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IN THIS ISSUE – “The warning lights haven’t turned off.”
Deputy Legislative Analysis Brian Uhler on the State’s fiscal outlook
- “Weak Outlook” for California Economy
- Avowed Progressive Newsom Angers Unions with Vetoes
- Senate & House Leaders Lose Control of Members; Lack of Election Competition, Internet Fund-Raising Cited
- State Water Board, Local Districts Struggle Over Conservation Rule
- New Kind of NIMBY Blocks Carbon Sink Pipelines
- Abandoned Farm Lands Can Capture Carbon & Preserve Species
Capitol 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 OCT. 6, 2023
“Weak Outlook” for California Economy
CalMatters
The Legislative Analyst’s Office (LAO) isn’t “necessarily in the business of calling a California recession,” said Brian Uhler, deputy legislative analyst — but it is sounding an alarm about a looming downturn.
The office wrote this week: “Our primary indicator, which combines data on unemployment, inflation, home sales, and bond markets, has been giving a warning signal for a little over a year.”
The office is now forecasting a possible $9.5 billion increase in state revenue relative to what it projected for the approved 2023-24 state budget, which covers a $30 billion-plus deficit, because of income tax withholding reversing a downward trend, and a rise in stock prices.
But it still sees flat revenue coming from personal income, corporate and sales taxes for the next three years, Uhler said Thursday.
“The outlook continues to be weak in historical terms,” Uhler said. “The warning lights haven’t turned off.”
In March, the state unemployment rate rose, triggering the “Sahm rule,” an indicator federal policymakers use to signal the start of a national recession, and which the LAO said has also accurately identified prior California recessions. The state unemployment rate has climbed from 3.8% in August 2022 to 4.6% in August 2023.
But Jerry Nickelsburg, director of the UCLA Anderson Forecast — which is not forecasting a recession because of what he sees as a continued strong job market — said Thursday that California data for the past two recessions show the “Sahm rule” was too early in indicating the 2008 recession by six months, but “did not pick up (the 2001) recession until three months after it started.”
Still, “we’re forecasting a very weak 2024,” Nickelsburg added, saying his expectation of a 1% economic growth rate is “fragile” and “plays directly into what the LAO is saying.”
LAO analysis:
https://www.lao.ca.gov/LAOEconTax/Article/Detail/777
UCLA Anderson commentary:
Avowed Progressive Newsom Angers Unions with Vetoes
CalMatters commentary from Dan Walters
Gov. Gavin Newsom describes himself as a “progressive” and has said his vision for California includes a highly unionized workforce.
However, his relationship with the state’s public and private employee unions has been a rocky one. Sometimes he and union leaders sing from the same hymnal, but they occasionally are at odds, particularly when labor is feuding with corporate interests that Newsom is also cultivating.
That syndrome was displayed last weekend when he vetoed two of union leaders’ high priority measures, including one that would have given unemployment benefits to striking workers, but then chose a former union leader, Laphonza Butler, to fill a U.S. Senate seat that became vacant when Dianne Feinstein died.
The juxtaposition drew a sharp retort from Lorena Gonzalez Fletcher, who resigned from the Legislature last year to become head of the California Labor Federation.
“Don’t get distracted,” Gonzalez Fletcher posted on X, formerly known as Twitter.
“Gov. Newsom has vetoed three important labor bills, including labor’s collective highest priority bill – SB 799. We must continue to organize & fight & demand respect for all workers, especially those who are striking to fix an economy that has failed us.”
Newsom said that Senate Bill 799, the unemployment insurance bill, would have worsened the Unemployment Insurance Fund’s multibillion-dollar deficit, which developed when the state borrowed about $20 billion from the federal government to keep unemployment insurance benefits flowing during the first months of the COVID-19 pandemic.
“Now is not the time to increase costs or incur this sizable debt.” Newsom said in his veto message.
Gonzalez Fletcher and other union leaders had pushed Newsom to approve SB 799 and the two other union-backed bills he has vetoed, one banning operation of trucks without human operators and another granting full employment protections to household workers. But he was also under pressure from business groups to reject them.
“We applaud Gov. Newsom for vetoing this misguided legislation,” Jim Wunderman, CEO of the Bay Area Council, said in a statement, adding, “We can’t keep saddling business with more and more costs and expect the state’s economy to flourish.”
Newsom’s veto of SB 799 does not end the battle. Gonzalez Fletcher pledged to put the bill on Newsom’s desk again, saying, “We will keep fighting until striking workers get the benefits they’ve earned.”
The clash also hardens a decades-long stalemate over the chaotic finances of the unemployment insurance system.
The state borrowed money from the federal government during the Great Recession because its Unemployment Insurance Fund, or UIF, had virtually no reserves. When the state didn’t repay the loan, the feds hiked payroll taxes on employers and it was finally retired in 2018.
Two years later, when Newsom ordered businesses to shut down during the pandemic, unemployment soared and once again the state borrowed about $20 billion to pay benefits, most of which is still owed.
California’s unemployment insurance program is running an operational deficit even during this period of relatively high employment and is the least solvent of any state unemployment fund. The UIF has been unable to build reserves because of a chronic political stalemate between unions and employers over benefits and the payroll taxes to pay for them.
It began when former Gov. Gray Davis and the Legislature drained what had been a healthy UIF reserve to sharply increase benefits, leaving it incapable of handling an economic downturn.
If another recession hit the state, it would almost certainly be forced to borrow even more money to maintain benefits, even though it still has heavy debt from the previous recession.
This political mismanagement of a system that protects millions of Californians from economic ruin is – or should be – a huge embarrassment.
https://calmatters.org/commentary/2023/10/strike-benefits-squabble-insolvent-unemployment/
Senate & House Leaders Lose Control of Members; Lack of Election Competition, Internet Fund-Raising Cited
Wall Street Journal excerpt
The problem for national Democrat and Republican leaders: Their control of campaign funds and committee assignments doesn’t carry the power it once did to force dissidents to toe the party line, allowing wayward members to essentially commandeer a House that Republicans control by only a handful of seats.
A populist trend in both parties—and most notably in the GOP under former President Donald Trump—now rewards lawmakers who are most eager to knock down political institutions, even those led by their own party.
Gerrymandering by both parties has ensured that only a handful of members ever face a competitive election, prompting lawmakers to cater to the most ideological voters in their party, who tend to vote in primaries, rather than the political center.
Of the 21 Republicans who opposed McCarthy’s last-minute effort last Friday to pass a short-term funding bill, only one—Rep. Lauren Boebert of Colorado—had a close election last year, winning by less than one-half of 1% of the vote. Only one other defector, Rep. Eli Crane of Arizona, won with less than a 10-point margin.
It is a party that many of the old-time conservatives don’t recognize. “The basic style of the populists is division, grievance, fighting. They constantly brag that they’re going to break things up or come to Washington with a blowtorch,” said former Sen. John Danforth, who represented Missouri for three terms, ending in 1995.
Bruce Mehlman, a former Republican aide in Congress and official in President George W. Bush’s administration, said social media had undermined the old power structure in Congress. “In the old days, you needed the party to raise money, build a profile and grow power. The system rewarded team play,” he said. “Now, you can raise more running against the party and quickly build a national following as a populist disrupter of the establishment.”
The same forces have propelled some Democrats to prominence almost as quickly as they have arrived in Washington.
At age 28, for example, Rep. Alexandria Ocasio Cortez of New York became a social media sensation and favorite of her party’s liberal wing upon unseating a prominent centrist in the 2018 Democratic primary.
However, then-Speaker Nancy Pelosi had more success in corralling her party’s progressives and passing priority legislation than has McCarthy so far, even while Democrats had a similarly narrow margin in Biden’s first two years as president.
These factors heighten the problems McCarthy faced because of his slim, 221-212 margin. It is the fifth-narrowest margin in history, Pew Research Center calculations find.
But the narrow margin doesn’t tell the full story. In 2001, the Senate was evenly divided, 50-50, before a party switch gave Democrats a slim, two-seat majority. Yet that Senate passed a big tax cut that was a major Bush administration priority, as well as a landmark education overhaul called No Child Left Behind and the McCain-Feingold campaign-finance restrictions.
The difference: 30 senators at the time belonged to a party that didn’t match their state’s vote in the most recent presidential election, meaning those senators weren’t free to cater only to their party’s core voters. Today, by contrast, only five senators and 23 of the 435 House members face similar cross-pressures.
“The margins are thinner,” said Rep. Steve Womack (R., Ark.), a longtime member of the House Appropriations Committee. “And the number of people who—I call them free agents—the number of people in our conference who kind of go their own way is higher. They dance to their own beat.”
And Trump adds complications by cheering on the rebellion. “It kind of promotes that free agency,” said Womack.
Recent election trends show how the incentives in Washington have changed, with lawmakers rewarded for ensuring a secure bond with their party’s core voters.
Lawmakers are less reliant on political parties for money. Greene, for example, was the ninth-largest fundraiser in the 2022 election cycle among current House members, and 98% of her money came from individual donors rather than party, corporate or political-action committee sources, data from the nonpartisan group Open Secrets shows. Ocasio-Cortez ranked 10th, and essentially all of her money came from individual donors.
Fewer lawmakers have incentives to appeal to constituents of both parties. The 23 House members representing districts that favored the opposite party for president—five Democrats in Trump-backing districts and 18 Republicans in Biden districts—are one of the smallest such groups in recent decades, data from the University of Virginia Center for Politics show.
In 2000, 86 districts picked a House member from one party and a presidential candidate from the other party. In 1984, there were 190 such districts.
Some of the House rebels may be charting a path to higher office, and a reputation for combativeness and challenging institutions could be helpful in a base-driven Republican primary. Rosendale, for example, would be running for the Senate from the political right against a candidate favored by the state’s Republican governor and prominent GOP senators. Gaetz is considering a bid for Florida governor, in which he could face Rep. Byron Donalds, who unlike Gaetz not only voted for the short-term funding measure on Friday but also was the lead sponsor.
State Water Board, Local Districts Struggle Over Conservation Rule
CalMatters
Saying the targets to cut water use in cities and towns will be costly and difficult to achieve, water agencies throughout California have raised concerns about an ambitious state proposal that would require more water conservation statewide beginning in 2025.
The State Water Resources Control Board’s proposed regulations would mandate conservation measures by more than 400 cities and water agencies that serve about 95% of Californians. The measure could wave about 413,000 acre-feet a year by 2030, enough to serve about 1.2 million households per year.
During the last three-year severe drought, which ended this year, the Newsom administration set voluntary conservation goals that were largely ineffective. Californians used only about 6% less water from July 2021 through the end of last year compared to 2020, far less than Gov. Gavin Newsom’s 15% goal.
The new rules are mandated by a package of laws — enacted in 2018 by the Legislature and former Gov. Jerry Brown — that aim to make “water conservation a California way of life,” not simply an emergency drought measure.
Water providers from the Mojave Desert to Sonoma County and beyond warned at a board workshop on Wednesday that the regulations would be a challenge, particularly because many would have to make steep cuts to outdoor water use. About 80 people, mostly representing water agencies, spoke during the meeting, which lasted longer than eight hours.
The regulation would cost water suppliers about $13.5 billion from 2025 to 2040 — more than 40% of which would fund rebate programs and other efforts to cut residential water use, according to the water board. But the benefits are anticipated to reach about $15.6 billion between 2025 and 2040, largely from reduced water purchases by both suppliers and customers.
“It’s awkward, because we are committed to water use efficiency,” said Ryan Ojakian, government relations manager for the Regional Water Authority, which represents Sacramento-area providers. “It really comes down to, are the regulations feasible? Are the costs worth the benefits? And what are the consequences in achieving the regulations?”
The water board is expected to vote by next summer on the rules, which could go into effect next fall.
Water suppliers, not individual customers, would have to meet the targets — and each supplier would need to figure out its own strategy. These could include rebates that encourage customers to swap out thirsty lawns for more drought-proof landscapes or rate structures that penalize heavy water users.
Water providers said it will be difficult to squeeze more conservation out of their customers.
“They want us to save water at such an accelerated rate, that even if we had all the money, we would not be able to convince our customer base to participate at the rates we need them to,” said Joe Berg, director of water use efficiency at the Municipal Water District of Orange County. “We can build it, but they don’t necessarily come.”
The state agency’s formula sets targets for each water agency based on goals for indoor and outdoor residential water use, business landscapes with dedicated irrigation meters, losses like leaks and other variables, such as the presence of livestock in a region.
In the rules, the state’s targets for indoor and outdoor water use in residential areas ratchet down, beginning in 2030 and then again in 2035.
Suppliers that fail to live within their prescribed water budget could face escalating consequences that could eventually lead to fines of $1,000 a day starting in 2027 or $10,000 a day during droughts.
Tracy Quinn, CEO of the environmental group Heal the Bay, told the board that water conservation measures are critical as California stares down a water-scarce future.
Between the declining snowpack, ongoing haggling over Colorado River water, groundwater regulations and projections that climate change could dry up 10% of the state’s water supply, “there is an incredible need for us to do a rulemaking that’s going to require the efficient use of water,” she said.
About 231 agencies serving nearly 27 million Californians are already on track to meet the 2025 objectives without reducing their water use, mostly in the San Francisco Bay Area and Southern California. And 71 agencies serving 8.5 million Californians are expected to meet the 2035 standards as well, including the city of San Diego, the San Jose Water Company, the San Francisco Public Utilities Commission, the Irvine Ranch Water District and city of Santa Ana.
Cumulatively, the rules are expected to save about 6.3 million acre-feet between 2025 and 2040, mostly from residential measures.
Berg said the regulations could cost Orange County water agencies more than $707 million over 11 years to implement. But more than that, he said, he’s concerned that the standards for outdoor water conservation accelerate too quickly.
“If an agency were to look at the cost to comply and compare that to the cost of the fines, it wouldn’t surprise me if an agency just says, ‘Okay, we’ll just take fines,’” Berg said.
Claire Nordlie, water use efficiency supervisor for the city of Santa Rosa in Sonoma County, echoed those concerns during the workshop.
“I really want to emphasize that sustained water savings are difficult to achieve. It takes decades of time, and a significant investment of resources, as well as a population and a culture within your service area that want to participate,” she said.
Nordlie said fewer and fewer people are participating in the city’s rebate program for removing lawns, which offers $1 for every square foot of grass removed. Customers surveyed say that it costs about $7 a square foot to tear out their lawns. That cost, Nordlie said, is a major barrier.
“If customers don’t want to participate, we can’t force them to,” she said.
Jay Lund, director of the Center for Watershed Sciences at the University of California, Davis, told the board he’s concerned that the regulations could affect public trust.
“Certainly some aspects of our society are really upset every time you come in there with a new regulation, and so I think we have to bear that in mind,” Lund said. “Because that blowback can be very bad for a lot of more important things than this.”
Smaller water agencies, especially in inland regions, will be the hardest hit. Ten suppliers serving about 200,000 Californians are expected to face cuts upwards of 30% in 2025, but the number increases to 84 suppliers serving 3.7 million Californians in 2035. Included are the cities of Atwater and Kingsburg, the Oildale Mutual Water Company and the West Kern Water District, according to state data.
Jennifer Cusack, director public and government affairs with the Hi-Desert Water District in Yucca Valley on the edge of Joshua Tree National Park, said the water agency has long struggled with its water supply and there’s little room for additional conservation. Many ornamental lawns are already gone and indoor water fixtures have been improved.
“There’s not a lot of opportunities for savings in our community, because we’ve done so much already,” she said. “A lot of folks don’t even irrigate their homes. They have dirt lots or maybe some trees.”
Even so, the desert water supplier is expected to be out of compliance with the 2030 and 2035 targets, which, she said, “just raises a red flag.”
In response to earlier calls for increased flexibility, state regulators offered an alternative pathway that would give some providers, such as those serving disadvantaged communities, extra time to meet a 2035 outdoor water-use target, provided they meet certain criteria.
New Kind of NIMBY Blocks Carbon Sink Pipelines
Wall Street Journal excerpt
Oil and gas pipelines have been stymied for years by environmentalists and landowners. Now those groups are blocking CO2 pipelines too.
In the Midwest, a coalition of environmental groups and farmers have teamed up to stop plans to erect thousands of miles of pipelines that would carry climate-warming carbon emissions to underground storage locations.
The projects are vital to President Biden’s plans to drastically curtail emissions, but the groups question their green credentials, safety and use of eminent domain to seize private property.
Regulators in North and South Dakota recently rejected permit applications by developers after fierce local opposition, injecting uncertainty into the companies’ multibillion-dollar plans to shuttle and store CO2 deep under the surface.
The roadblocks are reminiscent of those faced in recent years by proposed crude pipelines such as Keystone XL and the Dakota Access Pipeline. Energy executives and analysts said they expected some turbulence given the projects’ scale, but that significant delays would send a negative signal to companies and investors looking to invest in carbon capture.
“You need a larger scale project to go forward and prove it” can be built, said Katherine Zimmerman, decarbonization director for the Americas at engineering firm Wood.
If the U.S. is to reach net-zero emissions by 2050, it will have to build about 60,000 miles of conduits to connect industrial sites where CO2 is emitted and captured to burial spots, according to a 2021 Princeton University study. About 5,300 miles of CO2 pipelines operate today.
Environmental groups fighting the projects acknowledge that piping carbon for underground storage sounds good in theory, but argue the process is energy- and water-intensive and would only delay conversion to green energy sources such as wind and solar.
“When you look at it more closely, you realize it’s really giving a lifeline to the fossil fuel industry,” said Pam Richart, co-founder of the Illinois-based Coalition to Stop CO2 Pipelines.
Tax subsidies included in Biden’s signature climate bill allow companies to receive $85 per metric ton of CO2 captured directly from emitters and stored—an appealing proposition in the Corn Belt, where ethanol plants spit out a concentrated carbon stream that can be collected at a low cost.
But developers of CO2 pipelines have run into hurdles familiar to the oil-and-gas industry—from having to negotiate easements with landowners to navigating complex regulations. States and counties currently decide whether to approve or deny the projects, and the White House earlier this year urged Congress to give the federal government authority to green light CO2 pipelines.
“The kind of pipeline we most need to see built, in my view, is CO2 pipelines,” said John Holdren, a former director of the White House Office of Science and Technology Policy in the Obama administration and now a Harvard University professor.
Renewable-energy projects such as wind and solar farms have also faced mounting pushback from local governments across the country. Energy executives expect that some regions will be friendlier to CO2 pipelines than others, such as the Gulf Coast, a region crisscrossed by oil-and-gas infrastructure.
Storing CO2 could unlock economic benefits for ethanol producers by qualifying them for federal tax credits, further opening ethanol to markets with low-carbon fuel standards such as California, and enabling them to sell feedstock to companies developing sustainable aviation fuel.
Abandoned Farm Lands Can Capture Carbon & Preserve Species
Yale e-360
Ecologists are increasingly looking to abandoned farmlands and degraded forests as resources for restoring biodiversity and storing carbon.
Abandoned agricultural lands have been increasing dramatically, with a billion acres having been lost globally.
Researchers say preconceptions about categorizing land — as farmland, pristine or production forest, or populated areas — too often blinds us to the environmental potential of these places.
As one ecologist said, “Land abandonment and human depopulation are a modern wildcard when it comes to their potential to conserve biodiversity and capture carbon.”
MORE:
https://e360.yale.edu/features/abandoned-lands-restore-biodiversity