How Newsom proposes to handle a budget deficit

From: POLITICO California Playbook - Wednesday Jan 11,2023 02:11 pm

Jan 11, 2023

THE BUZZ: California once again has a budget deficit — but that doesn’t mean Gov. Gavin Newsom is abandoning priorities or breaking the emergency glass.

Here are some takeaways from the governor’s budget reveal Tuesday. It was the opening move in a five-month dance that — unlike in prior years of abundance — will involve some tough scarcity-driven choices.

BY THE NUMBERS — The overall proposal amounted to $297 billion, shrinking from last year’s record-setting $308 billion. California faces a projected $22.5 billion shortfall thanks to $29.5 billion fewer dollars than previously projected. To offset that, Newsom wants to defer $7.4 billion in planned spending, cut back $5.7 billion, shift around $4.3 billion and institute $3.9 billion in “trigger” cutbacks if the picture hasn’t improved by May.

GIVE AND TAKE — Newsom has mostly eschewed ongoing commitments in past budgets. But he has embraced a few big-ticket items, and he said he is determined to follow through on them: He still wants to provide free school lunches, institute transitional kindergarten and extend Medi-Cal coverage to all undocumented immigrants.

Sustained spending on some priorities requires tightening the belt elsewhere. Newsom is tentatively slicing billions from climate and transit and hundreds of millions from housing while pushing back new child care slots and delaying spending on behavioral health and school facilities. His optimistic framing: “Even if some things are modestly delayed, they’re not denied.”

SAVE IT FOR A RAINY DAY? Hail fell as Newsom spoke, and he departed to survey storm damage in saturated Santa Cruz. But he’s not yet ready to dip into California’s $22 billion rainy day fund. Newsom embraced “a wait-and-see approach” ahead of the May Revise, with his forecasters not currently predicting a recession. But he could face summer pressure to tap that fund: Assembly Speaker Anthony Rendon said that, come June, “the large reserves built over the last decade may be important for protecting California’s progressive investments” like education and childcare.

HOSTILE CLIMATE — Environmental advocates were conspicuously displeased. Climate and transit account for more than $3 billion of the $3.9 billion that is out unless revenue materializes. Newsom wants to pare $6 billion from his multi-year climate plan. And zero-emission vehicles could see a $2.5 billion cut, offset by some cap-and-trade money — this after Newsom opposed a ballot tax to fund clean cars. He said the reduction would “absolutely not” undermine his order phasing out new gas-powered car sales. He's also floating a climate infrastructure bond.

HOMELESSNESS ULTIMATUM — Months after briefly rescinding grants to local governments he accused of falling short, Newsom got notably animated as he backed legislation withholding homelessness funding from jurisdictions falling short on housing. Without progress on encampments, “I'm going to be hard-pressed to make a case to the Legislature to provide them one dollar more,” the governor warned. “We’re not just going to hand out another billion dollars.”

TOP TECH TAXES — California’s budget relies heavily on the richest taxpayers. That includes many tech executives. Business people who describe Newsom’s economic views say he’s keenly aware of California’s dependency on a prospering tech sector. And Newsom put diminished capital gains, spiraling stocks and Silicon Valley woes at the center of sudden scarcity, noting “tech has been in a recession for a year.”

BUENOS DÍAS, good Wednesday morning. Sen. Alex Padilla will administer the oath of office today to newly elected San Francisco District Attorney Brooke Jenkins.

Got a tip or story idea for California Playbook? Hit us up at jwhite@politico.com and lkorte@politico.com or follow us on Twitter @JeremyBWhite and @Lara_Korte.

PROGRAMMING NOTE: California Playbook will not publish on Monday, Jan. 16, in observance of Martin Luther King Jr. Day. We’ll be back to our normal schedule on Tuesday, Jan. 17.

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QUOTE OF THE DAY: “Everyone is, of course, welcome to throw their hat in the ring, and I will make an announcement concerning my plans for 2024 at the appropriate time. Right now, I’m focused on ensuring California has all the resources it needs to cope with the devastating storms slamming the state and leaving more than a dozen dead.” Sen. Dianne Feinstein on the first official contender for her Senate seat.

BONUS QOTD: “We do have to get that off my watch list, but it's important to know what they just make up.” Newsom after an unprompted callout of Fox News host Sean Hannity.

TWEET OF THE DAY:

WHERE’S GAVIN? Nothing official announced.

TOP TALKERS

PORTER GOES FIRST — Rep. Katie Porter isn’t waiting for Sen. Dianne Feinstein. The Orange County Democratbecame the first candidate to formally announce a run for Feinstein’s seat in 2024. While DiFi has said nothing official, contenders have long been lining up under the widespread presumption that the 89-year-old Feinstein is at the end of her tenure.

But other Democrats declined to immediately follow Porter into the fray Tuesday. A source close to Rep. Adam Schiff, who has approached Feinstein about his intention to run if she does not, jabbed Porter for announcing during a major weather emergency. Rep. Ro Khanna similarly noted the “severe storms and floods” battering California in saying he wouldn’t make a call for “months.” Rep. Barbara Lee is continuing to weigh her options.

Dominoes are still falling. Republican former Assembly member Scott Baugh said he would run for Porter's seat again after failing to unseat her in 2022. Democratic State Sen. Josh Newman has no plans to seek Porter’s seat, a representative said, as Newman barrels toward a Senate re-election clash with fellow Democratic Sen. Dave Min (through a spox, Min declined to comment).

SUBMERGED — ‘It’s really devastating’: A tiny California town is underwater after storm deluge," by the Los Angeles Times' Jessica Garrison and Summer Lin: "The entire community of Planada, a town of about 4,000 people just east of Merced, was evacuated Tuesday morning amid rising waters from a breached levee."

SOAKED — "S.F. man admits spraying homeless woman with hose in video sparking outrage," by the San Francisco Chronicle's Rachel Swan and Annie Vainshtein: "In an interview Tuesday with The Chronicle, Collier Gwin — the owner of Foster Gwin Gallery on Montgomery Street in the posh Jackson Square neighborhood — acknowledged spraying a homeless woman with water after an encounter in which, he said, she turned over garbage cans outside his gallery and refused to move."

CAMPAIGN MODE

MORE 2024 — Democrat Kipp Mueller announced a run for the currently D+10.5 23rd Senate district, which will be open in 2024 with Republican Sen. Scott Wilk terming out. Attorney Mueller unsuccessfully sought to unseat Wilkin 2020, falling about 6,000 votes short.

SD16 WATCH — “Shepard Campaign Cries Foul in Recount. Threatens Litigation,” by GVWire’s David Taub: “ In the six weeks since the recount, (David) Shepard has picked up eight votes to reduce (Sen. Melissa) Hurtado’s lead to 14 votes — not enough to overturn the election.”

CALIFORNIA AND THE CAPITOL CORRIDOR

STAY SAFE — “California storm death toll reaches 17 as more rain, winds arrive. Damage could top $1 billion,” by the Los Angeles Times’ Hannah Fry, Summer Lin, and Rong-Gong Lin II: “Early Tuesday, the Merced County sheriff issued a mandatory evacuation order for the town of Planada just east of Merced, which affects 4,000 residents, after Bear Creek began to flood amid heavy rain.”

— “California storm damage could top $1 billion,” by The New York Times’ Christopher Flavelle: “That toll comes on the heels of 2022, one of the worst on record for large-scale weather and climate disasters around the United States, according to data released Tuesday by the National Oceanic and Atmospheric Administration.”

MAHAN UP — "New José's Mayor Matt Mahan seeks allies to tackle homelessness, policing," by KQED's Guy Marzorati: "Under San José’s weak-mayor system, Mahan has just one vote on local ordinances, without the veto power or the direct oversight of department heads wielded by mayors in cities like San Francisco and Oakland. Building a working majority will require Mahan to find six votes for his agenda, on a council in which all returning members endorsed his opponent in the mayoral election."

— “Lobbyist's payment for lawmaker's breast augmentation was legal, panel says,” by the Los Angeles Times’ Noah Goldberg: “A letter from the Fair Political Practices Commission closed out the case against Councilmember Victoria Martinez Muela, who had been accused of accepting the payment for the surgery in late 2016 and then failing to disclose it on financial statements.”

— “S.F. District Attorney Jenkins pledged to go after the most dangerous fentanyl dealers. Here’s what happened,” by the San Francisco Chronicle’s Heather Knight: “ Six months after taking office, data shows Jenkins is following through on her pledge. But it’s up to judges to decide whether and how to release defendants — and they haven’t always sided with her.

BIDEN, HARRIS AND THE HILL

YEAH, WE COULD TELL — “The last eight years have been the warmest on record, researchers say,” by The Washington Post’s Brady Dennis: “Last year was the fifth hottest ever recorded on the planet, the European Union’s Copernicus Climate Change Service announced Tuesday. It was part of an unabated broader warming trend as humans continue to pump massive amounts of greenhouse gases into the atmosphere.”

SILICON VALLEYLAND

— “Exclusive: Surveillance footage of Tesla crash on S.F.’s Bay Bridge hours after Elon Musk announces ‘self-driving’ feature,” by The Intercept’s Ken Klippenstein: “Just hours before the crash, Tesla CEO Elon Musk had triumphantly announced that Tesla’s Full Self-Driving capability was available in North America, congratulating Tesla employees on a ‘major milestone.’”

— “Laid-off Twitter workers feared meager severance deals. Elon Musk just set the bar even lower,” by the Los Angeles Times’ Jaimie Ding and Brian Contreras: “The agreements offered one month of severance pay, but with a major catch — employees must sign away their right to ever sue the company, assist anyone in a legal case against the company unless required by law, or speak negatively about Twitter, its management or Elon Musk.”

— “Crypto giant Coinbase laying off 950 workers in second major round of cuts,” by the Sand Francisco Chronicle’s Roland Li: “The cuts affect 20 percent of employees at Coinbase, which was formerly headquartered in San Francisco and is now remote. Coinbase also cut 1,100 jobs last June.”

JOIN NEXT TUESDAY TO HEAR FROM MAYORS AROUND AMERICA: 2022 brought in a new class of mayors leading “majority minority” cities, reshaping who is at the nation’s power tables and what their priorities are. Join POLITICO to hear from local leaders on how they’re responding to being tested by unequal Covid-19 outcomes, upticks in hate crimes, homelessness, lack of affordable housing, inflation and a potential recession. REGISTER HERE.

MIXTAPE

— “What Oakland, Calif., tells us about why police reform is so hard,” by The New York Times’ Maurice Chammah (book review).

— “Victim in crime spree committed by SF mayor’s brother opposes resentencing,” by The San Francisco Standard’s Jonah Owen Lamb.

WHAT A YOLK — “Bay Area restaurants are paying double for eggs as avian flu crunches supply,” by the San Francisco Chronicle’s Mario Cortez.

CALIFORNIA POLICY IS ALWAYS CHANGING: Know your next move. From Sacramento to Silicon Valley, POLITICO California Pro provides policy professionals with the in-depth reporting and tools they need to get ahead of policy trends and political developments shaping the Golden State. To learn more about the exclusive insight and analysis this -only service offers, click here.

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