veteran pollster at the Public Policy Institute of California.
PPIC’s poll of likely voters shows Newsom’s approval ratings among Democrats and Republicans are virtually unchanged from a year ago. But the governor has hemorrhaged support among independents. Last month, PPIC found only 41 percent of independent likely voters approved of Newsom, a steep drop from 53 percent approval at the same time last year.
Newsom’s sagging approval rating is also nearly identical to Biden’s level of support in California. As Baldassare noted, voters see the governor and president’s brands as more connected than ever.
MORE:
Courts & State Water Board Work on Delta Flows
Sacramento Bee
A Sacramento judge upheld a decision by California’s water regulator to cut back agricultural and municipal water use from the San Joaquin River. The decision could lend support for future regulations in the rest of the Sacramento-San Joaquin River Delta system.
It comes amid declining fish populations and increasing pressure on water supply due to climate change.
Rather than move forward with strict regulations, the State Water Resources Control Board is considering a plan pushed by Gov. Gavin Newsom that would grant water districts more flexibility.
Developing regulations for the Delta, the beating heart of California’s water supply system, demands not just scientific research but also the ability to balance a variety of stakeholders with competing interests — agriculture, cities, fisheries and ecosystems. Last week’s ruling comes as vindication for the agency as it continues a years long process of updating an overarching plan for the Delta.
The 2018 San Joaquin plan was only one part one of the Bay-Delta Water Quality Control Plan, which in itself was the product of 9 years of research and stakeholder input — the plan has not seen a substantial update since 1995.
The agency is currently considering two different options for the Bay-Delta plan. Traditional regulations would set a minimum flow standard for rivers, such as the one adopted for the San Joaquin and supported in court.
But over the last year, the Newsom administration has promoted another approach. Called “voluntary agreements,” his plan would let water agencies pledge to forgo certain amounts of water while funding wetland habitat improvement projects. The governor has framed the plan as a rejection of “old binaries” in favor of new solutions.
A public workshop to discuss the proposed voluntary agreements is expected to take place April 24-26 at the water board.
The March 15 ruling by Sacramento Superior Court Judge Stephen Acquisto rejected a litany of lawsuits by water districts against the State Water Resources Control Board’s plan to boost river flows and help revive struggling native fish populations.
Agencies that filed suit against the state’s plan include large agricultural water suppliers such as the Modesto Irrigation District, Westlands Water District and Merced Irrigation District, as well as the San Francisco Public Utilities Commission and city of Modesto.
The judge ultimately supported the agency’s water quality plan for the lower San Joaquin River — including the Tuolumne, Merced and Stanislaus river tributaries — which set specific goals to protect water flows for key fish species such as chinook salmon and steelhead trout.
In his ruling, he wrote there is “more than enough valid scientific evidence in the record to support the Board’s general conclusion that increased flows in the lower San Joaquin River and its three eastside tributaries are of critical importance to reviving and sustaining native migratory fish populations.”
He denied all the petitioner’s claims about the water board’s 2018 plan for the river that was passed with much controversy. That included complaints about the water board’s process and contentions that the agency had abused its regulatory authority.
In the San Joaquin River, which begins high in the Sierra Nevada and flows through the the northern San Joaquin Valley before reaching the ocean through the San Francisco Bay, sometimes more than 80% of its flow is diverted for farms and cities. The Delta is ecologically ailing.
Populations of salmon, delta smelt and other native species have been on a steep decline in recent years. Regulators shut down the fishing season last year because populations of fall-run Chinook salmon last year were so low.
Under its San Joaquin river plan, the water board would limit diversions during certain times of the year to between 50-70% of the river’s total flow. Lawsuits quicky followed after the decision. More than five years later, the rules have not been implemented.
“It’s a real validation,” said Felicia Marcus, who oversaw the 2018 plan’s adoption as then-chair of the water board. “We have over-diverted from our rivers, for good things like agricultural and urban development, but diverted so much that we’ve shorted the environment. We were re-balancing the system.”
Leading water experts, including Marcus, argue that voluntary agreements would only be successful if used to supplement strong regulation. A recent Stanford University report she co-authored concluded that the current proposal is “a perilous strategy.”
“It can’t be either or,” she said. “A voluntary agreement is only good if it’s good and this isn’t good enough yet. There’s got to be a more concerted effort and you’re not going to get it unless you move forward with regulations.”
Some environmentalists are less optimistic about voluntary agreements, arguing that they lack accountability to meaningfully improve river flows. Under the agreements, science director at Baykeeper Jon Rosenfield said the path toward native fish extinction would only accelerate.
Managers of water districts such as Westlands in the western San Joaquin Valley, one of the litigants against the 2018 plan, continue to prefer a voluntary approach. Strict flow regulations in the Sacramento River would mean less water for the agricultural powerhouse.
https://www.sacbee.com/news/politics-government/capitol-alert/article286928920.html#storylink=cpy