For Clients & Friends of The Gualco Group, Inc.

IN THIS ISSUE – “We need more tools in the damn tool kit”

Gov. Newsom supporting an ocean water desalination plant

STATE BUDGET & POPULATION

DROUGHT CRISIS

CAMPAIGN 2022

  • State Controller Race Goes…Spicy!

Capital News & Notes (CN&N) harvests 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.

FOR THE WEEK ENDING MAY 6, 2022

 

Legislature’s Budget Dilemma – How to Spend $100 Billion

CalMatters commentary from Dan Walters

As Gov. Gavin Newsom finalizes his May 15 budget revision, it’s obvious that it will project a surplus bigger than the $29 billion he initially cited in January.

How much bigger? Last week, Democratic legislators estimated that the general fund surplus could hit a staggering $68 billion — and that doesn’t count the extra money, perhaps as much as $37 billion, that, by law, must be spent on public education.

Newsom and legislative leaders agree that at least some of the extra cash should be in the form of no-strings grants to California families, but there’s no agreement on how much or who would — and would not — qualify for the election year payouts.

Over the last quarter-century, as income taxes came to dominate the state government’s revenue stream and as a relative handful of wealthy Californians paid most of those taxes, a syndrome dubbed “volatility” plagued the state budget.

When the economy was thriving and those elite taxpayers were seeing big gains on their investments, money poured into the state treasury, enabling the governor and legislators to ramp up spending. But when the economy cooled, revenues declined, sometimes very sharply, and the budget hemorrhaged red ink.

A decade ago, a newly elected Gov. Jerry Brown persuaded voters to create what was dubbed a “rainy day fund” as a cushion during against economic downturns.

The state’s reserves have grown immensely since then. Even the COVID-19 pandemic had little negative impact on revenues since the incomes of wealthy taxpayers were generally unaffected. If anything, the revenue flow has accelerated, providing tens of billions of dollars in revenues beyond what’s needed to maintain current programs and services.

What to do with the extra cash is now a point of contention among the Capitol’s dominant Democrats.

Should they satisfy the demands of progressive activists who want to transform California into a European-style welfare state?

Should they be conservative by increasing reserves, reducing debt and/or making one-time commitments, such as public works projects, to minimize permanent commitments?

Or should they give at least some of the money back to taxpayers, albeit not necessarily the rich ones who provided the bounty.

Those questions loom anew as the Capitol begins a six-week dash to June 15, when a new budget must be completed.

“We stand ready to act as soon as the governor joins us in supporting a plan that provides stronger relief for California families,” the Legislature’s top two leaders, Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon, said in a joint statement.

Meanwhile, the Legislature’s budget analyst, Gabe Petek, warns that ever-increasing revenues will mean ever-tightening legal requirements to channel surpluses into a few categories, including rebates to taxpayers, rather than spend them. That’s because of the Gann Limit, a ballot measure that voters approved in 1979, with the support of Brown during his first governorship. Thus, Petek advised, the most prudent step would be to build reserves so that ongoing state services could be protected from the Gann Limit diversions.

Petek said his staff analyzed 10,000 possible revenue scenarios and “in 95% of our simulations, the state encountered a budget problem by 2025-26. Notably, the likelihood of a budget problem largely is impervious to the future trajectory of state tax revenues.”

Petek’s advice is anathema to legislators oriented toward expansive spending, and some want to respond by repealing the Gann Limit. That, however, would take a constitutional amendment approved by voters, so at least in the short run, Newsom and legislators must obey the Gann Limit as they decide how to handle an unprecedented flow of cash.

https://calmatters.org/commentary/2022/05/how-will-california-handle-a-huge-budget-surplus/

 

California Population Continues to Decline & Move Inland

CalMatters & State Dept. of Finance

California’s population fell by 117,552 between Jan. 1, 2021 and Jan. 1, 2022 — the second straight year of decline, according to figures released Monday by the state Department of Finance. Although the 0.3% dip is smaller than the 0.6% decrease California logged between April and December 2020, the data is nonetheless concerning for a state whose slowing population growth recently caused it to lose a U.S. House of Representatives seat for the first time in history. Some key takeaways:

  • Every coastal county except three (San Luis Obispo, Santa Barbara and Santa Cruz) saw population declines, while growth remained strong in the Central Valley and Inland Empire.
  • 34 of 58 countiessaw population declines, and only two (Yolo and San Benito) logged growth higher than 1%.
  • Six of California’s 10 largest cities notched population declines,excepting San Diego, Fresno, Long Beach and Bakersfield. Los Angeles, San Jose, San Francisco, Sacramento, Oakland and Anaheim all lost residents.

So why is California’s population declining? The Department of Finance identified several factors: declining birth rates, increased deaths due to the pandemic, federal laws restricting and slowing down international immigration, and an increase in Californians moving to other states.

  • Datasuggest many Californians fled expensive, dense, coastal cities for cheaper suburban enclaves as COVID upended work and life patterns and supercharged an already competitive housing market.
  • California’sshortage of affordable housing is one of the main factors driving residents to move. San Francisco’s planning department processed applications for just 62 units during the first four months of 2022 — down from 891 at the same time last year and 2,084 in 2015. “There is nothing that is better than right now than it was two years ago,” Ross Edwards, CEO of Build Group, told the San Francisco Chronicle. “Projects are just dying of their own weight.”

https://dof.ca.gov/wp-content/uploads/Forecasting/Demographics/Documents/E-1_2022PressRelease.pdf

 

Newsom Backs Large SoCal Desalination Plant, Opposes Coastal Commission Staff

San Jose Mercury News

Citing California’s worsening drought conditions, Gov. Gavin Newsom made a powerful new push for a controversial $1.4 billion desalination plant on the state’s coastline.

The proposed oceanfront facility in Huntington Beach has been under debate for more than 20 years, and its fate could set a course for other desalination plants on the state’s coast. The California Coastal Commission is scheduled to take a final vote on the project next week.

“We need more tools in the damn tool kit,” Newsom said during a meeting with the Bay Area News Group editorial board when asked about the project. “We are as dumb as we want to be. What more evidence do you need that you need to have more tools in the tool kit than what we’ve experienced? Seven out of the last 10 years have been severe drought.”

On Monday the staff of the Coastal Commission recommended that the project be denied, citing its impact on marine life, energy use, its vulnerability to sea level rise and the potential to drive up water rates for low-income residents.

Newsom said a no vote by the full commission to kill the project would be “a big mistake, a big setback.”

If approved at the May 12 Coastal Commission meeting, the project would be the second major ocean desalination plant built in California, following the opening in 2015 of a $1 billion plant in San Diego County by Poseidon Water, the same company that wants to build the Huntington Beach plant.

Some environmental groups fought both, saying they use too much energy, harm marine life and provide the most expensive type of drinking water.

“It’s disappointing that the governor doesn’t seem to be interested in the scale and nuance that’s needed to understand the impacts of this plant,” said Mandy Sackett, California policy coordinator of the Surfrider Foundation. “It would be a step backwards in terms of solving our state’s water needs.”

Orange County has ample groundwater, Sackett said. And other water sources, such as expanding recycled water, stormwater capture and more conservation, including programs that pay people to remove lawns, provide water that is cheaper than ocean desalination, she added.

The project would be located on 12 acres of a 54-acre site also occupied by the AES Huntington Beach Energy Center, a natural gas-fired power plant.

It would draw in up to 106 million gallons of seawater per day to produce up to 50 million gallons a day of potable water — enough for 400,000 people — for purchase by local water districts. Poseidon’s desalination plant in Carlsbad, the largest in North America, produces roughly the same amount of water, providing about 10% of San Diego’s annual water supply.

The plant would discharge 57 million gallons a day of highly salty brine through the power plant’s existing outfall pipe, which extends offshore about 1,500 feet.

The intake pipe would have screens with 1 millimeter mesh to prevent larger fish and other animals from being drawn into the pipe. Despite that, state scientists say the project would kill fish larvae, plankton and other marine life. The project also would use significant amounts of electricity.

Newsom said Thursday he believes the environmental concerns can be addressed.

“In the staff report,” Newsom added, “which I had a chance to peruse — I didn’t go into all of the specifics, it’s a long report — but I appreciate they made a few recommendations that the Coastal Commission can pick up on. That’s related to offsets and mitigation on wetlands and other things that Poseidon would be required to do. Those are longer term. Perhaps they can move those sooner.”

The Coastal Commission is one of California’s more powerful government agencies. It has 12 members, four of whom are appointed by the governor and eight of whom are appointed by the leader of the state Senate and Assembly.

Asked if he has personally spoken with commissioners since the staff report came out recommending the project be denied, Newsom said he had not. He noted that he has supported the project publicly for nine years. Other supporters include Sen. Dianne Feinstein, former Gov. Jerry Brown and Huntington Beach Mayor Barbara Delgleize.

“I’ve been encouraging this project for some time,” Newsom said. “And I’m also encouraging accountability, and I’m encouraging making sure they do mitigation. And to the extent they want to strengthen all that, bring it on. Keep an eye on the environmental justice issues and costs. Be tough. Be fair though. Don’t be ideological.”

Late Friday, a spokeswoman for Poseidon Water said she welcomed Newsom’s remarks.

“This project is the most studied project in the state,” said Jessica Jones, a Poseidon spokeswoman. “If the California Coastal Commission denies it, there is not a clear path forward for any desalination project in the state.”

Asked about the high cost to produce the water, Jones said that water from the Carlsbad plant currently costs $2,700 an acre foot, which amounts to $5 to $7 per month per household. That cost is two to three times the rate that cities in Southern California and Santa Clara County pay for other sources of treated water from large wholesale suppliers.

Jones said she expects similar costs for water from the Huntington Beach plant.

Newsom also said Friday that he plans to devote more money to water storage projects in his “May revise” budget due out in two weeks. He said he does not plan to use general fund money to pay all the costs of a huge new project, like the proposed Sites Reservoir in Colusa County, but beyond that did not offer details.

https://www.mercurynews.com/2022/04/29/newsom-desalination-project-should-be-approved-we-need-more-damn-tools-in-the-toolkit/

 

Key Water Leader On the Permanent Crisis: “You Water Trees and That’s It”

New York Times Q&A

For 15 years, Jeffrey Kightlinger was the general manager of the Metropolitan Water District of Southern California, which provides water to about 19 million people — nearly half of all Californians — across six counties, including Los Angeles, Orange and San Diego. That water comes primarily from two sources. The California State Water Project draws snow runoff from the Sierra in Northern California, where this year the snowpack in some places was at just 5 percent of its average. And water also comes from the Colorado River and its Lake Mead and Lake Powell reservoirs, which are lower now than ever. I spoke with Kightlinger, who retired in July, about whether we’ve crossed a permanent threshold of crisis. (We have, he said.) And whether the recently announced conservation measures, some of the strictest ever imposed, are enough. (They’re not.)

Here is our conversation, edited and condensed for clarity:

What’s the current situation for water in Southern California?

Very grim. The State Water Project is only delivering 5 percent. An acre-foot of water is 326,000 gallons. On average, you hope to get a million acre-feet out of it a year. We’re going to get 100,000 acre-feet of it — 100,000 acre-feet would be 300,000 households for a year.

For an area of 19 million people.

Colorado has been more reliable than the State Water Project because it has more reliable rain in the Rockies. But the more important reason it’s been so steady and reliable has been a massive amount of storage on the Colorado River, which is in danger. So Lake Powell, Lake Mead — those can hold 50 million acre-feet of water together. In 2000, they were completely full. And now they’re only about a third full.

So we should never expect the big Colorado reservoirs to be close to full ever again?

Probably not.

I grew up in Orange County in the 1980s, and I remember water rationing back then. Is this different?

That was a real wake-up call because we’d always thought this geographic diversity — water from the Rocky Mountains, water from the Sierra, water from the eastern Owens Valley, and our local rainfall — that the mix of all these different hydrology meant we were pretty immune to drought. And we realized by the late ’80s, that’s no longer true. We started a conservation program. Metropolitan began financing in the ’90s in low-flush toilets, low-flow showers. And the region has gotten incredibly more water efficient than it was. Those tools effectively worked for the last 30 years. But, well, not any longer.

Just because I have a low-flush toilet doesn’t mean I use it less.

That’s exactly right. The efficiencies have flattened out because we’ve done all the big stuff. The last 15 years have been the driest 15 years in California recorded history. This is a real permanent hardship that’s coming. And we’re going to have to take pretty dramatic measures.

What kinds of behavioral changes?

Getting rid of turf, getting rid of backyard watering. You water trees and that’s it. People have already dropped their water usage by more than half throughout Southern California over the last 25 years, and we’re going to need to see another 25 to 50 percent drop on top of that, over the course of a decade.

But this isn’t just a consumer problem, though?

The one thing we do know about climate change is that it increases volatility. So while the overall trend is drier, hotter, less water, we’re probably still going to have some big wet years in there — and having space to capture water is still going to be very valuable. We have to find the right investments in infrastructure to kind of smooth that out. You’re going to have to really look at, what are the drought-proof water supplies like recycled water, desalination. I think if anything, climate change means a bigger, more strong government investment in infrastructure is needed if we want to carry on this kind of lifestyle that we have.

That’s a big caveat.

And that’s an open political question that I think is legitimate. But I do think it is an either-or. We’re not going to continue to live in large cities and have this kind of lifestyle that we always have had and somehow not invest in adapting to a drier world.

https://www.nytimes.com/2022/05/05/us/california-water-conservation.html

 

State Controller Race Goes…Spicy!

CalMatters

Four indications the race for state controller might be one of the spiciest in California as the state gears up for the June 7 primary election:

  1. Democratic candidate Malia Cohencalled on one of her opponents, Republican Lanhee Chen, “to come clean to California voters about his position on a woman’s right to choose and our state’s efforts to codify this freedom for California women” — the latest example of Democrats leaning into abortion rights to galvanize voters.
  2. Chenclapped back with a tweet slamming his opponents’ “flailing campaigns,” writing, “The last things my opponents want to talk about are the $20 billion in unemployment benefits sent to convicted felons and fraudsters, the billions spent each year on homelessness with dismal results, the billions in shady no-bid contracts doled out to their political donors, and the innumerable other examples of failed fiscal leadership in California.”
  3. Democratic state Sen. Steve Glazer told CalMattersthat he’s better suited for the controller position than Chen because “you have to know stuff. You don’t have to sit in an ivory tower pretending like you know what’s going on. You have to really have some experience to understand where the bodies are buried or how things are really done.”

Democratic candidate Yvonne Yiu poured another $3 million into her campaign, bringing her total investment to $4.5 million — nearly as much as the $5.1 million raised by the other five candidates combined.