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IN THIS ISSUE – “It is important to remain disciplined.”

Gov. Newsom in his veto messages for spending bills

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 SEPT. 23, 2022

 

Wary of Fading Revenues, Newsom Vetoes Many Spending Bills

CalMatters

Loyal readers of Gov. Gavin Newsom’s veto messages may have noticed a new theme popping up lately.

Newsom, again and again: “With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined.”

Bills to boost health insurance subsidies, exempt manufacturers from certain sales taxes, help more kids get mental health care through their schools and let some California students ride public transit for free all fell before the governor’s nearly identically worded appeals to fiscal rectitude. Of the 27 bills that Newsom has rejected since the end of the legislative session, 18 (exactly two-thirds) used some version of that now familiar line.

The governor, lucky him, has never had to lead the state during a long-term economic downturn. But with the income tax revenue coming in 11% below expectations so far this year, it appears that Newsom is starting to channel his inner Jerry Brown.

H.D. Palmer, a spokesperson for Newsom’s Department of Finance, said in an email that the governor has been telegraphing his budgetary concerns for months, pointing to the administration’s record-setting spending plan that dedicated nearly all of its surplus to one-off expenditures.

Palmer: “As we have said at several key points this year, and as the Governor has again emphasized in his recent veto messages, the likelihood of continued declines on the receipts side of the ledger means that we have to closely watch the expenditures side.”

That could also help at least partially explain why Newsom, otherwise a big fan of electrical vehicles, has taken such a public stance against Proposition 30 — a ballot measure that would increase funding for EV infrastructure by increasing income tax rates on millionaires.

One argument against the measure: About half of California’s income tax revenue comes from the top 1% of earners and that money tends to whipsaw around with every boom and bust of the stock market. If a recession is on the horizon, the argument goes, making the state even more dependent on a volatile revenue source could be a bad bet.

 

State Reports July Revenues 6% Below Forecast; 3rd Straight Month of Declines

State Dept. of Finance

MONTHLY CASH REPORT

Preliminary General Fund agency cash receipts for August were $816 million, or 6 percent, below the 2022-23 Budget Act forecast of $13.606 billion. Cash receipts for the first two months of the 2022-23 fiscal year were $2.007 billion, or 8.4 percent, below the forecast of $24.04 billion.

This follows below-forecast results of 12% in July and nearly 10% in June.

Preliminary General Fund agency cash receipts for the 2021-22 fiscal year were $2.186 billion below the forecast of $233.987 billion, mostly due to a large shortfall in personal income tax receipts in June. Therefore, for the prior fiscal year and the current fiscal year-to-date combined, preliminary General Fund agency cash receipts were $4.193 billion below forecast.

Shortfalls in August continued to be largely driven by lower proceeds from personal income tax, however, the month also saw lower proceeds from sales and corporation taxes.

Personal income tax cash receipts to the General Fund for August were $615 million, or 7.6%, below the month’s forecast of $8.054 billion. August is not a significant month for personal income tax cash receipts, except for withholding, which is significant every month. Notably, withholding receipts fell $700 million short of projections in August, or 9.1 percent. This was the third consecutive month that withholding receipts fell below forecast and followed a $731-million, or 10.1-percent, shortfall in July and a $437-million, or 5.8-percent, shortfall in June.

Corporation tax cash receipts for August were $81 million, or 19 percent, below the forecast of $426 million. August is al so not a significant month for corporation tax cash receipts. A small amount of unanticipated Pass-Through Entity (PTE) elective payments partially offset lower receipts and higher-than-expected refunds.

Sales and use tax cash receipts for August were $192 million, or 4.5 percent, below the month’s forecast of$4.303 billion. This was the third consecutive month that sales and use tax receipts were down relative to the forecast. August receipts included the majority of the final payments for second quarter taxable sales, which were due on August 1, as well as the first prepayment for third quarter sales.

TRADE

California export trade totaled $15.3 billion for July 2022, down 5.7 percent from June 2022 but up

2.9 percent from July 2021. The state’s import trade totaled $43.6 billion for July 2022, down 4.9 percent from June 2022 but up 9.6 percent from July 2021.

U.S. export trade totaled $175.6 billion in July 2022, down 3.8 percent from June 2022 but up 22.2 percent from July 2021. The nation’s import trade totaled $271.1 billion in July 2022, down 5.2 percent from June 2022 but up

14.2 percent from a year ago.

BUILDING

Through July 2022, the latest available data, California permitted 119,000 units on a seasonally adjusted annualized rate (SAAR) basis, down 3.1 percent from June 2022 and 0.9 percent from one year ago. July 2022 permits consisted of 66,000 single-family units (down 2.7 percent from June, and down 2.1 percent year over year) and 53,000 multi-family units (down 3.6 percent from June but up 0.6 percent year over year).

Click on September here: https://dof.ca.gov/forecasting/economics/economic-and-revenue-updates/

 

Lt. Gov. Eleni Kounalakis: “My First 4 Years Were a Very Good Training Ground for the Top Job”

CalMatters

The duties of California’s lieutenant governor are light compared to other statewide elected officials: voting on the boards of three public higher education systems; serving on the commission that oversees millions of acres of land under state waterways; and stepping in for the governor when he leaves the state, as Eleni Kounalakis was doing this week when she joined CalMatters for an interview about her re-election campaign.

But the second-highest office in the state can also be a powerful launching pad for Californians with greater aspirations. Two of the last four governors served immediately prior as lieutenant governor, including current Gov. Gavin Newsom.

Kounalakis, a longtime housing developer and former U.S. ambassador to Hungary who was elected in 2018, made clear that she’s interested in being the next — which, if she succeeded, would make her the first woman to govern the biggest state in the country.

“I think if we are going to have a woman governor of California, that she shouldn’t be coy in her ambitions,” Kounalakis said. “I have found my first four years as lieutenant governor to be a very good training ground for the bigger job.”

That includes advancing higher education, environmental protections, gender equity and California’s engagement on an international stage, Kounalakis said, though she called rebuilding the lieutenant governor’s office the main accomplishment of her first term.

“By the time I came in, it was not fully functional. And so I started with what does the Constitution dictate that this office should be used for?” she said. “Being involved in learning and understanding what’s happening in state government is very important.”

First, however, Kounalakis will have to win a second term. Here is what the Democrat told CalMatters that she would do with four more years on the job:

https://calmatters.org/politics/2022/09/eleni-kounalakis-lieutenant-governor-election/

 

Lithium Mining Boom Threatens Delicate Habitats

Yale e-360

The lithium-mining boom in the high Andes threatens to turn the region’s delicate wetlands and meadows to desert. Growing demand for lithium for electric vehicle batteries has led to a surge in mining projects in the Lithium Triangle region of Chile, Bolivia, and Argentina, where companies gather the metal by pumping lithium-rich brine from underground and evaporating it in the sun.

For every ton of lithium carbonate produced, miners use up about a half a million gallons of water. And as mining lowers the water table, hydrologists warn, it could drain vital ecosystems and deprive Indigenous communities of precious water.

MORE:

(https://e360.yale.edu/features/lithium-mining-water-andes-argentina) .

 

EV Carmakers Bet Big on Battery Recycling Start-Ups

Wall Street Journal excerpt

The world’s biggest auto makers are betting that recycled material from old batteries will help supply the metal they need to build electric cars. The latest wager is on a startup that says it can take advantage of the Inflation Reduction Act.
Eputting more than $300 million into Ascend Elements, a startup that aims to serve an emerging center of battery production in the Southeastern U.S. The company says it has an efficient way to turn used lithium-ion batteries into new components. Other investors include Fifth Wall, a venture investor with a clean-energy focus. The funding is split between equity and debt and values Ascend at more than $500 million.
Ascend and other upstarts such as Redwood Materials Inc. and Li-Cycle Holdings Corp. have said they would spend billions of dollars to supply battery makers with the inputs they need. Recycling startups typically break down old batteries or scrap material from manufacturing, then use chemical processes to produce components that can go into new batteries.
The recyclers are jockeying for large customers that need more of those materials to meet their electric-vehicle goals. Car makers are trying to limit their dependence on China, which dominates the battery supply chain.
Investors are pouring money into recycling in part because nearly all new mines and processing facilities in the U.S. face local opposition due to worries about environmental damage. That typically stalls progress and means it takes up to a decade or more to get projects up and running.
The Inflation Reduction Act added to the momentum in the sector by tying electric-car tax credits for consumers to how much battery material comes from domestic production and recycling or from U.S. trade partners.
The government has also made billions of dollars available to battery startups through last year’s infrastructure bill and Energy Department loans.

Founded in 2015, Ascend currently operates facilities including one in Covington, Ga., that breaks down batteries. It is spending up to $1 billion to build a larger plant in Kentucky. Ascend says its chemical process is unique b cause it can be easily modified to supply different types of components. It hopes to eventually expand beyond the region, Mr. O’Kronley said.
Auto companies building factories in the Southeast include SK partner Ford Motor Co., Hyundai Motor Co. and upstart Rivian Automotive Inc. Ascend also has a partnership with Honda Motor Co.
Securing metals near manufacturing sites is seen as vital to scaling production and lowering emissions, which are high due to metals extraction, processing and shipments around the world.
Redwood, run by Tesla Inc.’s former chief technology officer, said recently it would spend $3.5 billion on a battery-component production facility in northwest Nevada. JB Straubel’s company is expanding after recycling material from Tesla supplier Panasonic Holdings Corp. and other manufacturers for several years. It raised about $775 million from investors including T. Rowe Price, Goldman Sachs Asset Management and Fidelity last summer, valuing the company at roughly $4 billion.
Some analysts say recycling startups could struggle to be profitable due to high costs and manufacturing challenges until the first generation of large-scale electric-car batteries is retired about a decade from now. Scrap from battery manufacturing will be the industry’s majority input until the mid-2030s, consulting firm Benchmark Mineral Intelligence forecasts. Smaller batteries from laptops and other devices aren’t enough input material for the industry to truly take off, analysts say.

 

QUICK TAKES:

Inmovers (FL) v. Outmovers (CA)

Wall Street Journal excerpt

In May, the Census Bureau released data noting a large departure from Northern cities between July 2020 and July 2021. The populations of San Francisco fell 6.3%, New York City 3.5%, Boston and Washington both 2.9%.

More broadly, the Census Bureau reported in 2019 that “Florida had the most domestic inmovers, with 566,476 people moving from another state within the past year.” Meanwhile, “California had the most domestic outmovers, with 661,026 people moving to another state” in the previous year. Some movement has occurred inside state borders, for instance out of New York City to the suburbs or from Los Angeles and San Francisco to inland California counties.