For Clients of The Gualco Group, Inc.
IN THIS ISSUE – “The bottom could completely fall out”
Gov. Newsom on the State’s fiscal condition as LA wildfire costs add up
- Governor & Legislators Scramble to Find Wildfire Responses…And Funds
- Newsom’s FY25-26 Fiscal Plan Haunted by Ghosts of Budgets Past
- State Cuts 6,500 Unfilled Jobs – Not 10,000 – For Some Budget Savings
- Air Board Garages Controversial Clean Truck & Train Rules
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. 17, 2025
Governor & Legislators Scramble to Find Wildfire Responses…And Funds
CalMatters
Expediting homeowner insurance claims. Fast-tracking rebuilds. Ensuring fire aid for undocumented immigrants. Boosting penalties for arsonists.
As wildfires continue to blaze through Los Angeles County, state lawmakers are quick to announce ideas to provide disaster aid and prevent future wildfires, touting their plans in press conferences, news releases and social media posts.
But how exactly would these work? What’s the price tag? And could the state afford all this?
Few, if any, know. Yet the answer to those questions is particularly important now as the state braces for economic uncertainties, partly due to a hostile incoming presidential administration, tax return delays and the unknown wildfire-associated costs to the state.
The Los Angeles fires have claimed at least 25 lives and torched more than 40,000 acres in the past week, with damage estimated at more than $250 billion. While outgoing President Joe Biden declared it a major disaster and promised 100% federal reimbursement of wildfire spending for 180 days, the state still must front the bill and may shoulder further costs.
Last week, Gov. Gavin Newsom projected a “modest surplus” in the upcoming fiscal year — albeit one achieved by drawing $7 billion from the state’s rainy day fund — but cautioned that uncertainties could drastically alter that proposal in just a few months. “The bottom could completely fall out,” Newsom warned.
Still, many legislators have rushed to propose measures with an unknown price tag in response to the LA fires. And the proposals — most of which lack details – largely mirror party ideologies:
Republicans want to see a less-regulated insurance market and fewer environmental restrictions in the name of fireproofing and rebuilding, while Democrats hope to increase oversight of insurers and prevent or punish price-gouging.
The scramble could reflect legislators’ desire to quickly respond to a natural disaster, but it also represents a political benefit because “voters are looking to their elected official to do something,” said Christian Grose, a political science professor at the University of Southern California.
It is also more tangible for voters to see a politician react to a disaster rather than prepare for one, he said.
“Voters do reward parties and incumbents who spend money after disasters to help clean things up and fix things, so there’s a real benefit to literally spending more money, no matter where it comes from,” Grose said. “Spending after a disaster has really big electoral dividends.”
But Mike Madrid, a longtime GOP consultant in California, called the legislative ideas “tinkering around the edges” — arguing that state lawmakers are “governing by press release” without fully assessing Los Angeles fires’ damage.
“Keeping a politician away from a TV camera is like trying to keep a gnat away from a porch light,” Madrid said. “They believe that any action is better than no action, so they’d rather say something and get into the discourse and also…presumably show their constituents that they are doing something about it.”
On Monday, Newsom and Democratic legislative leaders proposed a $2.5 billion spending plan on wildfire response and recovery, expanding the scope of the ongoing special session to “Trump-proof” California.
The move came after Republican lawmakers chided them for not devoting the special session to “fireproofing” the state.
Dubbed California’s “Marshall Plan” by Newsom, the proposal would allocate $1 billion in “emergency response” funding — costs Newsom said would be eligible for full federal reimbursement under the major disaster declaration, which would cover wildfire response, cleanup and recovery expenses.
The proposal also includes $1.5 billion — part of the $10 billion climate bond voters approved in November — to pay for disaster preparedness efforts. The governor originally proposed it in next year’s budget but now hopes to “accelerate” the spending in light of the wildfires, according to his office.
But the public has yet to see a spending breakdown. The Senate and the Assembly will hold budget hearings on the proposal on Jan. 22 and schedule a floor vote for the week of Jan. 27, according to legislative leaders.
Newsom’s office also issued several executive orders in the past week to allow displaced students to attend school outside their districts, expedite debris cleanups and suspend environmental permitting requirements to speed up rebuilding. One order extended the tax return filing deadline for fire victims in Los Angeles County until Oct. 15, aligning with the federal extension.
How that extension will impact state finances is unclear, Finance spokesperson H.D. Palmer told CalMatters.
But he noted that the delay is only for one county, unlike the extension issued in 2023 for winter storm victims in 55 of the state’s 58 counties, which significantly affected the state’s ability to forecast its tax revenue that year.
Legislators thus far have introduced seven other wildfire-inspired bills, with unknown price tags.
Assemblymember Lisa Calderon, a City of Industry Democrat who chairs the Assembly Insurance Committee, re-introduced a pair of bills that failed last year to amp up oversight of the state’s FAIR Plan — an insurer-run last resort for homeowners living in high-risk areas to obtain fire insurance policies.
This time, there’s a new component: One of the bills, Assembly Bill 226, would authorize the FAIR Plan Association to ask the state-run California Infrastructure and Economic Development Bank to issue bonds if it is at risk of running out of money to pay insurance claims. Calderon has said it would “alleviate some of the uncertainty” for LA fire victims with FAIR policies.
She is also carrying Assembly Bill 232, which would, for five years, allow homeowners to establish a “catastrophe savings account,” exempt from state income tax, to cover insurance deductibles and costs of uninsured losses.
Assemblymembers John Harabedian of Pasadena and Jacqui Irwin of Thousand Oaks, both Democrats, introduced Assembly Bill 238 to require mortgage servicers to halt or reduce mortgage payments for fire victims for up to 180 days, with the option of extending it for another 180 days.
They are also championing Assembly Bill 239 to establish a state-led task force to coordinate the rebuilding efforts in Los Angeles.
Senate President Pro Tem Mike McGuire, a Santa Rosa Democrat, mentioned to reporters on Monday several policy ideas he supports, such as enhancing protections against price-gouging, making seasonal firefighters full-time positions, improving the state’s drinking water and utility infrastructure, and establishing a new commission to set rules for insurers to make it easier for homeowners who’ve made their homes more fire-resistant to secure insurance policies.
Whereas Democrats primarily blame the wildfires on climate change, Republicans have pointed fingers at the state’s Democratic leaders, insisting they did not do enough to help wildfire victims or to prevent wildfires from spreading.
“We’ve known this insurance issue is looming, and what have you seen out of the supermajority? And what have you seen out of the governor? There’s been no action taken,” Assembly Minority Leader James Gallagher of Chico said at a Monday press conference.
In a letter to Newsom last week, legislative Republicans laid out their priorities, including sweeping aside environmental safeguards that they say will otherwise slow wildfire prevention projects such as prescribed burns, post-fire rebuilding and burying power lines underground.
They also touted the idea of giving financial incentives to owners who upgrade their homes to make them fire-resistant, and endorsed increased state spending for wildfire prevention and steeper penalties for arsonists.
https://calmatters.org/politics/capitol/2025/01/la-fires-california-legislature-bills/
Newsom’s FY25-26 Fiscal Plan Haunted by Ghosts of Budgets Past
CalMatters commentary from Dan Walters
Fashioning a budget for a state as large and diverse as California is a fraught process under the best of circumstances, involving not only strictly financial aspects but demands from countless interest groups and the internal politics of the Capitol.
That said, what happened three years ago, as Gov. Gavin Newsom and legislators were finalizing a 2022-23 budget, remains one of the most egregious errors of fiscal judgment in state history, and looms over the budget process today.
As the state was emerging from the COVID-19 pandemic, it experienced a sharp uptick in revenues, particularly in personal income taxes, thanks largely to massive injections of federal relief funds and a big gain in taxable investment profits among high-income taxpayers.
Newsom and his budget advisors concluded that the much-higher general fund revenues would continue indefinitely — far surpassing the state’s core expenditures. The projection generated a monumental paper surplus Newsom tabbed at $97.5 billion, although the number never appeared in any documents.
“No other state in American history has ever experienced a surplus as large as this,” Newsom boasted as he unveiled what became a much-revised $308 billion budget, which was $22 billion higher than his original proposal.
It turned out to be a mirage. Revenues never reached the elevated level he had assumed. Last year, buried in the fine print, the 2024-25 budget acknowledged the error and estimated it to be $165.1 billion over four years. Newsom blamed the volatility of California’s tax system for the immense gap between expectations and reality — instead of a miscalculation.
Nevertheless, the damage was done. Much of the phantom surplus had already been baked into the spending side of the budget, leading to massive deficits.
Last year, to cover the yawning gap between income and outgo, Newsom and the Legislature resorted to tapping the state’s emergency reserves, bookkeeping gimmicks, direct loans from special funds, and indirect borrowing from school funds and corporations.
This bit of recent budgetary history is offered because a new state budget cycle began on Friday, when Newsom’s finance director, Joseph Stephenshaw, unveiled an initial $322.3 billion 2025-26 budget proposal, including a $228.9 billion general fund.
Overall, it means that the $165.1 billion error still haunts the budget. Despite Newsom’s claims that the budget would be balanced, revenues still fall short of covering the additional spending that Newsom and legislators adopted three years ago on a mistaken assumption.
The proposed budget projects an increase in revenues from earlier estimates but essentially spends all the extra money. It continues the use of emergency reserves and other tactics that were employed last year.
It also means that despite the seemingly precise numbers of the proposed budget, there are many highly variable factors.
They include how President-elect Donald Trump and a Republican Congress might affect the many billions of dollars that the federal government contributes to education, health care and welfare programs; uncertainty about taxable income from capital gains and, most recently, the effects of the wildfires devastating Southern California communities.
The wildfire impact could be immense, particularly if Trump doesn’t honor outgoing President Joe Biden’s pledge of massive federal aid. Trump issued a fact-free blast faulting Newsom — one of his sharpest critics — for not giving Southern California enough water, but hasn’t said whether he intends to limit federal relief.
Even if Trump is generous with wildfire assistance, local governments will experience declines in property and sales tax revenues and will look to Sacramento for help.
The bottom line is that the January budget may bear only a passing resemblance to the version that must be enacted by June 15, and even less to the budget revisions that will surely follow after June 15.
State Cuts 6,500 Unfilled Jobs – Not 10,000 – For Some Budget Savings
Sacramento Bee
The state narrowed its goal of eliminating 10,000 unfilled government jobs by over a third, the Finance Department said, after the Newsom administration opted to preserve vacant positions related to public safety and emergency services.
California Director of Finance Joe Stephenshaw said 6,500 empty positions were eliminated as part of a planned vacancy sweep because, “We understood that those were resources that we did not want impacted.”
During a briefing on the state’s 2025-26 budget, Stephenshaw said that some vacant positions related to 24-hour staffing requirements within the California Highway Patrol, the California Department of Corrections and Rehabilitation and Department of State Hospitals have been kept on the books.
The Finance Department did not say when those vacant positions would be filled. The state said it saved $1.2 billion from agency budgets by not filling those positions. The Finance Department provided an update to the vacancy sweep while previewing Gov. Gavin Newsom’s proposed $322 billion budget on Friday.
One public sector union expressed relief that fewer vacant roles were cut than the administration previously targeted. Though Service Employees International Union Local 1000, the state’s largest public union, noted the remaining unfilled positions at the state leave a significant gap in staffing levels for essential services.
Stephenshaw emphasized that the state wasn’t pursuing workforce reductions to the state’s firefighting resources while wildfires continue raging in Los Angeles County.
“Given the circumstances, we are exempting Cal Fire from any efficiency reductions and ensuring they have all the resources that they need as we move forward,” Stephenshaw said.
The Finance Department said Cal Fire is expected to grow by 700 firefighters in the current fiscal year as part of the adoption of a shorter workweek for employees.
Cutting unfilled state jobs was just one of the mechanisms the administration is pursuing to save money. The administration hoped to save $2.2 billion by telling departments last year to begin cutting nearly 8% of their operating budgets.
On Friday, the Finance Department said the state projected it would eliminate $1.5 billion this fiscal year through eliminating various operating expenses.
Next year, the state projected it will save $2 billion in operating expenses, based on discussions with agencies and departments.
“That’s what’s reflected in the budget,” Stephenshaw said. “That’s based on those conversations and our understanding and what we think we can reasonably accomplish at this point.”
The budget overview didn’t break down how every state agency will achieve those projected savings. It did provide a detailed overview of how CDCR planned to achieve hundreds of millions of savings in the coming year.
While the prison system’s budget is shrinking, the Finance Department estimated that the inmate population would increase by 1,600 in the next fiscal year due to November’s passage of Proposition 36, which increased penalties for theft and drug crimes. The state’s average prison population is estimated to be 91,672 this fiscal year. “We will have to continue monitoring the exact impact of Prop. 36,” Stephenshaw said.
Article ($): https://www.sacbee.com/news/politics-government/capitol-alert/article298311838.html#storylink=cpy
Air Board Garages Controversial Clean Truck & Train Rules
CalMatters
California has decided to abandon its groundbreaking regulations phasing out diesel trucks and requiring cleaner locomotives because the incoming Trump administration is unlikely to allow the state to implement them.
State officials have long considered the rules essential to cleaning up California’s severe air pollution and combating climate change.
The withdrawal comes after the Biden administration recently approved the California Air Resources Board’s mandate phasing out new gas-powered cars by 2035, but had not yet approved waivers for four other standards for diesel vehicles that the state adopted.
President-elect Donald J. Trump has threatened to revoke or challenge all zero-emission vehicle rules and California’s other clean-air standards. By withdrawing its requests for U.S.
Environmental Protection Agency approval, the Newsom administration is signaling a dramatic step back as the state recalibrates in anticipation of the new Trump era.
“California has withdrawn its pending waiver and authorization requests that U.S. EPA has not yet acted on,” Air Resources Board Chair Liane Randolph said in a statement. “While we are disappointed that U.S. EPA was unable to act on all the requests in time, the withdrawal is an important step given the uncertainty presented by the incoming administration that previously attacked California’s programs to protect public health and the climate and has said will continue to oppose those programs.”
Environmentalists were distressed, saying it puts communities at risk and dismantles key programs.
“To meet basic standards for healthy air, California has to shift to zero-emissions trucks and trains in the coming years. Diesel is one of the most dangerous kinds of air pollution for human health, and California’s diesel problem is big enough to cast its own shadow,” Paul Cort, director of the group Earthjustice’s Right To Zero campaign, said in a statement.
“We’ll be working tirelessly in the coming years — and calling on Governor Newsom, state legislators, and our air quality regulators to join us — to clean up our freight system and fix the mess EPA’s inaction has created.”
California’s Advanced Clean Fleet rule, which phases out diesel trucks, was one of the most far-reaching and controversial rules that California has enacted in recent years to reduce air pollution and greenhouse gases. It would have ended the sale of new fossil-fuel trucks in 2036 and required large trucking companies to convert their medium and heavy-duty fleets to electric or hydrogen models by 2042.
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