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IN THIS ISSUE – “It was a few months of delay of game and now it’s almost an afterthought”
Steve Maviglio, Democrat political consultant, on Governor’s belated State of the State speech
- Legislature OKs Budget Bills…Now It’s the Bond Battle for Billions
- Budget Winners & Losers
- After All That, the Budget Remains in the Red: “Gimmicks Too Numerous to List”
- Newsom’s Belated State of the State Speech Takes a Presidential Tone
- State Revenue Picks Up in June
- $14 Billion Needed to Fix Drinking Water Systems for 1 Million Californians
Capital News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
CN&N resumes publishing on July 12.
FOR THE WEEK ENDING JUNE 28, 2024
Legislature OKs Budget Bills…Now It’s the Bond Battle for Billions
Sacramento Bee
California’s Legislature approved most of the bills that make up the $298 billion budget agreement with Gov. Gavin Newsom to close a roughly $47 billion deficit.
The final budget — which Newsom and Democratic legislative leaders announced on Saturday — contains many of Democrats’ spending priorities, including money for homelessness grants, social safety net services, public health initiatives and affordable housing programs.
The budget bills lawmakers passed Wednesday added specific elements of their agreement with Newsom that weren’t in that spending plan.
He will likely sign the budget bills lawmakers approved later this week or next, after he returns from Atlanta, where he’s one of the surrogates for President Joe Biden in the post-debate “spin room.”
The spending agreement between legislative leaders and Newsom provides funding for a sixth round of local homelessness grants, in-home supportive services for undocumented immigrants and pay increases for health care providers who serve patients enrolled in Medi-Cal, the state’s version of the federal Medicaid program.
To offset the spending, lawmakers cut California Department of Corrections and Rehabilitation spending by $750 million. They will also dip into reserves, cut state operations by nearly 8% and delay a health care worker minimum wage that was to start this summer.
The budget battle is not over, though. Legislators are still working out two bond measures that will ask voters in November to allow California to borrow even more money for school facilities and climate change-related programs.
Senate President Pro Tem Mike McGuire, D-Healdsburg, on Monday confirmed lawmakers will seek to extend the deadline for adding measures to the November ballot from June 27 to July 3.
“We’ve been working like hell on the issue of bonds,” McGuire said in a statement. “We’re in the home stretch.”
Bonds have played into the budget process in a significant way.
Lawmakers have sliced budget dollars for climate change and school facilities, an indication they’re hoping to use bond money to fill those holes. The spending plan agreement includes hundreds of millions of dollars in cuts to water storage projects, climate resilience initiatives and dam safety as well as a handful of other related reductions.
The Assembly floor report of the budget said explicitly the Legislature and Newsom cut $875 million in general fund money for the school facilities program “in anticipation of a November 2024 School Bond initiative.”
Negotiations likely involve efforts to combine at least two school facilities bonds and a handful of climate bonds. McGuire cited those two priorities when asked about bond negotiations, saying ensuring students have proper classrooms and campuses is close to his heart.
On the climate side, he cited wildfire prevention and drinking water as two important potential bond elements. Assemblyman Al Muratsuchi, D-Torrance, authored a $14 billion bond funding construction and modernization projects at kindergarten through community college facilities.
Muratsuchi and Glazer declined to comment on their bonds, citing ongoing negotiations.
Sn. Ben Allen, D-Santa Monica, and Assemblyman Eduardo Garcia, D-Coachella, have climate bonds, both of which seek more than $15 billion for water quality and conservation, wildfire prevention, coastal preservation, clean energy projects and more. “We’re working on it, and we’re getting real close,” Allen said of negotiations.
Housing is one priority that likely won’t get a bond measure, although the governor and lawmakers opted to include budget funding for homelessness grants, loans to help developers build affordable rental housing and a program to assist local government housing planning.
Assemblywoman Buffy Wicks, D-Oakland, has been pushing for a $10 billion housing bond, although she said earlier in the month she would remain undeterred if her bond didn’t advance, especially in light of the budget dollars.
https://www.sacbee.com/news/politics-government/capitol-alert/article289557968.html#storylink=cpy
Sacramento Bee
Social safety net programs emerged as one of the big winners of a budget deal hammered out between Gov. Gavin Newsom and lawmakers with both sides compromising on some fronts to get to the nearly $300 billion budget agreement right under the deadline.
Lawmakers agreed with the governor to delay the minimum wage hike for health care workers and Newsom made concessions on other items, including acquiescing to legislators’ desire to keep flowing $1 billion in state money to combat homelessness in a new round of funding.
The measures were agreed to in a budget deal announced over the weekend to fill a nearly $47 billion shortfall. Newsom listened to leaders and allies in the Democratic-controlled Legislature on several fronts to cobble together the agreement. In some areas lawmakers went further than Newsom and offered more ways to save money, while in others they rejected the governor’s budget proposals.
Here are some winners and losers from the 2024-25 budget deal:
WINNERS
Subsidized child care: In a tough budget year, Newsom wanted to hit pause for an indefinite period toward achieving an agreed-upon 200,000 subsidized child care slots in the state by 2026.
The proposal would have frozen the number of available slots at 119,000 and also clawed back funding for some 11,000 additional slots already authorized, saving $1.4 billion over two years.
The final agreement funds the approximately 11,000 new slots that had already been awarded and pauses additional expansion of slots by two years, after which additional slots will be subject to future budget appropriations.
Child care providers applauded the agreement. Some 40,000 are represented by the Child Care Providers United (CCPU). “The voices of child care providers, parents, and leaders of the Legislative Women’s Caucus are clearly reflected in the budget agreement, which protects California’s progress on supporting working families’ child care access and early education for our youngest learners,” Rasiene Reece, a child care provider in Victorville, said in a statement from the union.
Middle Class Scholarship recipients: Funding for the state’s Middle Class Scholarship program will continue for students seeking to attend four-year schools with the agreement maintaining $637 million in ongoing funds and $289 million in one-time money. The deal calls for an ongoing reduction of $110 million for the program starting in 2025-26.
Thousands of California students from middle class families would have had a tougher time attending four-year schools had Newsom and state lawmakers not been able to agree as their separate budget proposals were $826 million apart on how much money should be allocated for the Middle Class Scholarship program.
Newsom’s plan called for $100 million in the scholarship pot after his proposed trims. The Legislature wanted $926 million, aiming to continue what was previously planned and including a one-time $289 million addition for the next two years. The scholarship is open to undergraduates and students seeking teaching credentials at state universities with family income under $217,000.
City and counties homelessness efforts: $1 billion will continue in a sixth round of funding to help cities and counties combat homelessness tied to accountability measures. Newsom said previously he would listen to legislators on the issue and had not included the funds for the next round. The governor’s revised budget in May had not set $1 billion aside for a sixth round of funding for the Homeless Housing, Assistance and Prevention program, or HHAP, which provides flexible grant dollars to cities, counties and for care across the state. The budget approved by the Legislature had included the money.
In the final deal announced Saturday morning between Newsom, Senate President pro Tempore Mike McGuire and Assembly Speaker Robert Rivas, another round of $1 billion in grants will continue in 2024-25 but will be tied to increased accountability measures. Local leaders had encouraged the administration and lawmakers to keep the homelessness money coming, calling it a lifeline.
They expressed relief when the deal was announced. “Cities like mine depend on the state homelessness dollars that had previously been considered for elimination and the fact that they have been restored – and at their current level – will allow us to continue to tackle the biggest issue in the state, which is homelessness,” San Diego Mayor Todd Gloria, chair of the California Big City Mayors coalition, said.
LOSERS
Health care workforce: Minimum wage hikes for health care workers will be delayed and there will be a reduction of about $746 million for health care workforce programs. Newsom last year signed into law a bill that created a framework for the wage hikes that the Department of Finance projected would cost $4 billion to implement.
In January, he proposed setting up a “trigger” that would make the increases subject to funding availability.
The agreement includes the trigger to implement the health care worker minimum wage increases pursuant to Senate Bill 525 by Sen. María Elena Durazo, D-Los Angeles, which created a framework for the wage hikes.
The deal also includes “statutory changes to exempt state facilities and other implementation clarifications,” according to the agreement.
Prisons: A trim of $750 million to the California Department of Corrections and Rehabilitation (CDCR) is part of the final budget agreement. Newsom had already proposed saving $82 million by deactivating 46 housing units at 13 prisons.
Progressive Democrats had been urging cuts to prison spending to keep social safety net programs intact.
The $750 million in reductions apply over a three-year budget window of 2022-23, 2023-24, and 2024-25 – the bulk of the savings coming in the next fiscal year, according to an Assembly floor report.
Ongoing state operations reductions: Lawmakers and the governor have agreed to trim state operations – cuts to nearly all department budgets – by nearly 8% for an overall expected savings of approximately $3 billion a year.
The reduction involves all categories of spending, including personnel, operating costs and contracting to achieve the savings, the agreement notes.
The cuts to state operations would build on a December budget letter Newsom’s Department of Finance sent to all state departments and agencies that enacted a current year budget freeze in anticipation of the looming deficit.
The precise contours of those reductions will not be known for several months. The nonpartisan Legislative Analyst’s Office previously cautioned lawmakers that savings from the cut to state operations may not materialize and that would pose a larger deficit in the next budget year.
https://www.sacbee.com/news/politics-government/capitol-alert/article289495952.html#storylink=cpy
After All That, the Budget Remains in the Red: “Gimmicks Too Numerous to List”
CalMatters commentary from Dan Walters
Gov. Gavin Newsom and legislative leaders wrapped themselves in a blanket of self-congratulatory statements Saturday as they announced a deal to close a multibillion-dollar state budget deficit.
They praised themselves for dealing with the $44.9 billion gap between income and outgo without making major reductions in the state’s array of social welfare, health care and education services.
“This agreement sets the state on a path for long-term fiscal stability — addressing the current shortfall and strengthening budget resilience down the road,” Newsom said in a statement. “We’re making sure to preserve programs that serve millions of Californians, including key funding for education, health care, expanded behavioral health services, and combating homelessness.
“I’m grateful for the partnership of our legislative leaders in meeting this challenge with balanced solutions that continue to make progress on California’s priorities.”
Setting aside the self-serving verbiage, there are two salient features of the $297.9 billion budget that Californians should keep in mind — the first being that the budget crisis was self-inflicted.
As the state’s economy emerged from a brief but severe recession during COVID-19 and federal relief funds were pumped into the state, revenues spiked to more than $200 billion. Based on that one-time event, in 2022, Newsom’s administration projected that revenues from the state’s three major sources — sales taxes and personal and corporate income taxes — would continue to generate more than $210 billion a year.
Newsom declared that the state enjoyed a $97.5 billion budget surplus and boasted, “No other state in American history has ever experienced a surplus as large as this.”
It was a monumental error. In fact, revenues from the three biggest sources have been running well under $200 billion ever since, and are now estimated to remain below that level. As Newsom’s revised 2024-25 budget acknowledges, those revenues over a four-year period are now projected to be an incredible $165 billion less than originally expected two years ago.
The false revenue and surplus estimates fueled a sharp uptick in spending. As revenues failed to meet expectations, the budget experienced a structural gap between income and outgo. Had Newsom and others in the Capitol not convinced themselves that they had money to burn, there would have been no deficit.
The second thing that Californians should know about the budget deal: Despite the claims from politicians that it contains, in Newsom’s words, “balanced solutions,” in fact it is imbalanced by many billions of dollars. It contains an estimated $211 billion in general fund spending, but the state expects to raise only about $192 billion in general revenue during the 2024-25 fiscal year.
The gap will be filled largely by tapping the state’s reserves, meant to cushion the impact of an economic downturn, some minor tax increases and indirectly borrowing money that will have to be repaid later.
One major example of the latter is withholding about $8 billion in constitutionally mandated state aid to schools, making it up by using $8 billion in one-time school reserve funds, and then repaying the $8 billion sometime in the future.
Another is suspending the ability of large- and medium-size businesses to deduct net operating losses on their income tax returns for three years, and then allowing them to recapture those deductions in future years when, it’s assumed, the state is in better financial condition.
There are other gimmicks too numerous to list, but the deal’s overall theme is maintaining business more or less as usual and then hoping that the state’s economy will generate enough money in future years — sometime after Newsom’s governorship ends — to make things truly balance out.
Newsom’s Belated State of the State Speech Takes a Presidential Tone
Sacramento Bee & CalMatters
In a delayed, taped State of the State address on social media, California Gov. Gavin Newsom characterized 2024 as a year that’s “another extraordinary moment in history” as he lifted California as a beacon to the world that has proven an “antidote to the poisonous populism of the right.”
The recorded speech, released on the governor’s social media channels and website Tuesday with a copy delivered to the Legislature in advance, appeared aimed at a national audience as much Californians.
Newsom has said he is not running for president this year but has taken the sort of steps candidates take to prepare for a possible run in the future. During the 28 minutes on screen, Newsom touted his administration’s efforts to protect reproductive rights, secure the southern border, reduce homelessness and more.
He also warned that California is being threatened by “conservatives and delusional California bashers” who want to turn the country “toward a darker future.
“They want to roll back social progress, social justice, racial justice, economic justice, clean air, clean water, and basic fundamental fairness. They would cleave America from the principles of freedom and the rule of law. And in the process, throw our economy and, in many respects, society as we’ve known it, into chaos.”
Criticism of Newsom’s speech from Republican legislators was immediate — particularly over what they say is Newsom’s focus on national politics instead of Califlornians’ concerns. Senate GOP leader Brian Jones of San Diego said on social media that Newsom’s speech failed to address crime, California’s high cost of living and businesses leaving the state. Assembly GOP Leader James Gallagher of Chico said, “We don’t hear any substance on the state of the state about the progress being made because there is none. … Of all the things that he said he was going to do — a California for all — none of it has come to fruition.”
Political consultants said it’s a strange political maneuver at a time when Newsom is fighting several battles and could use the opportunity to commune with lawmakers and assert himself on any number of issues.
“It was a few months of delay of game and now it’s almost an afterthought,” said Steve Maviglio, a Democratic political consultant. “And it’s too bad, because it’s a real opportunity for him to engage with the Legislature and put forth what his ideas are.
”This year he’s been playing defense, and I think that’s reflected in the way he’s handling the State of the State.”
Newsom postponed the speech since March, when he was originally supposed to deliver it in the Capitol before the close Proposition 1 vote prompted him to push it back.
https://www.sacbee.com/news/politics-government/capitol-alert/article289494444.html#storylink=cpy
WATCH:
https://www.gov.ca.gov/2024/06/25/governor-newsom-delivers-2024-state-of-the-state-address/
State Revenue Picks Up in June
Dept. of Finance
The State Dept. of Finance (DOF) in its June Monthlly Bulletin reported preliminary General Fund agency cash receipts were $2.7 billion, or 22.1 percent, above the May Revision forecast for May, and $2.8 billion, or 1.6 percent, above the fiscal year-to-date forecast of $175.6 billion.
This was largely due to personal income tax withholding exceeding the May forecast by $1.2 billion, or 16.6 percent, and net corporation tax collections exceeding the forecast by $752 million, or 124.3 percent.
Some of this strength may be related to timing as withholding is volatile from month to month and corporation payments likely benefited from Pass-Through Entity Elective Tax (PTET) prepayments that are due in mid-June coming in earlier than expected.
May is not a particularly important month for personal and corporate income taxes as there are no major payment due dates. June, however, contains the due date for second quarter estimated payments for both taxes in addition to the aforementioned PTET prepayment. A total of $24.8 billion in net personal and corporate income tax receipts are projected in June.
Personal income tax cash receipts were $1.4 billion, or 23.9 percent, above forecast in May due to withholding exceeding the forecast by $1.2 billion and refunds coming in $256 million lower than projected.
This brings the fiscal year-to-date increase in personal income tax receipts to $1.5 billion, or 1.4 percent.
Withholding receipts increased over 20 percent year-over-year in May and are up 11 percent year-over-year in the first five months of 2024. Withholding should generally be evaluated over multiple months for longer-term trends as single-month readings can be misleading due to calendar changes affecting when payments are recorded and the timing of stock-based compensation. Non-withholding personal income tax payments had relatively minor variances from the forecast in May.
Corporation tax cash receipts were $752 million above forecast in May and $754 million, or 2.6 percent, above the fiscal year-to-date forecast. Non-PTET payments exceeded the forecast by $408 million and PTET payments were $221 million, or 80.7 percent, above projections. May refunds, which are very volatile from month to month, were $123 million lower than projected.
Preliminary sales and use tax receipts were $53 million below forecast in May and fiscal year-to-date. May cash receipts include a portion of the final payment for first quarter taxable sales and the first prepayment for second quarter taxable sales.
“Other” revenues were $381 million, or 51.4 percent, above forecast in May, largely due to higher deposits from the Federal Emergency Management Agency related to cost recoveries.
California’s unemployment rate fell 0.1 percentage point to 5.2 percent in May 2024, as civilian household employment increased by 9,500 persons, while unemployment and the state’s labor force declined by 17,700 and 8,100 persons, respectively.
California added 43,700 nonfarm payroll jobs in May 2024, driven by leisure and hospitality (10,200), followed by private education and health services (9,300) and professional and business services (9,000).
Five other sectors gained jobs in May: government (5,600), financial activities (3,900), other services (3,700), construction (2,800), and trade, transportation and utilities (2,500). Information (-1,900) and manufacturing (-1,400) had small job losses, and mining and logging had no change in employment.
DOF June Bulletin:
https://dof.ca.gov/wp-content/uploads/sites/352/2024/06/Finance-Bulletin-June-2024.pdf
$14 Billion Needed to Fix Drinking Water Systems for 1 Million Californians
CalMatters
Almost 400 water systems serving nearly a million Californians don’t meet state requirements for safe and reliable drinking water supplies — and fixing them would cost billions of dollars.
More than two-thirds of these failing water systems serve communities of color, and more than half are in places struggling with poverty and pollution, according to an annual assessment released Wednesday by the State Water Resources Control Board.
These water systems failed to provide water “which is at all times pure, wholesome, and potable,” as required. Some violated drinking water standards for chemicals, bacteria, taste or odor. Others rely on bottled water, or have failed to meet treatment, monitoring or other requirements.
About 913,000 people, as of Jan. 1, were served by the water systems that didn’t meet the requirements, dropping to about 771,000 as of today. Even more Californians, around 1.54 million, got their drinking water from hundreds of water systems considered at risk of failing, the report said — and it rose to more than 1.8 million as of today. Nearly 144,000 wells were threatened by encroaching contaminants and shortages.
Failing water systems span the state — from tiny Del Norte County on the Oregon state line to San Diego and Imperial counties near the border with Mexico. They cluster densely in the Central Valley and along the Central Coast, where groundwater overuse, agricultural chemicals and smaller, struggling water systems collide — particularly in lower income communities of color.
“It’s a moral outrage. It’s unconscionable in a state that has so many resources that we can’t ensure that everybody has access to the human right to water,” said Kyle Jones, policy and legal director with the Community Water Center. “Folks shouldn’t have to suffer health impacts or added cost to have access to something that most of us take for granted and can get daily.”
The price tag for ensuring safe, affordable and accessible water supplies for all Californians is staggering — an estimated $16 billion over the next five years — as the state grapples with a multibillion-dollar deficit.
The water board projects that it can cover about $2 billion of the estimated cost with grants — leaving $13.9 billion to be shouldered by water suppliers and well owners, including those that are least financially able to weather such a blow.
Without more state or federal funding, most of the total may fall on local communities and well owners, according to the report. That means some of the people least able to afford it will end up paying more for water.
The number of failing systems — and the cost of fixing them — is likely to climb as water suppliers must meet new state and federal standards for hexavalent chromium, the contaminant made infamous by the movie “Erin Brockovich,” as well as pervasive forever chemicals.
“The subtext of this report is pretty clear,” said Greg Pierce, director of UCLA’s Human Right to Water Solutions Lab, who commended the water board’s transparency and extensive analysis. “The state just needs to put its money where its mouth is.”
It’s been 12 years since California became the first state in the country to recognize clean, safe, affordable and accessible drinking water as a human right. Today about 98% of Californians are served by water systems that meet state standards.
Yet despite California’s reputation as an economic powerhouse and climate leader, the state has long struggled to ensure safe drinking water for all — especially those in rural, disadvantaged communities. Californians relying on household wells, for instance, are beyond the state’s regulatory reach.
The annual assessment comes from the water board’s Safe and Affordable Funding for Equity and Resilience (SAFER) drinking water program, established by state law in 2019. Nearly a billion dollars has been spent on grants in disadvantaged communities.
The list of failing water systems typically hovers between 380 and 400, state officials said. And nearly every year, with only a couple of exceptions, more water systems have been added to the “failing” list than removed.
Still, about 283, or 42% of 715 systems that were on the list, came off between 2017 through 2023. About 700,000 more people have safe water than in 2019, according to the water board.
MORE:
https://calmatters.org/environment/2024/06/california-drinking-water-failing-systems/