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IN THIS ISSUE – “We Recommned State Spending Be Further Reduced”
Legislative Analyst Gabe Petek writes to the Legislature on the FY23-24 budget
- Deeper State Budget Cuts Recommended by Legislative Analyst
- “The Big Squeeze”: California Faces Several Years of Fiscal Tough Times
- Newsom Proposes Ambitious Legislation to Accelerate Infrastructure
- College Grads Join Golden State Exodus
- Big Names, Big Money Back Lt. Gov. Kounalakis for Governor in 2026
- Atty. Gen. Bonta “Seriously Considering” Governor Run
- RIP: Public Servant & Political Legend Gloria Molina
- Improving Weather Downgrades SJV Flood Danger
- California & Western States Agree to Historic Colorado River Water Rationing
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 MAY 26, 2023
Deeper State Budget Cuts Recommended by Legislative Analyst
Sacramento Bee
California can’t afford Gov. Gavin Newsom’s May Revise budget proposal, according to the latest report from the nonpartisan Legislative Analyst’s Office.
“Under our estimates, the state faces operating deficits throughout the multiyear window, meaning revenues would need to come in above our projections for the budget to be balanced,” the LAO noted in its report.
For the budget to balance in 2024-25, revenues would need to be $30 billion higher than what the LAO forecasts.
“Our analysis suggests that level of revenue is very unlikely — there is less than a one‑in‑six chance the state can afford the May Revision spending level across the five‑year period,” according to the report.
The report found that multi-year and temporary spending commitments are no longer affordable, and while the May Revise budget makes several spending cuts, it maintains $11 billion in one-time and temporary spending for 2023-24.
“We recommend this spending be reduced further (from $11 billion to roughly $4 billion) and out‑year one‑time and temporary spending be eliminated entirely,” the report said.
The LAO’s analysis found that state reserves could cover nearly half of the projected multiyear deficits, while cutting $18 billion worth of one-time and temporary spending would cover an additional third.
As for the rest, which adds up to $14.5 billion, that would need to be handled with either more revenue, shifted costs or additional cuts.
“Taken together, reducing spending and using reserves give the Legislature a few years to align revenues and spending as the economic picture unfolds,” according to the report.
LAO MULTI-YEAR BUDGET OUTLOOK:
https://www.lao.ca.gov/Publications/Report/4772
“The Big Squeeze”: California Faces Several Years of Fiscal Tough Times
CalMatters commentary from Dan Walters
One could call it the “big squeeze.”
It’s the ever-increasing conflict between the state government’s current and projected tax revenues, which are drifting downwards, and the demands for billions of additional dollars for vital services, such as health care, homelessness and mass transit.
In January, when Gov. Gavin Newsom unveiled his initial budget for the 2023-24 fiscal year that begins July 1, he projected a $22.5 billion deficit – just a few months after boasting the state had a $97 billion surplus. This month, in a revised budget, he said the deficit had grown to $31.5 billion.
As worrisome as those numbers appear, they might be a best case scenario, according to the Legislature’s budget analyst, Gabe Petek.
“Based on our assessment, there is a roughly two‑thirds chance revenues will come in below May Revision estimates,” Petek said. “As such, while we consider the May revision revenues plausible, adopting them would present considerable downside risk.”
Moreover, Petek said that using the Newsom administration’s own projections and assumptions, “the budget condition would worsen in future years” with annual operating deficits of around $15 billion in the following two years, and hinted that the real shortfalls in the final years of Newsom’s governorship could be larger.
These estimates of a chronic and perhaps widening gap between income and outgo also assume that the state’s economy won’t be clobbered by recession.
Many economists believe that the Federal Reserve System’s increasing interest rates, meant to slow the economy and battle inflation, could trigger a recession within the next year. If it occurred, Newsom’s budget says, “revenues could decrease by $40 billion in 2023-24 alone, largely driven by losses in personal income tax,” adding that “revenue declines relative to the May Revision forecast could reach an additional $100 billion through 2026-27.”
While the state has amassed more than $30 billion in reserves to cushion the impact of recession, an even moderate economic downturn would quickly consume them, drowning the budget in red ink as the Great Recession did.
To summarize: California’s budget faces several years, at least, of budget difficulty. But the demand side of the fiscal ledger is not shrinking.
After the January budget was released, advocates for programs, particularly health care and social services, cranked up pressure on legislators to protect their slices of the pie. That pressure is even more intense with the May revision’s deficit increase.
They have been joined by three other major stakeholders seeking multi-billion-dollar increases in state aid: hospitals, transit systems and cities on the front lines of the state’s worst-in-the-nation homelessness crisis.
Hospital and transit system officials say they have been unable to fully recover from the impacts of COVD-19 on their patronage and finances and may be forced to shut down or at least reduce services. Mayors of the state’s largest cities say they need an additional $2 billion per year to maintain ongoing efforts to house those on the streets.
None of the three fared well in the May revision. Newsom offered just a $150 million loan fund to hospitals, didn’t include any extra money for local homelessness efforts, and only said he would be willing to discuss transit’s self-proclaimed “fiscal cliff.”
There’s little question that advocates for existing and new state financing would prefer that Newsom and the Legislature tap into reserves and/or raise taxes to satisfy their demands. In fact, the state Senate’s budget framework proposes a hike in corporate income taxes, although Newsom has rejected it.
Were California’s budget squeeze to continue or grow tighter, as seems likely, the remainder of Newsom’s governorship would be dominated by the difficult task of resolving it.
https://calmatters.org/commentary/2023/05/demands-tighten-california-budget-squeeze/
Newsom Proposes Ambitious Legislation to Accelerate Infrastructure
LA Times & Politico
Gov. Gavin Newsom unveiled a sweeping package of 11 bills and signed an executive order that he said would make it easier to build transportation, clean energy, water and other infrastructure across California, a move intended to capitalize on an infusion of money from the Biden administration to boost climate-friendly construction projects.
The proposal aims to shorten the contracting process for bridge and water projects, limit timelines for environmental litigation and simplify permitting for complicated developments in the Sacramento-San Joaquin River Delta and elsewhere.
Altogether, administration officials hope the package could speed up project construction by more than three years and reduce costs by hundreds of millions of dollars — efforts they say are necessary to achieve the state’s aggressive climate goals.
Newsom called it “the most ambitious streamlining and permitting and judicial reforms in our state in a half-century.”
“This is a profound moment,” Newsom said.
Administration officials said the legislation will be trailer bills for the 2023-24 state budget, which must pass both houses of the Legislature by June 15. Lawmakers are currently negotiating the final details of the fiscal blueprint with Newsom’s office.
At the center of Newsom’s plan is the California Environmental Quality Act — a polarizing 1970 law credited for helping preserve the state’s natural beauty but often criticized for miring needed housing, energy and transportation projects in litigation.
The proposal does not make major changes to the law, which requires public officials, agencies and developers to broadly consider and make public a project’s effects on the existing environment. Rather, it attempts to limit how long CEQA lawsuits can drag out in court.
The proposal aims to prevent any lawsuit against certain water, transportation, clean energy, semiconductor and microelectronics projects from lasting longer than nine months.
Qualifying projects, administration officials said, would include the governor’s $16-billion plan to build a tunnel to transport water to Southern California beneath the Sacramento-San Joaquin River Delta, water recycling and desalination plants, solar fields, offshore wind farms and energy transmission.
The idea is similar to procedures already in place that have helped expedite the construction of NBA arenas in San Francisco and Sacramento as well as other megadevelopments across the state.
Additional CEQA changes in the plan would give government agencies greater control over deciding what’s needed in a project’s official administrative record and overturn a recent appellate court decision that required the inclusion of internal emails as part of that record. Litigation on the email issue involving a large residential and commercial development proposal in San Diego County lasted nearly two years after it was approved.
Debates over quickening the state’s sluggish process for building major infrastructure have been happening for decades. Major reforms have often failed in the thicket of environmental, development, local government and labor interests that are influential at the Capitol. Newsom said Thursday that his administration has led an organized effort to bring interest groups on board.
Gayle Miller, chief deputy director of policy at the state Department of Finance, told The Times that the plan offered a “reasonable approach” to addressing CEQA.
“We’re not trying to destroy our environmental protections in California. But we’re certainly trying to say enough is enough,” Miller said. “We need to move forward and transition the state to its clean energy future.”
Newsom said it was essential to make changes now because of the $180 billion in state and federal funds expected to be available for infrastructure in California over the next decade, an amount boosted by allocations from President Biden’s signature infrastructure and climate change laws.
“It’s one of the most significant investments in California’s history,” Newsom said. “The only thing that gets in the way is the world we invent.”
Newsom’s proposal also opens the pressure valve to relieve some of the frustration around the California Environmental Quality Act, a Reagan-era law meant to protect the state’s natural beauty that has since become a favored tool of NIMBYism and a thorn in the side of builders. CEQA has been known to seriously jam up construction — like a Berkeley student housing project that stalled after a state appellate court found the school failed to account for “excessive noise” — but state officials have found workarounds for things like sporting venues.
Now, Newsom is looking to limit the window for CEQA challenges to 270 days for climate-friendly infrastructure.
“We’ve proven we can get it done for stadiums. So, why the hell can’t we translate that to all these other projects?” he said Friday.
Not all are tickled about the transformation. Several environmental groups pushed back on the governor’s bypassing of CEQA. Critics include Aruna Prabhala, a senior attorney at the Center for Biological Diversity, who expressed worry that Newsom hasn’t considered the “unintended consequences” of fast-tracking infrastructure projects.
EXECUTIVE ORDER:
https://www.gov.ca.gov/wp-content/uploads/2023/05/5.19.23-Infrastructure-EO.pdf
College Grads Join Golden State Exodus
NY Times California Newsletter
California is expensive — that’s no secret.
Nor is the fact that for years, lower-wage, less-educated workers have been leaving for more affordable states, like Texas, Nevada or Idaho. Those losses have usually been offset in part by net gains in college graduates who can more easily afford California’s high cost of living.
But a New York Times analysis of census data finds that working-age college graduates have also been moving out of our most expensive metropolitan regions, and have been since before the coronavirus pandemic began. Los Angeles, San Francisco and San Jose crossed a significant threshold in 2020 and 2021: More college-educated workers left than moved in.
“When California was already struggling with the loss of people due to migration, they were actually holding on to people with a college degree, but over time that situation started to change,” said my colleague Robert Gebeloff, who conducted the new analysis along with Emily Badger and Josh Katz. “When the pandemic came, it just accelerated everything — and the loss of college grads grew even more.”
The proliferation of remote work has allowed people to reconsider where they live, and to perhaps keep high-paying jobs based in places like the Bay Area without having to actually live there.
This trend extends beyond California. The analysis found that a growing number of college graduates were moving out of the nation’s 12 most expensive metropolitan areas, which include New York City, Chicago and Seattle. Affordability has eroded so much in these places, the analysis suggests, that some of the most educated, highly paid workers don’t want to stay.
The findings are especially relevant in California. Four of the 12 most expensive metropolitan areas are here. Robert told me that the team originally planned to investigate what migration looked like in costly American cities without focusing on any one state, but that “it just happens to be that a lot of them are in California.”
Their findings align with my recent reporting that California’s population declined in 2022, for the third year in a row. One reason cited by demographers was a net exodus of high-income and highly educated Californians to other states.
“Some of it is that the most expensive places got really expensive,” Rebecca Diamond, a Stanford University economist, said of shifting migration patterns. “But also, the middle-tier places became more attractive.”
Big Names, Big Money Back Lt. Gov. Kounalakis for Governor in 2026
Politico California Playbook
If you want to finish first, declaring first can help. Just ask Lt. Gov. Eleni Kounalakis.
Kounalakis is announcing that former Secretary of State Hillary Clinton and former Sen. Barbara Boxer are endorsing her gubernatorial bid, roughly three years before the first votes will be tallied. Those blessings from widely recognized Democrats build Kounalakis’ credibility and nurture a sense of momentum that TBD-candidates can’t claim. Those kinds of things can sway insiders with outsize campaign clout.
They won’t attract the notice of California voters who aren’t watching the nascent 2026 campaign or reading this newsletter — you know, normal people. But they’re certainly on the radar of people who can move money, marshal endorsements and help determine who prevails in the 2026 gubernatorial race.
It’s a world Kounalakis knows well. She became the Obama administration’s ambassador to Hungary in part because of her Democratic fundraising acumen. Her San Francisco apartment was a fixture of the West Coast big check circuit. Kounalakis’ then-neighbor and major money-mover, Susie Tompkins Buell, has already maxed out to Eleni 2026, as have criminal justice benefactor M. Quinn Delaney, tech titan Sheryl Sandberg and the Federated Indians of Graton Rancheria. The tribe, at the urging of Kounalakis last year, steered $5 million to enshrine abortion rights in California’s constitution.
Kounalakis also had $4.4 million left over from her re-election campaign at the end of 2022 and a father — developer Angelo Tsakopoulos – who sunk millions of dollars into his daughter’s 2018 LG bid and presumably has some money left for 2026.
Former State Controller Betty Yee has said she’ll run, and Attorney General Rob Bonta has publicly acknowledged his interest without committing to a run. Both would bring the recognition and connections that come with statewide office. Yee has deepened those connections as a California Democratic Party official; Bonta has broad support among criminal justice reformers and has telegraphed a focus on housing.
Yee would need to re-introduce herself to voters. Both start with less cash on hand than Kounalakis, particularly Yee. That gap could grow, as could the endorsement count. What happens in 2023 is already determining what will happen in 2026.
Atty. Gen. Bonta “Seriously Considering” Governor Run
Sacramento Bee
Does he want to be called California Gov. Rob Bonta? California’s attorney general last week told the San Francisco Chronicle’s Emily Hoeven that he is “seriously considering” a run for the seat that Gov. Gavin Newsom will vacate in 2026. The Bee was unable to independently confirm that statement.
While Bonta has yet to form a candidate campaign committee for the office, he would be a formidable challenger should he choose to run. In 2022, Bonta, who was appointed by Newsom, won an election to a full term as attorney general with 57% of the vote.
If elected, he would be the first Filipino American to serve as California governor. He wouldn’t be the first California attorney general to use the position as a springboard to higher office.
Kamala Harris rose from attorney general to U.S. senator and later vice president. Xavier Becerra, Bonta’s immediate predecessor, left the office to serve as President Joe Biden’s Secretary of Health and Human Services.
Prior to being California attorney general, Bonta served in the Assembly from 2012 to 2021. Like Newsom, Bonta is an outspoken critic of other states’ Republican administrations; he has used his position on several occasions to challenge state laws that would loosen restrictions on firearm purchases or create new restrictions on abortion access or LGBTQ equality.
https://www.sacbee.com/news/politics-government/capitol-alert/article275664721.html#storylink=cpy
RIP: Public Servant & Political Legend Gloria Molina
LA Times
California lost a legend last week.
Gloria Molina, the daughter of working-class parents and an unapologetic Chicana who transformed the political landscape of Los Angeles, died Sunday night after a three-year battle with cancer, LA Times columnist Gustavo Arrellano wrote in this sweeping obituary that details her barrier-breaking career:
“Molina’s political life had been a series of firsts that inspired generations of women and Latinos to seek public office — the first Latina Assembly member in California, the first Latina on the Los Angeles City Council, the first Latina on the L.A. County Board of Supervisors.
Through her rise, Molina strode through L.A.’s corridors of power with an outsider’s skepticism and an insider’s know-how. A populist equally informed by the Chicano and feminist movements and the immigrant ethos of her parents, Molina’s battlegrounds were many.”
U.S. Sen. Alex Padilla remembered Molina as a leader who “was never, ever one to shy away from a tough fight.”
“From helping to build more affordable housing to fighting to expand public transportation, Gloria was a tireless advocate for Los Angeles’ Eastside,” Padilla said in a statement. “Each time we speak out today against the status quo and demand better from our government and our political leaders, we take a page from Gloria’s playbook — and California takes a step forward.”
Improving Weather Downgrades SJV Flood Danger
Associated Press
California officials said Monday they believe tens of thousands of people living near an ancient freshwater lake bed are not likely to experience flooding this year thanks to improving weather conditions and some swift planning following a series of powerful storms that refilled the basin for the first time in decades.
Tulare Lake in California’s Central Valley was once the largest freshwater lake west of the Mississippi River, fed by a strong flow of snowmelt from the Sierra Nevada each spring. But the lake eventually went dry as settlers dammed and diverted water for agriculture.
This year, the lake started to fill again after the state was hit with a more than a dozen strong storms known as atmospheric rivers packed with massive amounts of rain and snow. What had been a dry lake bed filled with crops and crisscrossed by powerlines began to go underwater. Now, water covers more than 160 square miles (414.40 square kilometers).
Most of that flooding is farmland. But a month ago, computer models showed rising waters threatened homes in the communities of Corcoran, Stratford, Alpaugh and Allensworth. Monday, state officials said they now don’t expect those communities to flood because of a number of factors, including bolstering levees around the city of Corcoran, warmer weather evaporating more water from the lake, and farmers diverting more water for irrigation.
“We are in significantly better shape than we were several weeks ago,” said Brian Ferguson, spokesperson for the California Governor’s Office of Emergency Services, adding the state was ”“not forecasting nearly as severe of damage as perhaps we were looking at several weeks ago.”
Still, state officials warned things could change quickly. More storms could come and shower the mountains with warm rainfall to melt snow much faster than expected and cause more flooding. State officials have moved lots of supplies to the region to prepare for this, including 2 million sandbags, according to Mehdi Mizani, deputy state floodplain manager for the California Department of Water Resources.
Democratic Gov. Gavin Newsom earlier this month announced $17 million to raise the levees protecting the city of Corcoran. The levees have sunken into the ground as officials pumped lots of water from underground during dry years. This is the third time either the state or federal government will intervene to raise the levees.
The governor also issued signed an executive order earlier this year to make it easier for people to use floodwater to refill groundwater basins. The state’s goal is to refill about 500,000 acre feet of groundwater per year. But the state is on pace to refill 3.3 million acre feet this year, said Paul Gosselin, deputy director of the Statewide Groundwater Management Office within the California Department of Water Resources.
In general, one acre foot of water is enough to cover one acre of land to a depth of 1 foot (0.30 meters) . It’s roughly enough water to supply two households for one year.
California & Western States Agree to Historic Colorado River Water Rationing
NY Times
Arizona, California and Nevada have agreed to take less water from the drought-strained Colorado River, a breakthrough agreement that, for now, keeps the river from falling so low that it would jeopardize water supply for major Western cities like Phoenix and Los Angeles as well as for some of America’s most productive farmland.
The agreement, announced Monday, calls for the federal government to pay about $1.2 billion to irrigation districts, cities and Native American tribes in the three states if they temporarily use less water.
The states have also agreed to make additional cuts beyond that amount to generate the total reductions needed to protect the collapse of the river.
Taken together, those reductions would amount to about 13 percent of the total water use in the lower Colorado Basin — among the most aggressive ever experienced in the region, and likely to require significant water restrictions for residential and agriculture uses.
The Colorado River supplies drinking water to 40 million Americans in seven states as well as part of Mexico and irrigates 5.5 million acres of farmland. The electricity generated by dams on the river’s two main reservoirs, Lake Mead and Lake Powell, powers millions of homes and businesses.
But drought, population growth and climate change have dropped the river’s flows by one-third in recent years compared with historical averages, threatening to provoke a water and power catastrophe across the West.
California, Arizona and Nevada get their shares of water from Lake Mead, which is formed by the Colorado River at the Hoover Dam and is controlled by the federal government.
The Bureau of Reclamation, an agency within the Interior Department, determines how much water each of the three states receives. The other states that depend on the Colorado get water directly from the river and its tributaries.
The agreement struck over the weekend runs only through the end of 2026, and still needs to be formally adopted by the federal government. At that point, all seven states that rely on the river — which include Colorado, New Mexico, Utah and Wyoming — could face a deeper reckoning, as its decline is likely to continue.
The negotiations over the Colorado were spurred by a crisis: Last summer, the water levels in Lake Mead and Lake Powell, the two largest reservoirs along the river, fell enough that officials feared the hydroelectric turbines they powered might soon cease operating.
There was even the risk that reservoir levels would fall so low, the water would no longer reach the intake valves that control the flow out of the lakes — essentially drying up the river downstream.
Facing that prospect, the Interior Department last June told the seven states to find a way to reduce their water use by two to four million acre-feet of water per year. (An acre-foot is roughly as much water as two to three households use in a year.) The states failed to reach an agreement, even as water levels in the two reservoirs remained dangerously low.
That inertia led the federal government to lay the groundwork for unilaterally imposing cuts on those states. Adding to the pressure, the department said last month that it might disregard the century-old rules governing which states should bear the brunt of cuts and instead come up with a different formula.
The federal government gave states until May 30 to take a position on the prospect of unilateral reductions. But behind closed doors, the Biden administration was negotiating with states to reach a deal and avoid having to impose cuts that would certainly face legal challenges and end up delaying any action.
Under the agreement announced Monday, most of the cuts — 2.3 million acre-feet — would come from water districts, farm operators, cities and Native American tribes that had agreed to take less water in order to qualify for federal grants offered under the 2022 Inflation Reduction Act. Those payments will total about $1.2 billion.
Another 700,000 acre-feet would come from California, Nevada and Arizona, which agreed to work out the cuts among themselves in the coming months. If they don’t, the Interior Department said it would withhold the water — a move that could face legal and political challenges.
Together, the reductions would save three million acre-feet over the next three and a half years, above and beyond existing agreements. That is far less, on an annual basis, than what the federal government had demanded last summer.
The Interior Department was able to negotiate less drastic cuts thanks to an unusually wet winter provided snowpack levels in the Colorado Basin that are far above average, especially in California. That is expected to significantly increase the amount of water in the river, at least temporarily.
MORE:
https://www.nytimes.com/2023/05/22/climate/colorado-river-deal.html