For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Intransigent Local Politics”
- “Outmigration” Is A Thing for California
- Is State’s Economy Pumping the Brakes?
- Record Number of Women in Legislature
- Governor Taps Key Aide as Energy Czar, Tells PG&E “We Are Not Going to Sit Around”
- Federal Bank Officials Start Pricing Climate Risks
- Car Culture Fanatics Drive Stubborn California Smog
- Affordable Housing: It’s “Intransigent Local Politics,” Not the Money
- San Diego Regional Housing Plan Gets Praise From State, Flack From Locals
OTHER KEY ISSUES
FOR THE WEEK ENDING NOV. 8, 2019
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
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Texas, Arizona, Nevada and Oregon apparently looked pretty good to a lot of Californians last year.
About 691,000 people left California to live in other states in 2018, new census estimates indicate. At the same time, roughly 501,000 people came to California from other states, creating a net loss of about 190,000 residents in 2018.
From 2015 to 2017, California saw a net loss of between 129,000 and 143,000 residents to domestic migration each year, according to census estimates. (The state’s population continues to grow — though relatively slowly — due to migration from abroad and births.)
California has lost more people to other states than it has gained for much of the last two decades, census figures show. The trend last peaked between 2004 and 2006, around the height of the housing boom.
A 2017 Bee analysis found that people leaving California tended to be relatively poor, and many lacked college degrees. Higher up the income spectrum, slightly more people were coming than going.
California saw the biggest net loss of residents to Texas, Arizona, Nevada and Oregon, according to the census estimates, which are drawn from its annual American Community Survey. It gained residents from much of the northeast United States, along with parts of the upper Midwest.
US Census data:
Bottom Line: Multiple signs suggest a slowdown could be on the horizon, but recent actions by the Federal Reserve could help improve economic conditions. If, despite Federal Reserve actions, conditions do not improve in the coming months the risk of a decline in state revenues would be high.
Knowing when the state’s next budget slowdown will happen is impossible. Many economic factors outside the state’s control influence state revenues. Despite this, certain data points can help us understand whether shifting economic conditions are likely to lead to growth or declines in state revenues in the coming months.
We created the State Fiscal Health Index to track the strength of economic conditions relevant to the state’s fiscal health. The index ranges from 0 (representing the lowest level in the last 25 years) to 100 (representing the highest level in the last 25 years). Both the level of the index and changes in the index from month to month offer information about the state’s fiscal health. When the index is high, revenues tend to be high compared to historical norms. Similarly, when the index is increasing, state revenues are likely to increase over the next six to twelve months. On the flipside, a consistent decline in the index over a few months has typically signaled that the state is entering an extended period of revenue weakness.
Record Number of Women in Legislature
CalMatters brief, no link
The number of women in California’s Legislature grew to 38 this week, after voters in the rural north elected Lassen County Republican Megan Dahle to fill an Assembly seat that became vacant when her husband, Brian Dahle, was elected to the state Senate.
That’s a record breaker: The California legislative women’s caucus said it’s the largest number of women to ever serve in the 120-member Legislature.
And yet: It means women hold just 31.6% of the seats. Compare that with Nevada, where 52% of state lawmakers are women.
But it’s a huge jump from two years ago, when women accounted for 22.5% of the California Legislature, as CalMatters’ Laurel Rosenhall reported at the time.
It could change: Assemblywoman Christy Smith, a Santa Clarita Democrat, is running for the congressional seat vacated last week by Katie Hill. If she wins, women would be back down to 37.
Gov. Gavin Newsom designated a top aide as his “energy czar” in the wake of Pacific Gas & Electric Company’s prolonged power outages and on Friday suggested the state could take charge of the bankrupt utility.
“The entire system needs to be reimagined,” Newsom said at a press conference.
Ana Matosantos will continue to serve as Newsom’s cabinet secretary while also working as the state’s energy czar, where she will be charged with helping fix the state’s utility problems.
PG&E, the state’s largest privately-owned utility, is in bankruptcy proceedings as it deals with billions of dollars in claims for damages related to wildfires caused by its equipment in 2017 and 2018.
“We share the governor’s focus on reducing wildfire risk across California and understand that PG&E must play a role in these efforts,” PG&E spokesman James Noonan said in a statement. “We welcome the governor’s and the state’s engagement on these vital matters and share the same goal of fairly resolving the wildfire claims and exiting the Chapter 11 process as quickly as possible.”
Newsom prodded the company to move quickly. He wildfire victims need money immediately and cannot afford to wait until the company’s June 30 deadline for exiting bankruptcy.
Newsom raised the possibility of the state taking charge of the utility, although he declined to give specific details about how that would look.
“PG&E may or may not be able to figure this one out,” Newsom said. “If they cannot, we are not going to sit around and be passive. We are gaming out a backup plan. If PG&E is unable to secure it’s own future… then the state will prepare itself as backup for a scenario where we do that job forthem.”
Frustrated with the positions of the different groups involved in the bankruptcy process, U.S. Bankruptcy Judge Dennis Montali appointed retired bankruptcy Judge Randall Newsome as a mediator earlier this week. The team Newsom unveiled on Friday is expected to work with Montali to expedite the bankruptcy process and broker a deal.
“This is not Plan A, but it is a plan,” Newsom said.
Before joining Newsom’s cabinet, Matosantos served as finance director under Govs. Jerry Brown and Arnold Schwarzenegger. She also served on a seven-member commission appointed by former President Barack Obama to oversee Puerto Rico’s finances during the territory’s debt crisis.
Matosantos’ energy strike team includes several other cabinet members: legal secretary Ann Patterson, energy adviser Alice Reynolds and legislative strategist Rachel Wagoner.
Newsom is asking them to determine how to make the state’s energy equipment safer, potentially by moving power lines underground or by dividing infrastructure into “micro-grids.”
Within weeks, Newsom wants the group to release a “broad strokes” outline for how utilities need to change to meet modern challenges.
“This is not the new normal, and this does not take 10 years to solve,” he said.
Newsom didn’t say how much he expected the changes would cost the state, although he noted that his administration doesn’t want to put the state’s budget “at risk.”
Federal Bank Officials Start Pricing Climate Risks
Wall Street Journal, 11/7/19, no link
A top New York Fed official put a price tag on climate- and weather-related events and said financial firms need to take seriously the danger of climate change in their risk-management decisions.
“The U.S. economy has experienced more than $500 billion in direct losses over the last five years due to climate and weather-related events,” said Kevin Stiroh, an executive vice president at the New York Fed responsible for regulating banks. “Climate change has significant consequences for the U.S. economy and financial sector through slowing productivity growth, asset revaluations and sectoral reallocations of business activity,” he said.
Mr. Stiroh’s comments came from the text of remarks prepared for delivery at the GARP Global Risk Forum in New York on Thursday. He spoke as the central bank has been taking increased interest in how a changing climate will affect the economy and the financial system.
On Friday, the San Francisco Fed will hold a conference on climate change and economic risks, a first for any part of the central bank. Bank President Mary Daly told reporters on Monday that the central bank needs to understand how climate-change disruptions will affect the economy, payment system and banks, adding “I don’t see that as anything outside of our mission. In fact, I think it’s squarely in our mission and important for us to do that.”
Still, climate change is a tricky issue for the Fed. While a disrupted environment and an increase in severe weather has had and will have clear economic costs, the Fed is legally charged with promoting price stability and maximum job growth. Central bankers have acknowledged interest-rate policy doesn’t have much of a role to play in mitigating climate change risks.
Instead, the Fed has confronted climate-change risks most squarely in its work to regulate banks and promote financial stability. Earlier this year, Fed Chairman Jerome Powell told to Congress that the central bank is working to ensure financial firms are strong enough to deal with “severe weather” events that are related to climate change.
Mr. Stiroh built on that in his remarks, arguing that the central bank was approaching the issue pragmatically.
Bank regulators “can use our tools to ensure financial institutions are prepared for and resilient to all types of relevant risks, including climate-related events,” Mr. Stiroh said, adding “It is beyond our mandate to advocate or provide incentives for a particular transition path.”
On the Fed’s part, Mr. Stiroh called for more research into climate-change risk, and said “we can seek to strengthen the data and modeling capabilities we need to assess climate-related risks as part of our forward-looking, data-driven supervision.”
The official also noted “we can also continue to follow closely and learn from the approaches taken by other central banks.” The Federal Reserve continues to be a lone holdout in an effort by most of the world’s top-central banks to actively help the financial system to evolve in a way that future climate change risks can be mitigated.
California Health Online
When it comes to smog, the standards have made a difference. Over the past three decades, counties across the state have made steady progress in reducing days that registered hazardous levels of ozone and particulate matter.
The improved air quality led to improved health indicators. For example, a recent USC study that tracked Southern California children over 20 years found that the reduction in smog translated to roughly 20% fewer new asthma cases in children.
Even with progress, the state’s pollution problems are far from solved. California’s large population combined with its fanatic car culture, warm climate, wind patterns and towering mountain-to-deep-valley geology have made continued improvement challenging. The state also bears a disproportionate burden of the country’s economic trade via high-emission trains, planes and ships.
California still has the five metropolitan areas that routinely register the highest levels of ozone pollution in the nation: Los Angeles, Visalia, Bakersfield, Fresno and Sacramento.
New York Times
SAN FRANCISCO — A mile from Apple’s headquarters in Cupertino lies the sun-faded carcass of the Vallco Shopping Mall. At the moment it consists of empty, buff-colored buildings, acres of black asphalt and a pile of rubble where the parking garage used to be.
About a year ago, a developer submitted a proposal to build 2,400 apartments on the site, half of them subsidized to put rents below the market rate. The city approved the plan reluctantly, and afterward a community group sued. The project is stuck in court.
Stories like that hang heavy over Apple’s $2.5 billion plan, announced Monday, to help solve the dire shortage of affordable housing that has come to dominate life and politics in the most populous state. The pledge came weeks after Facebook announced $1 billion for a similar program, and months after Google did the same. Earlier, in January, Microsoft committed $500 million for affordable housing in the Seattle area.
Beyond public relations, the moves amount to a statement from some of the tech industry’s largest employers that they are starting to take a more active role in addressing the chronic regional housing shortage that makes their expansion difficult — not just for their employees, but for the public at large.
But don’t expect the money to make much of a difference. A few billion dollars doesn’t buy a lot in California’s punitively expensive housing market. Even if it did, the companies’ announcements were accompanied by crucial yet mostly unanswered questions like where, how and when this money will be spent. And as the Vallco struggle illustrates, the biggest question is the one California has long wrestled with: how to get much-needed housing built when local governments and homeowners do everything they can to prevent it.
In fact, economists’ reports on the state’s outlook often cite housing costs, not trade wars or a tech bubble, as one of the biggest question marks for future growth. Over the past year, the Bay Area’s labor force — the number of people working or looking for work — has declined. Taken literally, the numbers imply that positions are being added by giving people second jobs and enticing workers to commute from outside the region.
“People say housing costs are driving people out of the state,” said Christopher Thornberg, founding partner of Beacon Economics, a consulting firm. “No, housing supply is driving people out of the state.”
“These investments are an opportunity, because clearly the tech companies want to engage and want their money to make a difference,” said Carol Galante, faculty director of the Terner Center for Housing Innovation at the University of California, Berkeley. “And yet, this scattershot approach, not just with each of them putting out their own announcements, but not having them coordinated with the larger conversation about how we are going to make the public policy changes that the Legislature is struggling with — unless you marry those things together, it’s not going to work.”
The housing programs announced by Apple and other companies are not philanthropy, but commitments to make affordable housing investments — for profit — in the form of corporate land and money. The details vary, but each company said it would allow housing development on land it already owned, and issue loans whose terms and interest rates are implicitly more generous than the terms that developers currently get from banks, but whose true costs will take years to figure out.
Apple said its plan would, among other things, create an affordable-housing fund that would give the state and others “an open line of credit” to build more affordable housing beyond land that it owns. The company expects to make money from the financing, but for the returns to be lower than what it would earn on investment-grade securities where corporate holdings traditionally lie.
A typical affordable-housing deal can have a dozen or more funding sources that encompass state, local and federal housing programs, along with bank loans and equity investments from private companies. Tech companies are in a sense positioning themselves to join that pool to aid the construction of housing at all levels — supportive housing for the formerly homeless, middle-income housing for teachers and others priced out of the area, and market-rate units of the sort where their employees might live.
Few would disagree that putting money toward affordable housing investment is a positive move. Ms. Galante, the former head of BRIDGE Housing, one of the country’s largest nonprofit housing developers, was emphatic that more money for subsidized housing, whatever its source, must be part of the long-term solution.
But in the context of California’s housing problems — which are rooted in intransigent local politics, not a lack of money — even the billions from tech companies can seem inconsequential.
Consider the math. At the moment it costs about $450,000, and considerably more in high-cost areas like the Bay Area and Los Angeles, to build a single unit of subsidized affordable housing in California, according to the Terner Center. That is by far the highest of any state, and just short of twice the nation’s median home value. And it’s not as if these are houses. The $450,000 figure is for an apartment of modest dimensions in a multifamily building, with standard layouts, bargain finishes and few of the amenities of for-profit development.
Given those figures, the $4.5 billion that Google, Apple and Facebook have earmarked would create about 10,000 housing units. To be sure, the companies’ money will stretch further on already-owned land, and it is likely to be augmented by other public and private funding sources, which is why Google and Facebook estimated that their investments would produce a combined total of 40,000 housing units in the Bay Area.
Even when the money is multiplied, however, the magnitude of the housing shortage remains pulverizing to any checkbook. According to a widely cited figure that originated with a 2016 report by the McKinsey Global Institute, California needs to build 3.5 million housing units by 2025 — more than three times the current pace — to address its shortage and regain any semblance of affordability. The theoretical cost is outlandish ($1.6 trillion), and while Gov. Gavin Newsom campaigned on McKinsey’s 3.5 million figure, his office now refers to it as “a stretch goal.”
None of this is to say that California’s housing problem is unsolvable, or that tech companies shouldn’t be helping. It’s to make the point that if single- or even double-digit billions were enough to even dent the problem, it would have been dented long ago.
“For 50 years, California has been designed around the idea that everyone will have a single-family home with a yard, that they will drive everywhere, and that geometry no longer works,” said Scott Wiener, a Democratic state senator from San Francisco who last year introduced a bill to make it easier to build housing near transit lines. “California cities have systematically made it hard to impossible to build housing, and money can’t fix that.”
As it stands, the housing situation is getting worse, with homeless counts rising in cities like Los Angeles, San Francisco and Oakland, despite costly efforts to ease it. The pace of California development is actually slowing, with some developers suspending projectsbecause costs are so high that even multimillion-dollar condos and $4,000-a-month one-bedrooms won’t yield a profit.
High taxes are often cited, particularly by Republicans, as the reason California is a difficult place to put down roots, but the real cudgel is housing costs. After a decade-long growth streak in which California has consistently outperformed the nation by most economic measures, and despite a 4 percent unemployment rate that is the lowest on record, the state continues to see more people move out than in. That is: The cost of housing has caused people to flee one of the hottest job markets in the nation, in one of the most beautiful places on earth.
The Bay Area has added 676,000 jobs over the past eight years, and 176,000 additional housing units, a ratio far from the 1.5 jobs per housing unit that planners consider healthy. Cities like Palo Alto have ratios as high as four jobs per housing unit, which, judged by their swollen daytime populations, make them more Manhattan-like than Manhattan.
State housing officials have given high marks to the San Diego Association of Governments for the planning agency’s proposal to require more housing in communities with a lot of jobs and access to transit.
The California Department of Housing and Community Development sent SANDAG a letter last week praising its proposal for where to locate nearly 172,000 homes expected to be needed throughout San Diego County in the coming years.
Every eight years, SANDAG allocates a certain number of new housing units to each city in San Diego County, as well as the county’s unincorporated areas. The process, known as the Regional Housing Needs Assessment, is designed to ensure communities are planning for enough homes to match projected population growth.
This year’s proposal was hotly debated, with several cities in the county arguing that they were being forced to take on a disproportionate share of the county’s growth.
Nonethless, the state housing agency applauded the plan. The Nov. 1 letter says SANDAG’s housing methodology is in line with state requirements that it protect environmental resources and combat racial and economic segregation.
“HCD appreciates the active role of SANDAG staff in providing data and input throughout the draft methodology development and review period, as well as developing a methodology that is clear and transparent,” states the letter, which was signed by HCD Assistant Deputy Director for Fair Housing Megan Kirkeby.
SANDAG’s proposal gives each community a score based on how many jobs and how many public transit stops it has. This is meant to discourage car-centric sprawl and instead promote infill development to shorten average commute distances and lower greenhouse gas emissions.
As a result, cities including Coronado, Del Mar, Solana Beach, Lemon Grove and Imperial Beach ended up with much higher housing allocations than in previous years. Officials from some of those cities fiercely opposed the methodology, saying the new expectations of denser zoning were unrealistic.
SANDAG also included an “equity adjustment” to require wealthier communities to plan for more low-income housing than in the past.
“We’ve described it as an equitable allocation where affordable housing is prioritized in places that currently don’t have a lot of affordable housing,” said Seth Litchney, SANDAG’s senior planner overseeing the housing allocation process.
On Nov. 22, SANDAG’s board of directors will be asked to officially adopt the methodology and present draft numbers for each jurisdiction in the county, Litchney said.
SANDAG’s counterpart to the north and east, the Southern California Association of Governments (SCAG), was voted Thursday on its own draft methodology for allocating housing across its expansive region of Ventura, Los Angeles, San Bernardino, Orange, Riverside and Imperial Counties.
SCAG’s interactions with state housing officials have been much more combative. In August the state overruled SCAG’s request for a lower allocation, telling the agency it must plan for 1.3 million homes over the next decade.
SCAG initially proposed a methodology that would have pushed a large share of its housing into the Inland Empire, leading to criticism that it would lead to longer commutes and more pollution.
However, the agency’s 86-member regional council Thursday adopted an alternative that promotes growth in the coastal regions where current demand for affordable homes is highest.
Former state legislator Ted Lempert is personally and professionally committed to improving the wellbeing of California’s children.
Lempert, the president of Children Now, has tirelessly advocated to improve children’s futures and last week released a lengthy report comparing California to other states and concluding that we are woefully underspending on education.
“Since the 1960s, and accelerated by the passage of Proposition 13 in 1978, California has experienced a decline in adequate funding for the public education system that has created a jarring reality for its 6.2 million students,” the Children Now report asserted.
“California is at the bottom of the country in terms of the amount of supports it provides to its students,” Lempert said in a statement. “If, as a state, we’re serious about providing an equitable, high-quality education for all kids, state leaders must invest more in education, starting early on in order to prepare them for success in high school and beyond.”
The report is clearly timed to support drives to place two tax increase measures on the November 2020 ballot, one that would increase property taxes on commercial structures, and another that would increase corporate and personal income taxes.
If both passed, schools would see about $20 billion a year in additional financing, or roughly $3,000 for each of the state’s 6.2 million K-12 students.
Proponents of the measures, unions for the property tax proposal and the California School Boards Association for the income tax hike, will echo Children Now, telling voters that our schools will once again shine if they have billions of more dollars to reduce class sizes, hire more teachers and expand support services.
But is it true?
By happenstance, the report was issued just as the federal government released scores from the latest round of national academic testing of 4th and 8th graders in reading and mathematics.
California maintained its mediocre status in the National Assessment of Educational Progress (NAEP) tests, up a little in some categories, down a little in others, with huge gaps separating poor and English-learner students from more affluent white and Asian classmates.
California’s test results have shown virtually no overall improvement even though we have increased per-pupil spending by about 50 percent in recent years. Nevertheless, Children Now and others contend that our academic shortfall would be closed by spending more.
However, there’s almost no correlation between spending and NAEP standing in 8th-grade reading, which is particularly important because reading comprehension is vital to success by students about to enter high school.
The District of Columbia tops per-pupil spending from all sources, according to the U.S. Census Bureau, at $23,091, followed by New York at $21,974, Connecticut at $19,322 and New Jersey at $18,920.
Utah is dead last at $7,179, with Idaho ($7,486) and Arizona ($8,003) slightly higher. California is already closing in on the top ranks at $17,160, according to the 2019-20 state budget.
Although the District of Columbia spends the most, its 8th-grade reading score of 250 is 12 points under the national average and one of the nation’s lowest. New York is second in spending but its reading score, 262, is identical to the national average, and just three points higher than California’s 259.
No. 3 Connecticut and No. 4 New Jersey are both markedly above average, but so are No. 51 Utah and No. 50 Idaho.
An adequate amount of money is obviously needed for education, but contrary to the assertions of Children Now and other advocates, it’s not the only factor, and shouldn’t be oversold. Our educational dilemma is much more complicated than that.
California has stepped up its enforcement against unlicensed marijuana grow operations.
Local, state and federal law enforcement in California have arrested 148 people and eradicated nearly 1 million unlicensed marijuana plants at grow sites across the state, according to a statement from the California Attorney General’s Office.
As part of the state’s “Campaign Against Marijuana Planting” campaign, law enforcement seized and destroyed 953,459 plants at 345 cannabis grow sites across Northern, Central and Southern California, Attorney General Xavier Becerra’s office said in a statement.
Police also seized 168 weapons as part of the raids.
That’s nearly triple the number of people arrested in so-called CAMP raids in 2018, when 52 people were arrested and 614,267 plants were destroyed.
“Illegal cannabis grows are devastating our communities. Criminals who disregard life, poison our waters, damage our public lands, and weaponize the illegal cannabis black market will be brought to justice,” Becerra said in prepared remarks.
“The sites, loaded with trash, banned pesticides such as carbofuran, methyl parathion, aluminum phosphate, and illegal fertilizers, discharge large quantities of these harmful products into the waterways of California,” according to the Attornery General’s Office. “Agents shut down these illegal grow sites, shielded the public from harmful chemicals, and disrupted dangerous criminal activity.”
Californians voted to legalize recreational marijuana in 2016, and sales became legal in 2018. However, the black market has persisted, and unlicensed marijuana grows continue to operate outside of state labor and environmenal regulations.
The CAMP marijuana eradication program dates back to the early 1980s. Prior to legalization, agencies commonly seized millions of plants from California marijuana farms, according to records kept by Humboldt State University.
In 2009, for instance, agents seized 4.5 million plants.
The CAMP effort was spearheaded by the California Department of Justice, and teams served more than 120 search warrants in 35 counties across the state.