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IN THIS ISSUE — “There is No Free Lunch on Climate Change”
CLIMATE CHANGE
- Newsom Doubles Down on Climate Change Laws…But How Does He Start His Gas Engine Ban?
- Climate Change Battle – An Economic Balancing Act
- “California is Supposed to Burn”
STATE ECONOMY
- Tax Receipts, Jobs & Housing Prices Break Positive for September
- Newsom Pauses Beleaguered Unemployment Dept.; Job Outlook Bleak
- Recession Submerges Water Districts
BALLOT INITIATIVES
FOR THE WEEK ENDING SEPT. 25, 2020
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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Newsom Doubles Down on Climate Change Laws…
But How Does He Start His Gas Engine Ban?
Politico
Gov. Gavin Newsom spent the last couple of days basking in national political plaudits for his major gasoline car phaseout order. But bringing along home-state legislators could be trickier than winning over Van Jones.
And he doubled down on climate change. On Thursday, he signed a suite of environmental protection bills — including one that mandates CRV plastic bottles be made with 50% recycled materials by 2030 — and launched a new program called the California Climate Action Corps. (List of new laws at the bottom of this article.)
Make no mistake: Newsom can initiate the phasing out of gas-powered cars by 2035 via executive order, but much of the actual mechanics will fall to the Legislature. That will likely mean a prolonged debate and interest group brawls over green jobs and how the change impacts low-income communities — and that’s separate from Newsom urging the Legislature to send him a fracking ban, which has proved too heavy a lift for Sacramento in recent years.
Fossil fuel hubs like refineries tend to offer well-paid union jobs. Democrats with refineries in their districts know it, and that helps explain why organized labor and Big Oil have become de facto allies versus environmentalists at times — as with a scuttled bill to create bigger buffers around wells. Newsom likes to tout the green jobs potential of decarbonizing the economy, but unions and their allies are unlikely to take that promise at face value. The powerful State Building and Construction Trades Council of California has already hammered Newsom on this, as unions did with Los Angeles Mayor Eric Garcetti’s “Green New Deal.”
“We have a huge jobs piece that we have to be diligent about” to ensure “we’re not wiping out an industry without thinking about what the next set of jobs look like,” Assemblymember Lorena Gonzalez, Sacramento’s preeminent labor champion, told POLITICO after publicly airing her concerns on Twitter .
Gonzalez stressed that she supports the overall goal, but not a blank check. That could mean attaching labor requirements to electric vehicle subsidies or ensuring people who work on solar hookups meet training requirements.
“I don’t want to see the kid gloves we use to deal with the Elon Musks of the world — ‘Oh, they’re innovative, so we can’t demand too much,’” Gonzalez said of a company on which legislative Democrats have already tried to impose more labor requirements. “No. These are the jobs of the future and they need to be good, union jobs, period.”
Environmental elitism is a recurring criticism of green initiatives, and it’s one that often divides Democrats. You see a lot more Teslas in wealthy coastal districts than in more poor, rural and inland areas, many of which are also home to more Californians of color. Sacramento has taken steps to direct cap-and-trade money to disadvantaged communities, but Democrats who represent those areas say they need more funding and job training.
That could mean rethinking cap-and-trade, California’s key tool for funding climate initiatives.
Assemblymember Eduardo Garcia, on a climate panel organized by the Newsom administration on Thursday, channeled environmentalists’ discontent when he cautioned against relying too much on the creaky and “volatile” cap-and-trade system.
“We may have to revisit the cap-and-trade system,” he warned, noting that “it wasn’t up until this last auction that we’ve seen some good numbers coming from the program.”
Newsom yesterday called the electric vehicle transition “one of the great opportunities for Black and brown communities we’ve ever had,” citing both the salubrious effects on our air and cost reductions — the “cost of maintenance, the cost of operating will be the biggest benefit to low-income communities” — that would need to offset the currently higher costs of EVs. The extent to which Newsom is right on that could determine his plan’s political viability.
Governor’s list of new laws:
Climate Change Battle – An Economic Balancing Act
Sacramento Bee
When Gov. Gavin Newsom declared recently that “we have to step up our game” and accelerate California’s fight against climate change, it triggered a question in Chris Rufer’s mind:
How much will this cost?
Rufer is the founder of The Morning Star Co. of Woodland, one of the world’s largest tomato processors. Under California’s climate-change initiative known as cap-and-trade, Morning Star has to spend about $2 million a year buying carbon emission credits — the right to spew greenhouse gases at its processing plants in Williams, Los Banos and Santa Nella.
If California raised the price of carbon credits, it would mean higher production costs — and price hikes for consumers of tomato paste, diced tomatoes and other Morning Star goods. The state could “make it so bad that we have to decrease production,” said Rufer, who once filed an unsuccessful lawsuit against the cap-and-trade program.
Rufer’s reaction underscores the challenges that Newsom faces as he ramps up an array of new climate-change initiatives for California, as a rampage of wildfires never before seen in modern times overtakes the state.
Fighting climate change costs money. Companies like Morning Star pay billions of dollars a year for emissions credits. Motorists spend an estimated 30 cents a gallon extra at the pump because of restrictions on greenhouse gases.
Are they willing to spend any more?
Newsom hasn’t yet fully detailed what he wants to do. But a higher price on carbon could create “political liabilities” for Newsom in a state mired in a difficult recession because of the COVID-19 economic shutdown, said Chris Busch, research director at Energy Innovation LLC, a San Francisco policy and research firm.
Polls show Californians overwhelmingly favor the state’s climate initiatives; more than three-quarters of them want the state to take a leadership role on the world stage, according to a July survey by the Public Policy Institute of California.
But when it comes to paying for a green California, the results are mixed. Only about half are willing to pay more for electricity to reduce global warming, for instance. Californians pay about 50% more than the average American for each kilowatt-hour of electricity they use. But their monthly bills are actually 13% below the average because usage is so low.
“Californians want a free lunch but there is no free lunch on climate change,” said Steve Maviglio, a Democratic political consultant in Sacramento. “It is an expensive issue to tackle. … In this economy, I don’t think people are willing to shell out more.”
Still, Newsom is coming under pressure from some in the environmental community to go bold on a variety of fronts. For instance, the state estimates that 8% of all new vehicle sales in 2025 will be electric or plug-in hybrids. A trio of groups — the Sierra Club, Earthjustice and the California Environmental Justice Alliance — is urging Newsom to make it 100% by 2030.
Wade Crowfoot, secretary of the Natural Resources Agency, said in an interview that the Newsom administration realizes that the recession could complicate the state’s efforts.
“We need to balance climate action with economic recovery,” said Crowfoot, who made national headlines after engaging in an impromptu debate on global warming with President Donald Trump during Trump’s recent visit to Sacramento. “We have to be careful about the actions that we take.”
California’s goals on climate change sometimes collide with essential tasks like keeping the lights on.
The state endured two nights of rolling blackouts during a mid-August heat wave. The Independent System Operator, which runs the electricity grid, said the blackouts were caused by planning miscues.
But it’s also true that the state’s heavy reliance on renewable energy played a role. Solar power naturally faded out as the sun went down, and wind power proved fickle, leaving the state’s electricity grid short of power both nights.
California gets about 34% of its power from renewables, and the figure is climbing. A law signed by Newsom’s predecessor, Jerry Brown, says renewables must make up 50% of the power supply by December 2026 and 100% by 2045.
Newsom wants to speed that up.
“While it’s nice to have goals to get to 100% clean energy by 2045 … we’re going to have to be more aggressive,” he said while touring forests burned by the deadly West Zone of the North Complex Fire. “I think 2045’s too late.”
But Newsom doesn’t want to see the lights go out, either. The governor said he was pleased that the State Water Resources Control Board — citing the need for reliable energy — postponed the planned shutdown of a string of high-polluting, natural gas-fired power plants on the Southern California oceanfront.
Newsom called the postponement “a small step back … negligible in the context of our total, overall strategy” of increasing the use of renewable electricity sources.
PG&E Corp., the state’s largest utility, says it supports the overall policy of removing carbon from the power grid, but it sounded a cautionary note about speeding up the process.
“As we work towards higher renewables mandates, we also must also remain focused on maintaining grid reliability and managing costs for customers,” said Pacific Gas and Electric Co. spokeswoman Lynsey Paulo. “Ultimately, for the low-carbon economy to be sustainable, we must get there as cost-effectively as possible and we must ensure that the electric system continues to be safe and reliable.”
It was a historic moment in the White House Rose Garden. A contingent of top California officials, led by then-Gov. Arnold Schwarzenegger, were meeting with President Barack Obama and executives from the nation’s automakers. The May 19, 2009, ceremony was held to celebrate a breakthrough agreement that would ratchet down greenhouse gas emissions from automobiles.
“I want to applaud California and Governor Schwarzenegger and the entire California delegation for their extraordinary leadership,” Obama said. “They have led the way on this as they have in so many other efforts to protect our environment.”
The state has launched other initiatives on climate change. The cap-and-trade program requires industrial firms to buy emissions credits to release carbon into the air.
The “low carbon fuel standard” imposes restrictions on how much carbon can be emitted when refiners turn oil into gasoline. The renewable portfolio standard requires electric utilities to use solar and other renewables in ever-increasing amounts, leading to the current target of a 100% green grid by 2045.
The results: a decline in greenhouse gases throughout the state. In 2004, carbon emissions in California were estimated at 493.9 million metric tons, according to the California Air Resources Board. In 2017, the latest figures available, they’d fallen to 424.1 million, a drop of 14%.
Newsom has taken steps of his own since taking office in January 2019. He’s engaged in a protracted legal fight to protect the greenhouse-gas rules on cars against the Trump administration, which has been trying to weaken them.
He formed an alliance with a group of five automakers that have agreed to play by California’s rules — and even signed an executive order last fall requiring state agencies to buy vehicles only from those manufacturers. (The carmakers are Ford, Honda, Volkswagen, BMW and Volvo). He also told state agencies to stop buying gas-powered sedans, although the order exempts public safety vehicles.
But from where Newsom was standing recently — in a smoldering forest near Lake Oroville, a few miles from the site of a wildfire that killed 15 people — those efforts aren’t good enough.
While the governor said he was proud of California’s efforts on climate change, his overall verdict was dismissive: “Everything we’ve done has been adequate.”
No other state fights climate change as aggressively as California. What else can the state do?
Newsom declined to go into specifics, other than to say he’s asked Crowfoot and Jared Blumenfeld, secretary of Cal EPA, to comb through the state’s policies and regulations to see what could be put on a faster track.
Crowfoot said that the process will take a while. While the governor believes he can take some actions through executive orders, other changes would “absolutely involve the Legislature,” Crowfoot said.
One possibility for change, Newsom suggested in his visit to Oroville, could involve cap-and-trade.
The eight-year-old program relies on a market mechanism to put a price on a ton of carbon emissions. Big industrial companies are required to reduce their emissions below a certain threshold — the “cap” — which declines slightly each year. If they can’t find a way to reduce emissions, they have to buy credits, either from other companies — the “trade” — or at auctions run every three months by the California Air Resources Board.
Last year alone the auctions raised more than $5 billion, although that figure includes money spent by companies in the Canadian province of Quebec. California spends its share of the proceeds on a variety of climate programs, including energy-efficient housing projects and efforts to reduce wildfire risks by “thinning” overgrown forests. Some of the money is used to support the multibillion-dollar high-speed rail project.
Some experts believe the program could be strengthened by making fewer credits available for purchase.
At the latest state-run auction, credits sold for less than $17 per ton — the minimum price allowed by the state, according to UC Berkeley energy economist Severin Borenstein.
With prices that low, the program doesn’t really discourage carbon emissions as much as it could, said Busch, of Energy Innovation.
“There’s a buildup of excess permits and that’s putting downward pressure on the price,” said Busch, whose firm is funded by donors such as the Aspen Global Change Institute, an environmental nonprofit. “That undermines the effectiveness.”
Nevertheless, Busch said political resistance might make it hard to clamp down severely on the supply of carbon credits.
“It’s a tough call in times like these,” he said.
They might not realize it, but California motorists pay at the pump for the privilege of emitting carbon.
Since 2015, wholesale fuel distributors have been required to participate in the cap-and-trade program. The costs likely add another 15 cents a gallon at retail, said UC Berkeley energy economist Severin Borenstein.
The state’s low carbon fuel standard also adds about 15 cents a gallon to fuel prices, Borenstein. The LCFS is a separate program that charges oil refiners, and makers of ethanol and other biofuels, for the carbon they emit during the process of making fuels.
The total cost to motorists, about 30 cents, is part of the reason for California’s high gasoline prices. Californians pay an average of $3.23 a gallon, second only to Hawaii and well above the national average of $2.18, according to AAA.
And the oil industry says charging Californians more for gas, in order to fight global warming, would harm the economy.
“We’ve got fires destroying people’s homes, they’re losing jobs because of COVID,” said Catherine Reheis-Boyd, president of the Western States Petroleum Association. “Really, we’re going to talk about raising the cost of living to families in California?”
Some environmental groups have been pushing Newsom to ban fracking, the controversial oil-production technology, or take other steps to reduce the footprint of the oil industry in California. They’ve also complained that he’s done little to rein in the state’s oil industry, which is mostly centered in the area around Bakersfield.
The Sierra Club and other environmental groups called on Newsom Friday to “stop permitting new oil and gas drilling, pipelines and infrastructure, and accelerate a managed decline to phase out oil production and refining in California, starting with operations near homes and schools.”
Reheis-Boyd said “we get the urgency” of global warming but the state can’t simply clamp down on oil and gas production.
“We can’t destabilize our economy with frantic energy policies,” Reheis-Boyd said. “When you (adopt) rushed policies that stop oil and gas production, you put people out of work.”
Newsom and his supporters, though, argue that fighting climate change is good for the economy. The governor said solar and other clean industries employ five times as many Californians as the state’s oil and gas industry.
The economics play out another way. Newsom said the alternative to fighting climate change is to pay for its consequences. He noted that the cleanup of the debris from the 2018 Camp Fire, which leveled the town of Paradise, cost about $2 billion, much of it paid by the federal government.
“The biggest cost is in our neglect,” he said.
“California is Supposed to Burn”
Pew Trusts Research
California is supposed to burn.
Before settlers populated the region in the 1800s, about 5 to 12% of the land that now makes up the Golden State caught fire each year — more than has burned so far in 2020, the most destructive year in modern history. Some of the historic fires were caused by lightning and others were set by Native Americans as a land-management tool, but they mostly burned with low intensity and touched much of the state with great regularity.
But after more than a century of aggressive fire suppression, California’s vegetation has grown much denser than the fire-adapted ecosystem had evolved to handle. Competition for water left forests vulnerable to drought and bark beetles, killing more than 150 million trees in the state.
Even as leaders rethink the role of fire, development throughout the state has made it much more difficult to let things burn.
“With the number of houses and the number of people we’ve got, there are some places where you’re just not going to get fire on those landscapes,” said Malcolm North, a U.S. Forest Service ecologist. “We’re in a state with 40 million people. We’ll never have fire on a scale we used to have historically.”
But as climate change brings hotter, drier conditions, the tinderbox has ignited. Unlike the historic fires that thinned out vegetation and left thriving meadows in their wake, the megafires now engulfing the state ravage the landscape and send plumes of smoke across the continent.
“The war against fire has got to end,” said Craig Thomas, founder of the Fire Restoration Group, which advocates for more controlled burns to restore healthy forests and prevent large, destructive fires. “I’m running out of words to talk about what we need to do. We’ve been telling the story for quite a while.”
The longstanding default position of suppressing every fire has created problems throughout the West, and tribes in many states are working to restore traditional burning practices. But nowhere is the issue more evident than California, which Thomas described as “one of the most naturally flammable landscapes on Earth.”
Bitter fights over how to manage forests have been ongoing for decades on Capitol Hill and in the states, especially since the debate over how much logging should be allowed often goes hand in hand with the discussion over prescribed fires.
Amid the largest fire season in California’s history, many leaders at all levels agree that prescribed fire needs to play a greater role in the state’s wildfire strategy. Last month, Gov. Gavin Newsom, a Democrat, signed an agreement with the U.S. Forest Service to treat 1 million acres a year across both jurisdictions (57% of California’s forest land is under federal control), including controlled burns and timber harvests.
But many experts say the state needs a massive scale-up in its “good fire” strategy to avert the destructive wildfires that are happening with increasing regularity.
Some experts are calling for the state to light small fires not only in the spring and fall, the traditional “shoulder season” before and after fire season, but in the winter too.
“With the climate changing, with us having drier winters, we’re going to have more opportunities for low-risk prescribed burning,” said Lenya Quinn-Davidson, a fire adviser for the University of California extension office.
Setting more controlled burns won’t be a panacea to California’s wildfire crisis. Many of the state’s most destructive fires have happened on shrubby chaparral landscapes, not forests.
“Burning chaparral doesn’t do you any good,” North said. “You get rid of the grass and shrubs, and six months later you’re back where you started.”
Keeping non-forested areas safe, he said, requires limiting development, hardening existing homes and reducing human-caused ignitions.
And scaling up controlled fire to the levels some experts are calling for won’t be easy. It could require state and federal agencies to rethink how they deploy personnel and resources. It could require federal lawmakers to rethink pollution standards. And state residents would have to get much more used to living with smoke.
Even a robust fire-prevention strategy will be fighting an uphill battle against the adverse conditions caused by climate change. Addressing forest health without reducing carbon emissions, experts say, will not solve the long-term problem.
California’s backlog of fire prevention work, including prescribed burns, also will come with a hefty price tag.
“The number is bigger than anything we’ve got available to spend,” said state Sen. Hannah-Beth Jackson, a Democrat who in 2018 authored a bill to allow for more controlled burns in the state. “It’s in the billions, multi-billions. It’s money that’s not there right now.”
The state has increased its prescribed burning since Jackson’s bill passed. The California Department of Forestry and Fire Protection, known as Cal Fire, plans to burn 30,000 acres this fiscal year, largely in partnership with private landowners. That’s up from 25,000 last year, and the state hopes to eventually scale up to 50,000. But Jackson pointed out the state can only do so much, as most of its forests are owned by the federal government.
While Jackson called on the federal government to take more responsibility for prevention work, a U.S. Forest Service fire expert told Stateline that they had been banned from answering questions about the agency’s approach, likely due to the ongoing fire disaster in the state and the upcoming election.
North said the agency has set a goal of burning 500,000 acres of federal forests in the Sierra Nevada range, but it’s nowhere close to achieving that.
“Congress is not going to dole out money to make this happen,” he said. “This is just not a priority. We have to come up with some way of finding a revenue stream for fire to be put out on the landscape.”
The federal government’s appetite for funding prescribed fire could soon be put to the test. Oregon Sen. Ron Wyden, a Democrat, released a plan Thursday that would give federal agencies $600 million annually to light controlled burns on federal, state and private land. It faces a competing bill that seeks to remove vegetation by speeding up forestry projects – an approach opposed by many conservation groups.
Not everyone believes prescribed fire is the primary solution.
“Our ability to change landscape-scale patterns of fire is very limited,” said Bryant Baker, conservation director at Los Padres ForestWatch, an environmental group on California’s Central Coast. “There is no way to increase prescribed fire on the landscape where suddenly we won’t have large fires anymore.”
Baker noted that many of the recently-burned lands are not in forested areas and said that trying to control the scale and type of fire on a landscape is a futile exercise. Just because a wildfire burns a large number of acres doesn’t mean it has ravaged the landscape, he said, and even high-severity fires can play an important role in certain ecosystems. Climate change is likely to make wildfires even harder to stop, and he urged leaders to focus on making homes and communities more resilient instead of trying to limit the spread of wildfire through land management.
“Climate change is going to get worse and we’re going to see more and more fire, and these large fires aren’t going anywhere just because we ramp up vegetation management,” he said. “There’s a false assumption that prescribed fire would prevent the fires we saw this year, which happened under extreme conditions — heat waves, lightning storms, wind storms.”
But other experts think the current prescribed burn efforts — from the state to federal level — still need to scale up. Thomas wants the state to burn 1 million acres a year, a figure other experts also have suggested. The current state total of controlled burns each year across all lands is closer to 125,000 acres. Complaints about the expense, he said, are shortsighted.
“It’s so insane to me to think about how open the bank account is during these megafire events and how little — pennies in a tin can — that we put into pre-suppression work,” Thomas said.
Scaling up controlled burns isn’t just a matter of spending more money. Successful burns require an alignment of ideal moisture levels in vegetation, proper weather conditions, workers and equipment. And that’s a tricky balance. For one thing, the fire experts needed to manage a large prescribed fire could be called away anytime to fight a wildfire.
From an air quality perspective, spring is the best time to burn, said Jason Branz, an air pollution specialist at the California Air Resources Board, part of the state Environmental Protection Agency.
“We like to encourage burning in the spring, when the atmosphere can more readily handle smoke,” Branz said. “But that doesn’t align with the fuels being dry enough to burn. If they’re too wet, they either don’t burn, or they produce too much smoke.”
Local Air Districts have the final say on whether a burn, whether on state or federal land, can go forward on a given day, but they’re guided by the daily burn decision advisories published by the California Air Resources Board. Amy MacPherson, a public information officer who specializes in prescribed fire and wildfires for the agency, said the warmer, drier climate has allowed for more burning in the winter. And while air regulators have a duty to minimize the smoke hazards from prescribed fires, she said, they acknowledge that some sacrifices may need to be made to avert worse disasters.
In the past, some health groups such as the American Lung Association have opposed prescribed fires due to air quality issues.
“Everyone recognizes that prescribed fire can produce smoke,” MacPherson said. “But smoke you can plan for and is short-lived is generally preferable to what we’re seeing right now with these out-of-control wildfires. We’re very supportive of efforts to increase the pace and scale of prescribed fire in California.”
State Economy in Sept.: Tax Receipts, Jobs & Housing Prices Break Positive
Dept. of Finance
The state Dept. of Finance economic report for September:
Tax Income
Preliminary General Fund agency cash receipts for the first two months of the fiscal year were $4.544 billion above the 2020-21 Budget Act forecast of $35.604 billion. Cash receipts for the month of August were $1.632 billion above the forecast of $8.17 billion. Preliminary General Fund agency cash receipts for the entire 2019-20 fiscal year were $1.135 billion above the 2020-21 Budget Act forecast of $123.395 billion, or 0.9-percentage point above forecast. Total collections for March through August 2020 were down by 5 percent from the same period in 2019.
Personal income tax cash receipts to the General Fund for the first two months of the fiscal year were$3.646 billion above forecast. Cash receipts for August were $975 million above the forecast of $4.999 billion. Withholding cash receipts were $837 million above the forecast of $4.799 billion. Other cash receipts were $359 million higher than the forecast of $647 million. Refunds issued in August were $203 million higher than the expected $358 million.
Sales and use tax cash receipts were $1.176 billion above forecast for the first two months of the fiscal year. Cash receipts for August were $574 million above the forecast of $2.086 billion.
August cash receipts include a portion of the final payment for the second quarter sales, which was due July 31. August cash receipts also include the first prepayment for third quarter sales.
Corporation tax cash receipts for the first two months of the fiscal year were $176 million below the forecast of $5.029 billion. Cash receipts for August were $176 million above the month’s forecast of $228 million. Estimated payments were $133 million above the forecast of $117 million, and other payments were
$56 million higher than the $172 million forecast. Total refunds for the month were $14 million higher than the forecast of $61 million.
Jobs
Civilian unemployment rate fell to 11.4 percent in August after reaching an average of 15.9 percent in the second quarter and a 13.5-percent rate in July. The unemployment rate is now 0.9 percentage point lower than The Great Recession’s peak in March 2010. Civilian employment increased by 291,700 people (1.8 percent) while the labor force shrank by 117,100 people (-0.6 percent) to 18.7 million.
California’s labor force participation decreased 0.3 percentage point to 59.9 percent. Compared to the 19.5 million in the February labor force, 16.6 million people, or 84.9 percent were employed in August.
The state gained 101,900 nonfarm payroll jobs in August, bringing the total jobs recovered since May to 885,700, roughly one-third of the 2.6 million jobs
lost in March and April. California’s nonfarm employment remains 1.7 million jobs or 9.8 percent below February’s level of 17.6 million. While six out of the 11 major industry sectors added jobs in August, all 11 major industry sectors remained below February levels: leisure and hospitality (656,800 fewer jobs in August than in February); trade, transportation and utilities (216,000); professional and business services (169,600); educational and health services (169,400); government (140,300); other services (130,900); manufacturing (96,500); information (77,200); construction (57,600); financial activities (14,600); and mining and logging (1,200).
Building Activity
Housing units authorized by building permits totaled 115,600 units in July 2020 (seasonally-adjusted annualized rate), up 54.4 percent from June 2020 but down 6.6 percent from February’s 123,700 units. In July, single-family units increased by 24.2 percent from June to 61,800 units and multifamily units increased by 114.1 percent to 53,800 units. Year-to-date, authorized residential housing units averaged 95,900 (down 10.3 percent from the same period in 2019), split into 51,800 single-family units (down 4.8 percent) and 44,200 multifamily units (down 16.1 percent). California’s nonresidential building valuation in July was $27.8 billion, down 4.4 percent from June 2020 but up 2.2 percent from February’s $27.2-billion valuation. Year-to-date, nonresidential building valuation averaged $23.8 billion, down 33.5 percent from the same period in 2019.
Real Estate
Existing single-family median home sales price reached a new record-high of $706,900 in August, exceeding $700,000 for the first time in history, and surpassing the previous record set in July 2020 by 6.1 percent. This is up 21.9 percent from February 2020 and up 14.6 percent from August 2019. Statewide sales volume rose by 6.3 percent to 465,400 units—the highest sales volume since May 2010 and 10.4 percent higher than February 2020 level.
http://dof.ca.gov/Forecasting/Economics/Economic_and_Revenue_Updates/documents/2020/Sep-20.pdf
Newsom Pauses Beleaguered Unemployment Dept.; Job Outlook Bleak
CalMatters
California’s beleaguered unemployment department is putting a pause on new claims until Oct. 5 to give it time to implement an automatic identity-verification tool to speed up processing times. The move follows recommendations outlined in a report released late Saturday night from the “strike team” Gov. Gavin Newsom formed in July to find solutions to the department’s myriad problems. The report was due Sept. 14 and released five days late.
Also delayed: eliminating the Employment Development Department’s massive backlog of claims. Newsom said in July the department aimed to clear nearly 1 million unresolved claims by the end of September. But the strike team’s report found that nearly 1.6 million claims remain pending, and the backlog likely won’t be fully cleared until Jan. 27, 2021 — even as it continues to grow by at least 10,000 claims per day.
Assemblymember David Chiu, a San Francisco Democrat: “The report documents how EDD has failed the people it serves in almost every imaginable way. The size and scope of the backlog are shockingly large.”
Jennifer Pahlka, co-chair of the strike team: “With this roadmap, EDD is already on their way to meeting claimants’ needs faster, and I’m confident that over time the department will continue to improve the experience people have filing for unemployment insurance.”
Long-term, the strike team recommended completely overhauling the department — something lawmakers demanded of Newsom in a scathing August letter. The team also recommended ending an ongoing project to modernize EDD’s tech systems, pointing out that three years in, “a contractor has not been selected, and software code has not been written.” At this point, the team wrote, it makes more sense to start a new project from scratch, one “reimagine(d) for the future.”
Scrutiny on the department is far from over. By the end of this month, the state auditor will begin an emergency audit of EDD. But that may not provide much solace to Californians waiting on delayed payments, especially given the recent expiration of $300 weekly extra federal benefits.
As California settles into its sixth month of the pandemic, unemployment levels appear to be dropping — a spot of bright news for residents and the state’s embattled unemployment department alike — though the numbers belie a more complex and uncertain reality.
The Golden State’s unemployment rate fell from 13.5% in July to 11.4% in August, according to figures released Friday by the Employment Development Department. But as CalMatters’ Dan Walters points out, much of the gain was governmental or seasonal. The state government hired 66,100 new employees, but many are temporary federal workers charged with conducting the 2020 census. Meanwhile, California’s leisure and hospitality industry lost 14,600 workers, the service industry lost 5,700 workers and the agricultural industry lost 3,400 workers.
Fernando Lozano, a Pomona College economist: “The slight decrease is not bad news. But unfortunately, sectors with the most vulnerable workers in services, leisure and hospitality are still seeing a rise in unemployment.”
Experts warn that a “tsunami” of hotel closures will likely crash over California, which has the nation’s fifth-highest unemployment rate. Other businesses may meet the same fate, given that a majority of counties remain in the state’s most restrictive reopening tier.
Governor’s Strike Team report:
https://www.govops.ca.gov/wp-content/uploads/sites/11/2020/09/release.pdf
Recession Submerges Water Districts
Public Policy Institute of California
California’s water managers have had their hands full keeping our water systems safe and operational during the COVID-19 pandemic. But their work on addressing the fiscal consequences of the deep economic recession is just beginning.
Three lessons from the Great Recession of 2007-09 could guide more effective policy responses today.
First, a bit of budgeting context: California’s water sector is large, with annual spending of about $35 billion. Most is for the core functions of water supply and pollution prevention, with smaller amounts for managing floods and ecosystems and retiring debt from past water bonds.
Local agencies fund the lion’s share – 85% – principally from water and wastewater bills. But state and federal tax dollars help fill gaps, especially for “fiscal orphans” like safe drinking water in poor communities, ecosystem and watershed restoration, and flood protection, which lack reliable local sources of funding.
These lessons from the Great Recession offer perspective for taming this downturn’s impact on water management:
Water and wastewater revenues are vulnerable in recessions. In tough economic times, even relatively reliable funding like water and wastewater bills can decline, as affected residents and businesses are unable to pay. Initially, many utilities can draw on reserves, but ultimately the declines cut into capital budgets for aging infrastructure.
Water and wastewater revenues fell by 6% during the Great Recession, and did not start rebounding until 2011. Declines could be both deeper and longer-lasting this time, given the greater severity of this recession and the new state policy that protects water customers from shut-offs for nonpayment.
Solutions must simultaneously address the public health need of water for all, while protecting utilities’ ability to keep their systems safe. Expanding lifeline programs that make water more affordable for low-income residents is one option. Providing minimal service to those who don’t pay their bills, rather than shutting off the taps, may also be a promising approach.
Ecosystem spending is vulnerable to swings in state bond funding. Programs to restore California’s threatened freshwater ecosystems rely heavily on voter-approved state bonds. But bonds are not recession-proof. During the Great Recession, the state paused the distribution of bond funds – putting many ecosystem efforts on hold. The slow recovery also delayed placement of a new bond on the ballot, causing another spending drop until new funds became available in 2015.
This year, the state has not cut bond spending, but the proposed Climate Resilience Bond is on hold. Diversifying the funding portfolio is key to more robust ecosystem programs. Land assessments – such as the Bay Area’s program to protect, restore and enhance San Francisco Bay – and surcharges on water use – such as the Central Valley Project’s restoration fund – have been effective alternatives in some watersheds.
Federal stimulus spending can help fill gaps. The federal government has the capacity to spend money during a recession in ways that state and local governments can’t. The 2009 American Recovery and Reinvestment Act made $13.5 billion available for “shovel-ready” water infrastructure projects to support economic recovery. Although California saw little net benefit in some ARRA-funded areas, like flood management, the state’s water supply and wastewater utilities received a major boost.
To date, there have been discussions – but no agreements – about federal stimulus spending for water. California would be well-served by federal funding that fills pre-existing gaps for water’s fiscal orphans. This includes providing access to safe and clean water in poor communities whose water systems were underperforming even before the current crisis, and boosting the water system’s resilience to the changing climate.
COVID-19 and growing climate extremes brought major challenges to water managers across California this year. Nimble fiscal solutions – making the most of local, state and federal water dollars – are now needed to avoid lasting social, economic and environmental consequences of the recession.
Ellen Hanak is director and senior fellow at the Public Policy Institute of California Water Policy Center.
A Ballot Showdown 42 Years in the Making
CalMatters commentary
It’s been 42 years since California voters sharply altered the state’s political dynamics by overwhelmingly passing Proposition 13 to slash property taxes, ignoring virtually unanimous opposition from leaders of both political parties.
It’s also been 42 years since Proposition 13’s opponents — public employee unions and others with stakes in government spending — first began plotting how to overturn it.
They assumed, or hoped, that the state Supreme Court would invalidate it. But a generally liberal court refused to do so. They hoped that voters would quickly change their minds once the reduction of revenues affected local government services and schools. That didn’t happen either.
In fact, in polling year after year, Proposition 13 proved to be enduringly popular with voters, despite criticism that it unfairly favored some homeowners over their neighbors and was a windfall to owners of commercial properties, such as office buildings, warehouses and hotels.
Even when California began its historic political evolution from a somewhat conservative state to one of the nation’s bluest bastions, Proposition 13 seemingly remained untouchable, as demonstrated by Jerry Brown’s attitude towards it.
He was a governor seeking his second term when it appeared on the June 1978 ballot and, like other political figures of the time, opposed it, calling it “a ripoff.” But as soon as it passed by a nearly 2-to-1 margin, Brown declared himself to be a “born-again tax cutter” and sponsored a state income tax reduction to align himself with what the media called “a tax revolt.”
Thirty-two years later, when Brown returned to the governorship and faced a severe state budget crisis, he was frequently asked whether it was time to repeal Proposition 13 but consistently ducked it. He did, however, sponsor a state income tax increase that, in spirit, undid the tax cut he and the Legislature had quickly enacted in 1978.
Meanwhile, the union-led anti-Proposition 13 coalition continued to seek ways to attack it, finally settling on what’s called a “split roll” to partially remove some of the tax limits on commercial property while maintaining those for residential real estate. After many false starts, the coalition decided that the 2020 presidential election, with anti-Donald Trump sentiment likely to spark a big turnout of Democratic voters, would be the moment.
That’s how Proposition 15 came to appear on November’s ballot. If passed, it would raise taxable values on commercial property to current market levels, raising as much as $12 billion a year for local governments and schools.
However, the measure’s backers had no way of knowing that the COVID-19 pandemic and the severe recession it spawned would visit themselves on California, changing the tenor of their battle with business groups over the issue.
While proponents argue that the new revenue is needed to keep vital public services, including schools, from being slashed, opponents argue that with businesses already suffering, this is the wrong time to saddle them with more taxes.
Gov. Gavin Newsom lent his support to the measure this month, saying “it’s a fair, phased-in and long-overdue reform to state tax policy (and) it’s consistent with California’s progressive fiscal values…”
However, a few days later, the Public Policy Institute of California released a new poll indicating that support is, to say the least, tepid with just 51% of likely voters inclined to vote for it before opponents unleash a multi-million-dollar advertising barrage against it.
Both proponents and opponents know that Proposition 15 is a proxy battle over whether Proposition 13 is still an untouchable icon. It’s showdown time after 42 years of skirmishing.
https://calmatters.org/commentary/2020/09/california-proposition-13-property-tax-proposition-15/
Poll Finds Voters Divided on Ballot Initiatives
Berkeley IGS
In its latest statewide survey, the Berkeley IGS Poll presented voters with the official ballot titles that voters will see when voting on four of the most contentious and heavily contested propositions on the November 2020 statewide election ballot. Likely voters were then asked how they would vote if the election were held today.
The results indicate that a plurality of voters is currently supportive of one of the four ballot measures, a plurality is opposed to a second, and on two others voters are about evenly divided.
Big differences on Proposition 15; Lacks majority (split roll property taxes)
The proposition with the most support is Proposition 15, the initiative to change the way property taxes are assessed on commercial and industrial property. When presented with its official ballot summary, 49% of likely voters say they would vote Yes, 34% would vote No, and 17% are undecided.
Proposition 15 calls for taxing commercial and industrial property worth more than $3 million based on its current market value instead of its purchase price, as has been the case since voters passed the landmark Proposition 13 property tax reduction initiative in 1978. If approved, the initiative would also provide between $6.5 and $11.5 billion dollars annually in new funding to local governments and the state’s public schools.
Voter preferences are highly partisan. Prop. 15 currently receives broad support from the state’s Democratic and liberal voters but is heavily opposed by Republicans and conservative voters.
Regionally, the initiative receives majority support among voters in the nine-county San Francisco Bay Area (58%) and in Los Angeles County (54%). Support remains below 50% in each of the state’s six other major regions and the initiative currently trails among voters in Orange County.
Voters under 30 are lining up on the Yes side by a three-to-one margin, while voters age 50 or older are divided. Renters also back the initiative about two to one, as do voters living in union households. On the other hand, homeowners are about evenly divided. Majorities of the state’s Latinos, Asian and Black voters are also in favor, compared to 45% support among white non-Hispanics.
Plurality oppose Prop. 16 to allow diversity in government decision-making
Proposition 16 would allow for diversity as a factor in government decision-making on policies relating to public employment, contracting and education. If approved, it would repeal an earlier initiative, Proposition 209, passed by California voters twenty-four years ago that prohibited such practices.
When likely voters in the latest poll are asked how they would vote on the amendment, 41% currently line up on the No side, 33% are intending to vote Yes, and 26% are undecided.
One ray of hope for proponents of the amendment is that Democrats and liberal voters, the segments most supportive of Prop. 16, are among the voter segments with the largest proportions of undecided voters. By contrast, relatively few Republicans and conservative voters, who overwhelmingly oppose the amendment, are undecided.
Working against the odds of passage, however, is the fact that pluralities of political moderates and voters registered as No Party Preference are currently lining up on the No side. These voter segments often hold the balance of power in determining election outcomes on initiatives in highly partisan contests.
There are significant differences in voter preferences on Prop. 16 by race and gender, with pluralities of men and white non-Hispanic voters opposed, women evenly divided, and pluralities of voters of color in favor.
While a plurality of voters in the San Francisco Bay Area is supporting Proposition 16, voters in Los Angeles County are about evenly divided. The amendment trails among voters in each of the other major regions of the state.
Likely voters evenly divided on Proposition 21 (rent control)
If approved, Proposition 21 would expand local governments’ authority to establish rent control on residential properties in California that are over fifteen years old.
When likely voters are presented with Prop. 21’s official ballot summary and asked how they would vote if the election were held today, preferences are evenly divided, with 37% lining up on the Yes side and 37% intending to vote No. Greater than one in four (26%) are undecided.
Views about Proposition 21 are also highly partisan and tied to the political ideology of the electorate. Large majorities of Republicans and conservative voters are opposed. And, while pluralities of Democrats and liberals are supportive of Prop. 21, about three in ten remain undecided. The preferences of political moderates and No Party Preference voters are closely divided on the initiative.
Homeowners and renters are taking opposite positions on the initiative, with homeowners opposed 47% to 28% and renters in favor 50% to 25%. Voters living in union households are on the Yes side by ten points, while voters in non-union households are narrowly opposed.
Age is correlated to voting preferences on Prop. 21, with pluralities of younger voters intending to vote Yes, while voters age 50 or older are lining up on the No side.
Differences are also observed along race and gender lines. Pluralities of men and white non-Hispanics oppose the initiative, while Latinos, Blacks and women tend to be supportive.
Likely voters closely divided on Proposition 22 to classify app-based drivers as independent contractors
The initiative that is likely to see the greatest level of campaign spending on this year’s ballot is Proposition 22, the initiative to classify app-based drivers as independent contractors instead of employees.
Likely voter preferences on the initiative are currently inconclusive, with 39% of likely voters intending to vote Yes, 36% intending to vote No and 25% undecided.
Although some differences are observed in voting preferences across major subgroups of the state’s likely electorate, they are not as prominent as on the three other ballot propositions measured.
While more Democrats are opposed than supportive, they are dividing their preferences fairly evenly, with 42% voting No, 31% voting Yes and 27% undecided. Republicans are currently backing Proposition 22 by a 53% to 29% margin.
Somewhat wider differences are seen by political ideology, with conservatives supportive nearly two to one, and liberals, especially those describing themselves as very liberal, most opposed. At present pluralities of political moderates and No Party Preference voters are lining up in support of Proposition 22, although large proportions are undecided.
Voter preferences across the major regions of the state are mostly divided, with neither side currently achieving a majority in any region. Supporters outnumber opponents in San Diego and Orange counties, in the Central Valley and Inland Empire regions as well in other areas of Southern California outside of Los Angeles County. Opposition is greatest in the nine-county San Francisco Bay Area.
Voters living in union households are opposing the initiative by twelve points, while those living in non-union households favor Prop. 22 by seven points.
The survey finds only modest differences in voting preferences on Prop. 22 by age, gender, and race/ethnicity, with opinions in each segment closely divided and large proportions undecided.