For Clients of The Gualco Group, Inc.
IN THIS ISSUE – “The State Budget is already scrap paper” Dan Walters, California’s senior political commentator
- State Fiscal Crisis Looms: Wildfires & Tech Stock Meltdown
- Governor Hires POTUS Senior Aide to “Deepen Understanding of Washington”…Hmmmm
- Cloutless California Congressional Delegation Wonders “What Can We Get Done?”
- Groundwater Law Decimating Farmland Value
- Judge OKs Behemoth Lithium Mine in Imperial County
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. 31, 2025
State Fiscal Crisis Looms: Wildfires & Tech Stock Meltdown
CalMatters commentary by Dan Walters
Three weeks ago, Gov. Gavin Newsom proposed a $322 billion state budget for the fiscal year that begins on July 1, emphasizing that it would be balanced without new taxes and have a “modest” $363 million surplus.
The latter number is scarcely one-tenth of 1% of the overall budget, which makes one wonder how Newsom’s budget writers could calculate it so precisely. It may have been plucked from thin air so the first draft of the budget could be portrayed as balanced.
In fact, its purported balance assumes that at least $11 billion in drawdowns from emergency reserves, bookkeeping gimmicks and off-the-books loans can be counted as revenues.
So by its own numbers, the proposed budget is actually leaking red ink.
Furthermore, the budget is already scrap paper because the deadly wildfires that were scorching Southern California as it was being released will clobber tax revenues while imposing massive new financial burdens. The $2.5 billion hastily appropriated by the Legislature is only a down payment on what the state may have to spend on fire suppression and recovery.
That would be true even if President Donald Trump supplied billions of dollars in federal disaster aid that Newsom and other officials are seeking. During his visit to the fire scene last week, Trump both promised to help the region recover and suggested that the state should change some of its environmental and immigration policies in return.
If federal aid is not forthcoming, or is markedly less than being sought, the impact on state finances — both in loss of revenue and new spending — could be immense, potentially encompassing all of the state’s emergency reserves and then some.
A hint of that potential impact is contained in a memo that Joe Stephenshaw, California’s finance director, sent to heads of state agencies last week, basically telling them to stifle any hopes for new or expanded programs.
Stephenshaw told the officials that “the recent devastating fires in southern California have resulted in the federal government delayed tax filings for Los Angeles and Ventura counties until November 15, introducing a level of uncertainty to the revenue forecast.”
Citing the “projected structural deficits in future years and fiscal uncertainty the state continues to face,” he said that the state will stay within a “workload budget,” defined as the current level of authorized spending, adjusted only for such inescapable factors as inflation, caseloads and federal or judicial requirements.
The phrase “projected structural deficits in future years” refers to calculations by both Stepenshaw’s staff and the Legislature’s budget analyst, Gabe Petek, that no matter how the 2025-26 budget turns out, the state faces annual multibillion-dollar gaps between income and outgo after Newsom’s governorship ends two years hence.
Petek sees annual deficits in the $25-30 billion range in the future, while the administration’s projected shortfalls are in the $15-20 billion range. Neither includes the potentially massive revenue and spending impacts of wildfires.
Petek, in his initial analysis of the budget, also warns that recent spikes in income taxes Newsom cited in his budget “are on shaky ground.”
“These gains are not tied to improvements in the state’s broader economy, which has been lackluster, with elevated unemployment, a stagnant job market outside of government and healthcare, and sluggish consumer spending,” Petek noted. “Instead, the gains appear largely tied to the booming stock market, a situation which can change rapidly and without warning.”
The meltdown in artificial intelligence stock values this week punctuates Petek’s admonition.
California has faced budget crises before, but this could be the perfect storm of a chronically unbalanced budget made infinitely worse by disaster.
https://calmatters.org/commentary/2025/01/california-wildfires-double-whammy-budget/
Governor Hires POTUS Senior Aide to “Deepen Understanding of Washington”…Hmmmm
Politico CA Playbook
Nani Coloretti, deputy director of the Office of Management and Budget in the Biden administration, is returning to California to rejoin Gov. Gavin Newsom’s senior staff after spending 15 years in Washington.
Coloretti is set to start on Monday, taking the title of senior counselor to the governor. She will transition to Cabinet secretary on March 3, when Ann Patterson will take on a new senior counselor role under Newsom working primarily on wildfire recovery efforts in Los Angeles.
Both moves had been in the works for some time — though Patterson, who was planning to depart the Newsom administration after her spouse, Nathan Barankin became the governor’s chief of staff, agreed to stay on after the recent fires tore through LA.
The Cabinet secretary position has a broad mandate, reaching across scores of agencies and departments.
With two years left on his final term, Coloretti will focus heavily on helping Newsom implement the sweeping programs he and statewide voters passed. Her recent experience atop OMB — a key department Trump is using to cut spending and enact his social agenda — also helps deepen the understanding of Washington in Newsom’s inner circle A Hawaii native, Coloretti first worked under Newsom during his time as San Francisco mayor, serving as policy adviser and budget director, before joining the Obama administration, where she worked in Treasury and Housing and Urban Development. She was on the senior staff of the Urban Institute during Trump’s first term as president.
In a brief interview, Coloretti described herself as a “Jane-of-all-trades and a problem solver.”
Cloutless California Congressional Delegation Wonders “What Can We Get Done?”
LA Times
California — the self-proclaimed liberal resistance to President Trump’s policies — has long had an outsize voice in the nation’s politics.
For decades, California held sway in both chambers of Congress. Then Sen. Barbara Boxer retired and Sen. Dianne Feinstein died. Democrat Nancy Pelosi of San Francisco and Republican Kevin McCarthy of Bakersfield are no longer House speakers.
And now, with the Republican back in the White House, many of the state’s Democrats in Congress are bracing for another battle — to ensure robust wildfire recovery funding, safeguard former President Biden’s policies and advance their party’s broader social and fiscal ambitions in the nation’s deeply polarized capital.
“It gets harder, but it’s still doable and necessary,” said Sen. Alex Padilla, noting that one of his first major bipartisan pieces of legislation after joining the Senate four years ago was to partner with Sen. John Cornyn (R-Texas), an effort that ultimately provided billions of dollars of federal funding to fix the nation’s electrical grid after ice storms decimated swaths of Texas. Padilla said he drew upon his experience having chaired a state legislative committee on energy.
Still, the Porter Ranch resident concedes that he has concerns about the coming years.
“What my biggest frustration is is how many of my Republican colleagues have told me the right thing behind closed doors about ‘Dreamers’ and farmworkers and others, but haven’t been willing to say it publicly,” Padilla said, adding that he is heartened yet skeptical about Trump’s recent statements about young people who were brought into the country without legal authorization. “I have to be open to it, because I owe that to ‘Dreamers’ and owe that to my constituents, so I will never give up.”
Padilla was appointed to the Senate after Kamala Harris was elected vice president in 2020. With just four years in the office, he is emblematic of the state’s declining clout in the nation’s capital.
Rep. Dave Min (D-Irvine) is still getting used to his transition from being part of a supermajority in the state Senate to the minority party in the House after he won the Orange County seat Katie Porter vacated to run for U.S. Senate.
“I did not contemplate a universe in which I won and we were not a majority,” Min said.
With 52 House members, California still has the largest state delegation, including 43 Democrats who are adamant they must stand up for the voters’ ideals at a time when many of them staunchly oppose Trump’s policies on issues such as immigration and reproductive rights.
Rep. Ro Khanna (D-Fremont) decried the Trump administration’s move to eliminate birthright citizenship as “unconstitutional,” and derided the president’s decision to shut down diversity, equity and inclusion initiatives in the federal government.
Khanna also acknowledged his limitations on curbing the Trump administration’s policy goals in Congress.
Much of the California delegation’s attention has been consumed by the wildfires and disaster response in Los Angeles. Khanna, along with newly elected Rep. George Whitesides (D-Agua Dulce), are planning to introduce legislation that would make it a federal crime to commit arson or loot in wildfire-torn areas.
Padilla introduced a package of bills recently that would boost pay for federal wildland firefighters and create affordable housing from temporary disaster shelters.
But even disaster aid has become hung up in Washington’s politics. Along with her Democratic colleagues from California, Luz Rivas, whose district includes the areas burned in the Hurst fire, has been outspoken that any federal wildfire aid should not come with conditions, as House Speaker Mike Johnson (R-La.) and Trump have suggested.
Trump has said that the Southern California fires made pushing other parts of his political policy agenda “easier,” though on a visit to the region Friday, he said: “We have to work together to get this really worked out.”
Many of California’s elected Democrats in Washington who are now grappling with the deeply polarized Congress spent much of their political careers in Democrat-dominated bodies, such as the state Legislature.
“Something that dominates our caucus discussions, my conversations with Democratic colleagues, particularly freshmen — what can we do in this environment?” Min said. “You know, because I can’t introduce bills that will go anywhere.”
Even if his legislation has little shot at succeeding, Min said he’ll continue to push his messaging — like a recent amendment he pitched that federal aid for California’s wildfire response should not contain conditions.
While he acclimates to the long days and exhausting pace of travel between California and Washington, Min said he was reaching out to his Republican colleagues across the aisle. He said he’s already befriended several on a recent new members’ retreat in Williamsburg, Va.
“I know there are good people on that side of the aisle. They are under a lot of pressure to vote with the MAGA Donald Trump agenda,” he said. “But at some point, the hope is that if we continue being the conscious conscience of Congress, that maybe some of them will peel off.”
Others are more used to Washington’s polarization.
California Sen. Adam Schiff, who took office in December, is optimistic that the Senate will be more collegial and resemble what the House was before the Trump era. He noted that, as a representative from Burbank, he had a close relationship with Rep. John Culberson (R-Texas) because both of their districts had major space and science interests.
“The Houston Space Center was part of his history. I had JPL. We were so inseparable when it came to NASA and space funding and priorities,” Schiff said. “We didn’t talk about abortion, we didn’t talk about guns, we didn’t talk about the things that divide us, we focused on the thing we have in common. … And my sense already, after being in the Senate for a month, is that the opportunity to form those kind of partnerships is much more prevalent here.”
Still, the elected leaders acknowledged uncertainty.
“I’m encouraged,” Padilla said. “But we’re just understanding the dynamics of this new Congress, majorities in the House and the Senate, and incoming President Trump.”
https://www.latimes.com/politics/story/2025-01-27/california-democrats-congress-diminished-clout
Groundwater Law Decimating Farmland Value
San Jose Mercury
There was a time when the water under Nick Sahota’s Terra Bella farm was free and abundant, supporting tidy rows of pistachio trees and table grapes to supply Bay Area groceries like Costco, Food 4 Less and SaveMart.
Now water costs on his Tulare County farm have soared to about $1,500 an acre due to pumping restrictions created by California’s historic Sustainable Groundwater Management Act.
A decade after the law was adopted after great controversy, implementation is ramping up — and farmers’ anxieties are mounting, fearing bankruptcies are on the horizon.
With outstanding loans of over $15 million, Sahota’s family lives in fear that it could lose the farm that took decades to build and was once proudly profitable.
The value of his orchards has plummeted to one-quarter of what they were worth only four years ago.
“How are we going to pay the loans? It’s impossible,” said Sahota, 50, who farms with his 83-year-old father on the flat sandy soils of eastern Tulare County, where summer temperatures rise well into triple digits.
Sahota is among a growing number of farmers who face ruin as the groundwater law is implemented across the San Joaquin Valley, the Central Valley’s enormous southern half.
Agriculture is the single largest employer in this region, so fallowed fields mean fewer jobs to support the local economy.
Last year, the value of orchards that are solely reliant on groundwater fell between 30% to 40% in an analysis of land between Sacramento and Chowchilla, according to veteran appraiser Janie Gatzman of the American Society of Farm Managers and Rural Appraisers, who tracks San Joaquin Valley properties.
“That’s a huge loss in equity for growers, who have been farming at a loss for the last three to four years,” due to climbing water costs and reduced demand for nuts, she said.
That could transform parts of the San Joaquin Valley if farms fail and acreage goes fallow. The valley is the backbone of California’s $59 billion-a-year agricultural industry, which provides over a third of the nation’s vegetables and two-thirds of its fruits and nuts.
Hardest hit are farms on the far eastern stretch of the valley in so-called “white areas,” reliant exclusively on groundwater. Ironically, water was once so plentiful here that access to imported state or federal water was thought unnecessary; now it’s a lifeline. In addition to eastern Tulare County, the counties of Madera, Fresno, Kern and Merced have large patches of “white areas.”
Historically, the value of California’s agricultural land has always been based on its access to water. “You don’t buy land by the acre. You buy it by the acre-foot” of water, said Daniel Sumner, a professor of agricultural economics at UC Davis.
By tapping into groundwater, rough rangelands could be turned into vast, lucrative and manicured orchards of almonds, pistachios and other tree nuts. According to Gatzman, grazing land is only worth $500 to $2,500 per acre; orchards, until recently, could command $20,000 an acre.
But the Sustainable Groundwater Management Act is triggering a profound change, said Sumner.
“If you previously had access to water, and now you don’t, you don’t own what you thought you did,” said Sumner.
Over time, rather than orchards, the land may support solar panels, beef cattle or wheat. But these non-irrigated uses are far less profitable.
The groundwater act, passed in 2014, aims to ensure a more sustainable use of groundwater after years of over-pumping, which depleted basins and eroded water quality in some rural areas.
Studies show that the state’s agricultural valley is consuming twice as much groundwater as nature is returning through rain and snow. According to the Department of Water Resources, it is sinking in on itself as the aquifer beneath it is siphoned off, causing roads to crack and buried pipelines to rise to the surface. Parts of the California Aqueduct have been raised to preserve flow.
Accelerated land subsidence — or sinking — was observed after the drought of 2020-2022. Groundwater levels began to partially rebound in 2023. But it will likely require several more wet years, along with a boost of groundwater recharge and reduction in pumping, to recover from decades of over-pumping, according to the state.
Local water agencies are responsible for deciding how the landowners in their jurisdictions will reach sustainability. They must set a limit or “cap” on the overall amount of groundwater that is removed.
Farms with guaranteed water will be in higher demand, said Andres Jauregui, director of the Gazarian Real Estate Center at the Craig School of Business at CSU-Fresno.
Due to the groundwater act, “you can’t drop a well to solve your water problems,” he said.
To provide time for farmers to transition by adjusting their crops or repurposing their land, SGMA doesn’t require water agencies to balance their water basins until 2040. But immediate action is required in places where there is ground subsidence, according to the California Farm Bureau’s Ag Alert.
So water agencies are using “demand reduction” strategies on their region’s growers, such as water fees and pumping allocations.
Some are doing what was once unthinkable: requiring meters on agricultural wells, and billing farmers for usage.
“We can’t survive with that cost,” said Madera County farmer Amrik Singh Basra, whose groundwater fees have jumped from $246 to $983 per acre foot to sustain his almonds and wine grapes. Despite fallowing one-third of his acreage, he must still pay full property taxes.
“We have to go bankrupt or we have to shut down,” said Basra, who worked in trucking to save enough money to buy his small farm in 1997. “And nobody is buying the land.”
Starting in 2021, the Eastern Tule Groundwater Sustainability Agency charged Sahota about $330 per acre-foot of water. He is also billed $110 per acre-foot “subsidence fee” for the cost of fixing the sinking Friant-Kern Canal, even though he gets no water from the canal.
This year, his total costs will climb to $3,000 per acre-foot, he said. If the water bill is not paid, a lien is put on his property. After spending $1.8 million to plant new trees several years ago, he is now in debt.
“I’m very close to giving up our land. People in the Bay Area want to get the fruits and vegetables on their tables, but it costs water,” he said.
Four years ago, his land was appraised for $32,000 an acre. Now it is worth an estimated $7,000 to $8,000 an acre.
Small- or medium-scale growers like Sahota are in the most perilous position, according to an analysis by Clean Water Action and CivicWell, nonprofits that work on improving equitable access to water.
Many did not know about the groundwater act’s existence until after it passed. Now there is little, if any, assistance.
Pumping reductions needed to reach the act’s target are expected to dry up as much as 20% of the valley’s farmland, according to a report published by the Public Policy Institute of California. An estimated 500,000 acres — a fifth of the San Joaquin Valley’s farmland — may need to be taken out of cultivation by 2040 to stabilize the region’s aquifers, it says.
Over time, there will be new uses for the land, said experts.
But “it may be too late for current growers who are in trouble. That’s a personal tragedy,” said Sumner, the UC Davis professor, whose grandfather came from Texas to California after his cattle operation was wiped out by the Dust Bowl.
“Farming is a really tough, hard business, and it’s risky,” he said. “That’s its history. These are not the first farmers to have been caught by something unexpected.”
Judge OKs Behemoth Lithium Mine in Imperial County
CalMatters
An Imperial County judge cleared the way for the Hell’s Kitchen project, one of the world’s largest lithium mines, when he recently dismissed a lawsuit filed by civic and environmental groups.
Hell’s Kitchen, in the Salton Sea, promises to unearth a motherlode of lithium, a mineral essential to electric car batteries, cellphones and other electronics. While the court decision is expected to open a floodgate for U.S. lithium production, it has disappointed community organizers who worry the mine will endanger nearby residents.
The nonprofits Comite Civico del Valle and Earthworks argued in their lawsuit that the environmental review for Hell’s Kitchen did not fully address the project’s effects on water supply and air quality, and that the company developing it, Controlled Thermal Resources, didn’t consult with local Native American tribes as required by law. On Jan. 9 Superior Court Judge Jeffrey Jones ruled that Controlled Thermal Resources had met those requirements, freeing it to resume construction.
Opponents said that decision greenlights the project without sufficient environmental protection and community input.
Rodney Colwell, CEO of Controlled Thermal Resources, said he is pleased with the decision and expects to start construction in five to six months. However, the lawsuit set the project back a year or more.
“We’re happy to get past it, but it has cost us a lot of time and it has put the project at risk,” he said. “We haven’t been able to raise capital. We haven’t been able to move forward with development at all.”
Now that it’s back on track, Colwell said the company expects to start generating geothermal energy by the end of 2026 and mining lithium after that.
California leaders are determined to transition the public to electric vehicles over the next decade as part of the state’s battle against climate change. To do that, they’ll need lots of lithium.
That’s where the Salton Sea and Hell’s Kitchen come in. Energy companies are already producing geothermal energy at the site, extracting hot, high-pressure brine to generate electricity. The brine is rich with minerals, including more than 3,400 kilotons of lithium: enough to make over 375 million electric vehicle batteries, according to the Department of Energy.
Hell’s Kitchen will remove minerals from the brine and then reinject it into aquifers around the Salton Sea.
State and federal officials gushed about the prospect of that much domestic lithium, predicting that the area they call “Lithium Valley” could become one of the world’s biggest sources of the “white gold,” freeing the U.S. from depending on other countries for the critical mineral.
MORE:
https://calmatters.org/environment/2025/01/salton-sea-lithium-mining/