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California Politics: The state budget’s mountain of cash

Gov. Gavin Newsom gestures towards a chart
(Rich Pedroncelli / Associated Press)

The one sure thing about the budget Gov. Gavin Newsom will present to the Legislature on Monday is that it will project the collection of more state tax revenue than ever before — and much more than was expected when he signed off on California’s current state spending plan last June.

In a previous era in Sacramento, the answer to the question, “How does the budget look?” was always, “Worse than expected.” But over most of the last decade — a period that quite literally saw the rescue of state government — the answer to the same question has become, “Better than expected.”

Which brings us to the budget for the 2022-2023 fiscal year.

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Billions (and billions) more than expected

Newsom’s proposed budget will be based on revenues collected through the end of December as well as an updated forecast for 2022. And even a cursory look at data already published shows where things are headed.

November’s report by the California Department of Finance found that general fund revenue for the current fiscal year was some $13.3 billion above projections — in line with last fall’s indicators that led independent analysts to predict a $31-billion surplus by the end of June. In fact, in the first five months of the current fiscal year, California’s government took in an amount equal to more than 75% of all general fund revenue collected a decade ago in 2011-2012.

Some of the surprise cash is from the fiscal year that ended June 30 of last year, collected late but counted toward the year in which the tax was due. November’s state finance report says those 2020-2021 revenues were $4.8 billion above expectations.

“When this prior fiscal year-end amount is combined with the current fiscal year-to-date total, preliminary General Fund agency cash receipts are $18.161 billion above the 2021-22 Budget Act forecast,” state finance officials wrote in their November report.

The surprise in corporate tax receipts

And there’s nothing to suggest the overall trend is slowing down. In fact, one surprising part of the cash bonanza can be found in the daily tally of corporation tax revenues.

Jason Sisney, a top budget advisor to Assembly Speaker Anthony Rendon (D-Lakewood), posted on Twitter this week that $2.9 billion in corporate taxes were collected in just two days, compared with $1.15 billion collected in all of January 2021. He later pointed out that once the final results are in, revenues from California’s corporation tax could end up being an astounding $6 billion above projections just for the month of December.

(Sisney also rightly points out that a complex change in tax law might be pushing some revenue that used to be collected as personal income taxes onto the corporate ledger, a shift that could lead to some double-counting if the numbers aren’t properly adjusted. Even so, that wouldn’t account for all of what’s being reported.)

Big bucks from climate change law

But wait, there’s more: Lawmakers crafting a new budget in the coming months will also find a surprise gusher of cash collected from California’s cap-and-trade program.

The historic 2006 state law that imposes limits on greenhouse gas emissions also includes the quarterly auction of pollution credits, sold to companies that can then use them to exceed their emissions “cap.” The state sells credits, or “allowances,” as do companies that have lowered their emissions to the point that they have excess permits that can be sold on a state-sponsored market.

November’s auction of greenhouse emission credits, overseen by the California Air Resources Board, saw high demand from companies looking for additional room under the cap. The result: $1.3 billion in proceeds deposited into the state’s Greenhouse Gas Reduction Fund (GGRF). A report last month from the independent Legislative Analyst’s Office projected a $732-million net surplus in GGRF revenues — with about $293 million available for “future discretionary spending” by state officials.

A sizable amount of GGRF cash is already spoken for, with one especially large portion helping finance California’s effort to build a high-speed rail system. But there’s an important interplay between the fund’s revenues and the rest of the state budget, as some programs that can be seen as helping reduce greenhouse gases — including wildfire prevention, given the startling climate implications of recent blazes — would otherwise be paid for out of the state’s general fund. Finding an alternate source of money means more cash for other state services favored by lawmakers, especially Democrats who handily control both houses of the Legislature.

A viewing guide to the budget

Newsom’s state budget proposal, still under wraps until he briefs reporters on Monday, will take some time to fully understand. Still, there are some simple top-line things to watch.

For starters, how much of the new tax boon does the governor believe to be one-time in nature? Newsom, like former Gov. Jerry Brown before him, has pushed to categorize billions in tax dollars as a one-time windfall — making it more likely that the cash is used for things such as paying down long-term debts instead of new, ongoing programs.

Still, Newsom will face pressures from his fellow Democrats and advocacy groups to do more to address the state’s gap between the rich and poor. Liberal activists will undoubtedly again push to expand the number of low-income adults without legal immigration status to be eligible for Medi-Cal, the state-funded healthcare program. There may also be demands for more to address California’s homelessness crisis, though a lot of money has been allocated over the last two years and implementation of programs is a work in progress.

The governor will no doubt offer new funding for the state’s COVID-19 response. And it will be worth looking at how much of that response will be funded from discretionary funds that can be spent without legislative approval.

Finally, budget watchers will look to see how Newsom responds to other concerns that have arisen in recent months. He’s already promised, for example, to propose about $300 million for efforts to address a sharp uptick in retail theft across California. And last month, he said the budget would add $100 million to litter cleanup programs in the state.

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They aren’t running in 2022

There seems to have been more news lately about who’s not running for office this year than who is.

One not-so-surprising announcement was the one made Tuesday by Republican talk show host Larry Elder, who confirmed that he won’t run for governor in 2022. After Newsom’s lopsided victory in last September’s recall, Elder had told a number of reporters that he didn’t see a path toward a different outcome this year — in part, because there are just too many Democratic voters in California and too little room for a GOP candidate to maneuver given the party’s national brand.

It was only a matter of timing for when Elder would make his announcement, as it was for former San Diego Assemblywoman Lorena Gonzalez, who resigned from the Legislature in preparation for an expected summer appointment to run the powerful California Labor Federation. Gonzalez ranks as one of the most powerful legislators in recent memory who wasn’t either speaker of the Assembly or president pro tem of the state Senate.

Other legislators also announced this week they wouldn’t seek another term in office. For state Sen. Connie Leyva (D-Chino), it was either step aside or run against another Democratic incumbent, after her home was drawn into a new Senate district. Leyva, rather than challenge state Sen. Susan Rubio (D-Baldwin Park) for the new district, said Tuesday she would step aside — even though just nine days earlier, she posted on Twitter that she was ready to run.

Also not running for another term: Assemblyman Patrick O’Donnell (D-Long Beach), the chairman of the Assembly Education Committee, who also said he won’t try to succeed Long Beach Mayor Robert Garcia, who’s running for Congress.

At this point, there are at least 14 members of the Legislature who are opting to leave their posts ahead of term limits, either for retirement or a different office. It marks the first of two big turnover cycles at the state Capitol — the next will be in 2024, when members elected in 2012 under the 12-year term limit law approved by voters that year are forced to step down.

And on the congressional beat, a different Democrat vs. Democrat showdown also fizzled this week, when former Rep. Harley Rouda announced he has changed his mind and will not challenge Irvine Rep. Katie Porter.

California politics lightning round

— Newsom promised that schools would receive at-home coronavirus tests in time for students to safely return to campuses after winter break. But as school districts began returning Monday, many did so without having received a single test from the state.

California would enact a sweeping, first-in-the-nation universal healthcare plan under a proposal unveiled Thursday by a group of state Democratic lawmakers, providing health services to every resident and financed by a broad array of new taxes on individuals and businesses.

— A Los Angeles-area legislator is proposing to change the way California K-12 schools are funded, focusing on enrollment rather than student attendance.

— Newsom’s plan to target the gun industry through private lawsuits is coming together in legislation unveiled Tuesday that would allow gun violence survivors and other citizens to sue firearm manufacturers and dealers.

— Legislators gathered at a Sacramento hotel Tuesday to say goodbye to Gonzalez. The next day, one tested positive for the coronavirus and the attendees, including Rendon, are now quarantining and missing work.

— California’s longest-serving state auditor, Elaine Howle, pulled no punches. Now that she has retired, who will replace her?

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