For Clients of The Gualco Group, Inc.
IN THIS ISSUE – “Our only way forward is to acknowledge that we have to do better. It’s clear we haven’t done enough.”
Assembly Speaker Robert Rivas, discussing the 2025 legislative priority to cut consumer costs
- Governor Starts FY25-26 Budget Debate With $323-Billion Spending Plan
- Cutting Consumer Costs & Budget-Writing Top Legislative Agenda
- Lawmakers Must Balance Climate Program Expense & High Energy Prices: Legislative Analyst
- Unemployment Insurance Crisis is a $20 Billion Budget Hot Potato
- Govern California or POTUS Campaign? A Question Newsom Will Answer
- Deluge in the North, Record Drought in the South – The Great California Divide
To keep our valued clients informed on California political, policy and program issues and trends, The Gualco Group’s trusted advocates daily gather legislative and regulatory insights from dozens of media and official sources for our exclusive Capitol News & Notes (CN&N).
FOR THE WEEK ENDING JAN. 10, 2025
Governor Starts FY25-26 Budget Debate With $322-Billion Spending Plan
Sacramento Bee & Dept. of Finance
State budget officials unveiled more details Friday about Gov. Gavin Newsom’s proposed $322 billion budget. It funds Newsom’s signature educational initiatives — including universal pre-kindergarten —and starts to disburse billions of dollars from a voter-approved climate bond.
The budget plan maintains $100 million to clear homeless encampments and get people into shelter but includes no new funding for the Homeless Housing, Assistance and prevention program, a popular grant that allows local governments to flexibly spend homelessness dollars in their communities.
There are currently unspent funds for the program. Newsom also proposed creating a new agency — the Housing and Homelessness Agency — that would consolidate and streamline the state’s strategies for housing and homelessness. The state will reveal more details in the spring after submitting a reorganization plan to the Little Hoover Commission.
The proposal comes as California legislators are shoring up legal resources in anticipation of litigation with incoming President Donald Trump, who has threatened to withhold disaster aid relief for wildfires like the ongoing infernos in Los Angeles.
Joe Stephenshaw, director of the state Department of Finance, sought to paint a rosy picture of the budget a year after lawmakers and Newsom filled a $47 billion deficit. Stephenshaw said the state had reversed a projected $2 billion deficit for the upcoming fiscal year with a “modest surplus” of $363 million, but said there was little disagreement between the Legislative Analyst’s Office and budget officials.
“We really went a long way in moving California back on onto some solid fiscal footing, and this budget reflects that,” Stephenshaw told reporters. Despite the revenue increase, Newsom proposed pulling $7.1 billion from the state’s rainy day fund in the upcoming fiscal year.
Stephenshaw said this was to plan for federal policy “uncertainty,” referring to the potential ramifications from Donald Trump’s proposed big tariffs and calls for mass deportations of undocumented residents.
Stephenshaw said he also anticipated wildfire victims would need to delay their tax filings, which could complicate the state’s financial plans.
President Joe Biden said Thursday that the federal government would cover 100% of the fires’ management and debris removal costs for 180 days.
The state budget plan proposes trimming the prison budget by more than $400 million, despite a recently approved voter initiative expected to put more people behind bars for theft and drug crimes.
According to the budget document, Proposition 36 is expected to increase the prison population by about 1 percent. The ballot measure approved in November increased penalties for some drug and retail theft crimes.
“However, even with the expected increase from Proposition 36, the population is still projected to continue its overall long-term downward trend because of prior public safety realignment,” the document reads. Stephensaw said the state is managing Prop 36 and its longer-term efforts to lower the prison population. “We will have to continue to monitor the exact impact … of Prop 36,” he said.
The budget, which Stephenshaw presented in full to reporters Friday, includes nearly $229 billion in general fund spending and $16.9 billion in total budget reserves for the fiscal year that begins July 1 and ends June 30, 2026.
The general fund provides funding for ongoing state functions. The governor typically presents the budget by January 10, when he is constitutionally required to submit a spending proposal to the Legislature. Lawmakers have until June 15 to pass the budget.
Newsom remained in Southern California Friday to oversee the response to the ongoing Los Angeles wildfires after canceling plans to attend former President Jimmy Carter’s funeral Thursday in Washington, D.C. Newsom gave reporters a preview of the budget earlier this week at a press conference in Turlock, but gave few details about spending or how his officials managed to overcome the $2 billion shortfall that the Legislative Analyst’s Office forecast in November.
He attributed a projected $16.5 billion boost in revenue to an improved stock market performance and savings. He also said the state had saved $1.2 billion from cutting 6,500 vacant positions, with exemptions for public health and safety jobs like Highway Patrol and firefighters. It’s a major turnaround from the previous two years, when Newsom had to negotiate with the Legislature over how to close budget shortfalls of $47 billion in 2024 and $22.5 billion in 2023.
Article ($):
https://www.sacbee.com/news/politics-government/capitol-alert/article298263888.html#storylink=cpy
Governor’s FY25-26 January Budget:
https://ebudget.ca.gov/FullBudgetSummary.pdf
Cutting Consumer Costs & Budget-Writing Top Legislative Agenda
CalMatters
With the election and the holidays behind them, California Legislators returned to Sacramento this week to kick off a new session in earnest.
It will be several more months before the political wrangling over the state budget and thousands of proposed bills truly ramps up, but priorities are emerging as lawmakers try to stake their claim on the hottest issues of the day. Here are some stories to watch at the Capitol in 2025:
Tackling affordability
After a disappointing election for Democrats, legislative leaders reemerged with a message aimed at easing voters’ anxieties about how expensive California is. Senate President Pro Tem Mike McGuire, a Healdsburg Democrat, and Assembly Speaker Robert Rivas, a Salinas Democrat, both told CalMatters last month that their focus this session will be advancing policies that lower the cost of living for working Californians, including by building more housing, making energy cheaper and improving public infrastructure.
“Our only way forward is to acknowledge that we have to do better,” Rivas said. “It’s clear — we haven’t done enough.”
Their colleagues have responded so far with bills that would ease construction standards for small apartment buildings and increase the amount of ethanol that can be blended with gasoline, an effort to reduce prices at the pump. Expect many more proposals as legislators finalize their agendas in the weeks ahead.
But Democrats, who hold a three-quarters supermajority in both houses, face an arduous messaging war with the emboldened Republican minority, which flipped three seats in November. GOP lawmakers quickly introduced far-reaching measures — ending gas and electricity taxes, voiding low-carbon fuel standards, exempting tipped wages from taxation — that will almost certainly go nowhere but stand to make Democrats’ efforts look less consequential by comparison.
“I would call it an invitation to the Democrats,” Assembly Republican Leader James Gallagher of Yuba City said in an interview. “In order to actually do something about affordability, they have to back away from the policies they’ve championed.”
Budget woes
Fiscal advisers to the Legislature warned in November that California’s finances are precarious: roughly balanced for now, but barreling toward increasing deficits in the years ahead. Fear of losing federal funding under Trump, who has repeatedly threatened to withhold disaster aid from the state, is adding another layer of uncertainty.
Yet even as legislative leaders endorsed a cautious approach to the upcoming state budget, Newsom has floated several new programs with hefty price tags — from expanding the film and television production tax credit to reviving a rebate for electric vehicles. His full budget proposal is due by the end of this week.
Lawmakers have yet to meet to discuss their priorities, so it’s unclear how much they will be at odds with the governor as they work to pass a spending plan by the end of June.
Resistance 2.0
While the response from California politicians to Donald Trump’s victory in the November presidential election has been far more subdued than it was eight years ago, they are still gearing up for a fight.
Days after Trump’s win, Democratic Gov. Gavin Newsom called for a special session to set aside funding for the state to take his Republican administration to court. Democratic lawmakers plan to rush in the coming weeks to appropriate $25 million for legal resources before Trump takes office on Jan. 20.
Though some have warned against getting sidetracked by another showdown with the president, legislators are also already putting forward proposals to safeguard Californians against actions they anticipate Trump will take. These include bills to ensure access to medication abortion, make contraceptives more readily available over the counter, and protect the privacy of patients getting abortions in California, as well as to further limit collaboration by state prisons and school districts with federal immigrant enforcement.
https://calmatters.org/politics/2025/01/california-legislature-2025-session-opens/
Lawmakers Must Balance Climate Program Expense & High Energy Prices: Legislative Analyst
Sacramento Bee & Legislative Analyst’s Office
Wildfire prevention and climate programs have drastically raised Californians’ monthly electricity bills, potentially forcing state leaders to balance ambitious carbon emissions goals with affordability concerns, the state analyst said.
The influential report, released Tuesday by the non-partisan Legislative Analyst’s Office (LAO), comes as state legislative leaders vow to tackle cost of living issues including high energy costs.
Lawmakers “may be faced with a frank decision about how to balance the state’s ambitious greenhouse gas reduction goals — and all of the associated benefits — against the inevitable costs that will result for ratepayers,” the report found.
California’s efforts to combat climate change with renewable energy have seen success, but have also driven up electricity costs for customers.
Because major grid investments are needed to meet growing demand as more stringent targets approach, it wrote, this financial burden could increase significantly.
Monthly electricity bills in California have risen by nearly 50% since 2019, the report said, and the gap between the rest of the nation has grown to 30 cents per kilowatt-hour. The state’s electricity rates are second only to Hawaii.
The primary reason for electricity cost increases in recent years, it reported, are wildfire suppression efforts and renewable energy programs. But it pointed to stark differences in rates between regional public utilities and the major investor-owned utilities.
As lawmakers return to Sacramento to start the year’s legislative session, several have highlighted their intention to address energy affordability. “The affordability crisis in California is out of control,” said freshman Sen. Susette Martinez Valladares, R-Valencia, in a written statement reacting to the report.
“Families in this state pay nearly double in utility bills over those in any other state, pay more for each gallon of gasoline than in any other state, and struggle to find insurance for their homes that cost more than in any other state.”
Falling short of making recommendations, the report raised questions about whether climate policies should continue to be funded by electricity rates. Doing so, it wrote, leaves customers shouldering much of the financial burden of transitioning to renewable energy.
Options raised in the report include drawing on other state revenues and making rates more equitable by using fixed costs. In May, the Public Utilities Commission required major utilities to implement a controversial fixed charge on customers’ bills.
Gov. Newsom considered introducing a bill last year that would have used the tool but backed out after utility opposition. Several other measures, including a bill to end use of ratepayer money for political spending, also died after opposition from PG&E last session.
Article ($):
https://www.sacbee.com/news/politics-government/capitol-alert/article298126333.html#storylink=cpy
LAO report: https://www.lao.ca.gov/Publications/Detail/4950
Unemployment Insurance Crisis is a $20 Billion Budget Hot Potato
CalMatters
California’s elected officials aren’t saying much about how they plan to address festering problems with state unemployment benefits after a recent government report called the system “broken.”
State analysts have suggested changes that may be unpopular with voters and donors, such as tax increases. So maybe it is not surprising that, even as they return to Sacramento and stake out political ground for this year’s legislative session, key state lawmakers did not answer repeated queries about the issue, nor did the office of Gov. Gavin Newsom, even though Newsom spoke in vague terms about it at a couple of press conferences.
California’s unemployment insurance fund is $20 billion in debt to the federal government and underfunded more often than not. The nonpartisan Legislative Analyst’s Office, which has been sounding the alarm about the solvency of the fund since 2009, on Dec. 2 released a comprehensive proposal to fix its problems, as well as a warning that it expects the program to have deficits of $2 billion a year for the next five years. The system is funded by a payroll tax paid by employers.
“Tax collections routinely fall short of covering benefit costs,” the analyst’s office said in the report. “Both our office and the administration expect these annual shortfalls to continue for the foreseeable future.
How the state got to this point is a bit complicated. When millions of Californians lost their jobs in 2020, the state did not have enough reserves in the fund and had to borrow money from the federal government to pay unemployment benefits. The analyst’s office explicitly said in its report that the shortfall was not caused by the unemployment insurance fraud that grabbed headlines, though — the sheer volume of unemployment during the pandemic exacerbated the fund’s systemic issues.
The bottom line, according to the analyst’s office: Unless the state addresses ongoing problems with the fund, the massive debt won’t be paid down anytime soon; the state will have to keep borrowing from the federal government for the fund, especially in case of a recession; and it will all keep costing California taxpayers and businesses for years to come.
That could set off a vicious cycle: If there is mass joblessness again, California would not have enough money to pay unemployment claims and would need to add to its already huge debt. And because businesses would continue to see increased employment taxes, that could affect how many people they choose to hire or retain.
More:
https://calmatters.org/economy/2025/01/no-solutions-from-leaders-fr-unemployment-benefits-fund/
Govern California or POTUS Campaign? A Question Newsom Will Answer
CalMatters commentary from Dan Walters
Six years into his governorship and with two years to go, Gavin Newsom is at a political inflection point, choosing whether to finish his stint and resume his wine and restaurant business, or mount a campaign for the White House.
While deflecting questions and media speculation about the latter, Newsom’s recent political positions and official acts are perfectly consistent with a nascent presidential campaign.
For instance, Newsom on Monday made the sixth stop on his California Jobs First tour of rural counties. This one, held in Stanislaus County, was to plug regional economic plans he says are aimed at improving conditions in areas that characteristically have high unemployment and providing more opportunities for workers who lack college degrees.
It may just be coincidence, but Newsom’s much-belated recognition of California’s outback and its workers seems to respond to the losses his Democratic Party and its presidential nominee, Vice President Kamala Harris, suffered last year.
Critics both in and out of the party have lamented that Democrats have lost their mojo with blue-collar workers facing rising living costs and shaky job protections.
Pointedly, perhaps, Newsom’s event on Monday occurred just minutes after Congress certified Trump’s electoral college victory, with Harris presiding.
Newsom’s surprisingly passive role in President Joe Biden’s 11th hour cancellation of his reelection campaign and the subsequent elevation of Harris into the Democratic nomination was another indication of presidential ambitions.
It was starkly apparent that Biden’s cognitive lapses would doom his bid for a second term and party leaders, including former House Speaker Nancy Pelosi, were pressing him to stand aside. Newsom, however, was loudly proclaiming his support of Biden right up to the moment the president bowed out, declaring in a CBS interview that he was “all in, no daylight.”
From a purely political standpoint, Newsom might have hoped that Biden would remain in the race because, win or lose, the presidency would be open in 2028. However, with Harris being anointed as the party’s replacement candidate, 2028 was less predictable. Had she won, Newsom would likely have been frozen out as she sought a second term.
As it turned out, the door to the White House will be open. Newsom can, if he wishes, devote the remainder of his governorship to building a record for a presidential campaign. However, amassing such a record will not be easy. The major issues facing the state when he won the governorship in 2018 remain largely unresolved, and in some cases have worsened, despite his promises to attack them.
The state’s housing shortage has increased due to subpar construction, it still has the nation’s largest population of homeless people, academic achievement in public schools is lagging, conflicts over water are as sharp as ever, and Newsom’s pledge of a carbon-free future lacks a clear pathway.
Newsom has launched many new programs, such as compelling some mentally ill people to seek treatment, expanding Medi-Cal from health care into housing and social services, and converting some local schools into multi-service centers. However, whether these efforts succeed won’t be known for years, probably long after 2028.
Meanwhile, Newsom — and the state he governs — would be a target-rich environment for his potential rivals in both parties, just as Harris and California were last year. Videos of California’s squalid homeless encampments and smash-and-grab store robberies would be especially potent in the swing states, such as Wisconsin, Pennsylvania and Georgia, that Trump won last year.
Deluge in the North, Record Drought in the South – The Great California Divide
CalMatters
A remarkably wet kickoff to Northern California’s rainy season has coincided with a desperately dry fall in Southern California — a huge disparity, perhaps unprecedented, between the haves and have-nots of rainfall.
Los Angeles usually gets several inches of rain by now, halfway into the rainy season, but it’s only recorded a fifth of an inch downtown since July, its second driest period in almost 150 years of record-keeping. The rest of Southern California is just as bone-dry.
At the same time, much of the northern third of the state has weathered nearly two months of storms, flooding and even tornadoes. Santa Rosa, north of San Francisco, has received more rain than nearly any other city in California — nearly two times its average rainfall to date. At the city’s airport, almost 7 inches fell on Nov. 20 alone, an all-time daily record.
Details and charts:
https://calmatters.org/environment/water/2025/01/california-rain-drought-north-south/