As Gavin Newsom becomes governor, how he could shape California’s future—issue by issue
Updated Jan. 6, 2019
Gavin Newsom first ran for governor in 2010, an effort he abandoned and then relaunched in 2015 with the long, long campaign that has at long last landed him in the governor’s office. Now that California voters have given the 51-year-old Democrat the job he has sought for eight years, he is about to discover that winning was the easy part.
Governing is hard, particularly in a state as big, complex, troubled and expensive as California. We have the world’s fifth largest economy and, with our cost of living, the nation’s highest rate of poverty.
The shortage of affordable housing has pushed the middle class out of the state’s coastal jobs centers—or out of state altogether—while exacerbating a decades-long crisis of homelessness and sending college housing costs into the stratosphere. Pension costs weigh on city finances, wildfires rage nearly year-round, the academic achievement gap hobbles prospects for too many public school students, and lately the state’s relationship with the federal government has been one of permanent litigation.
Over the course of his very long candidacy, Newsom laid out a robust vision. In his words: “Guaranteed health care for all. A ‘Marshall Plan’ for affordable housing. A master plan for aging with dignity. A middle-class workforce strategy. A cradle-to-college promise for the next generation. An all-hands approach to ending child poverty.”
Newson already has floated the idea of a $1.5 billion one-time boost to early childhood education spending. But he hasn’t He hasn’t always detailed how he plans to pay for his promises, nor which policies he would be willing to jettison in the face of political pushback or certain budgetary constraints.
That changes with his inauguration. On key issues, here’s what to expect.
Housing and homelessness: Millions more units?
The governor-elect is a self-described fan of “Big Hairy Audacious Goals,” and they don’t come much bigger, more audacious and presumably more hairy than his plan to solve California’s housing crisis.
On the campaign trail, he pledged to lead an effort to build 3.5 million units of new housing by 2025, a construction pace Californians haven’t seen since they started keeping track of that type of thing.
He says he can reach that goal—which some have criticized as impractically astronomical—by significantly increasing funds for government-subsidized housing and rolling back some regulations that impede new development, especially for housing around public transit.
“It’s an enormous number and a necessary number,” said Assemblyman David Chiu, Democrat from San Francisco and head of the Assembly’s housing committee. “Just the fact that he has laid out that goal is exciting.”
When pushed, affordable housing advocates and others that work on housing issues admit the 3.5 million goal probably isn’t realistic. Still most welcome Newsom as a refreshing change of pace from the outgoing governor.
Despite a much-celebrated package of housing legislation he helped shepherd to passage last year, Gov. Jerry Brown was criticized for not prioritizing housing in a state where the median price of a single family home rose to over $500,000 on his watch and ever-rising rents are forcing low-income residents to leave the state en masse.
“It’s what you focus on as governor, it’s what you meet with your staff about every day, that’s what important for housing,” said Dan Dunmoyer, president of the California Building Industry Association. “That’s what most people don’t realize, how a governor can influence on housing.”
Given the early crop of housing bills that already have been introduced in the new session, a major housing package in Newsom’s first year looks likely. What would that package contain? More funding for subsidized units, a ballot measure that would make it harder for locals to block affordable housing developments and a revamped form of “redevelopment,” a controversial and abuse-fraught program Brown eliminated in 2011, could all make the cut.
But many of the policies Newsom referenced either explicitly or obliquely in his campaign are far hairier politically. If Newsom is indeed able to broker a compromise on rent control, or tweak Proposition 13, or limit local control on housing development decisions, he will have accomplished something that has vexed politicians for decades. He also must decide whether to throw his weight behind major zoning changes, given that state Sen. Scott Wiener, Democrat from San Francisco, has reintroduced a “gentler but still incredibly controversial” version of a bill he introduced last year that would strip from cities their zoning authority around public transportation. Newsom was lukewarm on the bill earlier this year.
Beyond the herculean task of making California affordable again, Newsom confronts a humanitarian crisis that has haunted him since his days as mayor of San Francisco: how to help the estimated 130,000 Californians who are homeless.
Fixing the state’s homelessness problem is among the many items that Newsom has, at various times, cited as his top priority, and he has pledged to create a first-ever cabinet-level position exclusively dedicated to solving it. But Newsom’s record on combating homelessness while in San Francisco remains deeply divisive among advocates for the unsheltered.
Newsom defends his “Care not Cash” program—which redirected direct cash payments for those experiencing homelessness to permanent supportive housing and bus tickets out of San Francisco to rejoin family—as a successful and innovative strategy that made the city’s homelessness crisis far less severe than it would have been otherwise. Critics have called the program unethical.
— Matt Levin
Pre-K-12 Education: Who will pay for universal preschool?
Gavin Newsom will be the first governor in decades to hold office while raising young children. His experience as a father of four kids ages 2 to 8 has made him “more righteous about public education,” he has said.
In speeches and campaign ads, that translated into a focus on universal preschool, guaranteed prenatal care and more quality, affordable childcare. Newsom also has spoken adamantly about public investment in children younger than age 3 as an antidote to closing the chronic gap in achievement between disadvantaged and wealthier students.
Already, he has made childhood education a cornerstone of his first-year agenda. The incoming governor intends to include $1.8 billion in early education and childcare programs in his budget proposal, according to a Los Angeles Times report.
“People talk and write a lot about people being left behind. I think people start behind,” Newsom told CALmatters before the election. “I think the biggest mistake we’ve made is that we’re triaging the problem. We’re not addressing the root cause.”
Newsom’s emphasis on early childhood reflects the consensus of California education scholars, and echoes a longstanding priority of legislative leaders. The question is: How will he fund his ambitious goals?
Competing demands are piling up for education dollars. For example, state lawmakers have introduced Assembly Bill 39, which would commit California to a goal of lifting itself into the nation’s top 10 in per-pupil spending, a long-term objective with a $35 million-plus estimated price tag. Meanwhile, in Los Angeles, a teachers’ strike is brewing in California’s largest school district, with school officials and teachers looking to Sacramento for financial answers. And economists are warning that a recession could be on the horizon this year.
According to the Times’ report, most of the funding for early childhood programs in Newsom’s forthcoming budget proposal would be one-time monies. Besides preschool and childcare, Newsom has said he wants to create college savings accounts for the state’s incoming kindergarten students, focus on adolescent mental health and arts programs, and invest in data infrastructure that tracks student learning outcomes though college.
Universal preschool and childcare in California would alone cost the state up to $8 billion. It’s unclear how a meaningful agenda of that size could be done without a tax increase. That’s what it took when then-Mayor Newsom successfully pushed a much more modest “Preschool for All” initiative in San Francisco.
The Legislature in recent years has also pushed a voluntary universal preschool program, as well as a requirement that schools report how they spent money targeted for needy kids; Brown resisted spending on new programs that incurred ongoing costs and preferred to give local school districts more decision-making authority
Newsom has not yet detailed how initiatives that stalled under Brown would be financed on his watch. In fact, he has vowed to sustain Brown’s financial restraint and sought to manage expectations.
“Even if you wanted to do universal preschool in the state of California, it would take years to train and hire and build out the facilities,” he said at a late-October campaign stop in Sacramento. “If you put all the money up you still couldn’t do it.”
Newsom also has been supportive of Brown’s signature K-12 policy, a 2013 school funding overhaul aimed at channeling more money to disadvantaged students, calling only for better tracking of how schools spend those dollars.
“The next year or two is probably going to require a deep dive, no doubt, around accountability and transparency,” Newsom said of the funding formula. “But I’m not someone that’s gonna disrupt the application of its intent because I think it’s appropriate in every way.”
Like Brown, Newsom has the support of the powerful California Teachers Association, the state’s teachers union. Several education advocacy groups also backed his candidacy. During the primary, a group of billionaires who favor the expansion of charter schools threw about $25 million in donations to the unsuccessful gubernatorial campaign of Antonio Villaraigosa.
Newsom largely did not engage in the charged debate over charter schools during his campaign, although he’s said that he supports public, nonprofit charter schools and greater transparency measures there as well.
Ted Lempert, president of Children Now, an Oakland-based nonpartisan advocacy group, said he believes the big difference between Newsom and Brown will be one of degree and consensus.
“What makes me optimistic is the Legislature was really pushing early childhood and pushing (Brown) to do things,” said Lempert. “Now, if you have a governor who’s already there, and the Legislature has always been there, I’m really optimistic … Obviously he’s not gonna be able to get all of this done in the first year or two, (but) he’s shown the willingness to be bold.”
— Ricardo Cano
Health care: Embrace single payer but maybe settle for less
Incoming Gov. Gavin Newsom campaigned on a promise of single-payer health care, but now that he’s in office the realities of how hard that might be have been setting in. But some of his highest profile appointments bring with them health policy expertise.
His chief of staff is Ann O’Leary, who helped develop the Children’s Health Insurance Program in the Clinton presidency, and his cabinet secretary is Ana Matosantos, who worked to expand access to health insurance during the Schwarzenegger years.
And the head of his strategic communications team is Daniel Zingale, who came from the California Endowment health care foundation.
Even with those power players, the federal obstacles to single-payer and the daunting costs are cause for Newsom to pivot to a less ambitious strategy—getting more of the state’s remaining uninsured covered by expanding access, also a top issue for legislators.
Discussions about a single-payer plan in California have fallen short in the past, largely because of costs.
Those challenges will likely keep Newsom from pushing for single-payer out of the gate, said Gerald Kominski, senior fellow at the UCLA Center for Health Policy Research. “He understands the barriers are difficult to overcome,” said Kominski. “I suspect he’ll support ways to reduce the remaining uninsured further.”
Yet Newsom’s sure to take heat from the powerful California Nurses Association if he doesn’t follow through on his promise. The powerful union endorsed and enthusiastically campaigned for Newsom based on his commitment to single payer. The union says it’s not going to take no for an answer, and plans to insist on meetings with the governor-elect about how to move forward as soon as he takes office.
“Given the statements that Newsom made at our convention a year ago, we believe he is fundamentally committed to changing the health care system,” said Stephanie Roberson, director of government relations for the union. “He said that in a room full of nurses. His sentiments were very clear.”
In a gubernatorial debate, he also said: “I’m also very enthusiastic about taking a system that’s fragmented, that’s disjointed, that’s complicated and wasteful, and building a new system. Not on top of it, but replacing the existing system with a single payer financed system of universal quality health care.”
But he’s never said how he would pay for a statewide single-payer program, which has been estimated to cost up to $400 billion—roughly triple the entire California state budget, although supporters say much of that would be offset by eliminating consumer costs such as for-profit insurance premiums and deductibles. Newsom contends that a government-run, taxpayer-financed health care program shouldn’t cost that much.
The governor-elect has called the current system “inefficient and wasteful” and said his plan would do away with premiums, deduction and co pays and be paid for by taxes.
“He’s talked about wanting to take concrete tangible steps toward to the goal of affordable health care for all,” said Anthony Wright, executive director of Health Access California, which advocates for consumers. “He’s talked about the vision of Medicare for all and universal coverage. He’s also been wide-eyed about the barriers to that goal.”
Opponents of single-payer health care insist there are better ways to decrease the number of uninsured in the state. “With so much uncertainty in our nation’s politics, now is not the time to walk away from the (Affordable Care Act, also known as Obamacare) in favor of establishing a new and undefined health care system that would wreak havoc on our patients’ health and the Golden State’s economy,” said a statement from the Coalition to Protect Access to Care, made up of physicians, dentists, nurses and other health care professionals who oppose single payer.
As lieutenant governor, Newsom praised a bill that aimed to set up universal health care, but failed. It would have barred private insurers, and set up a state system funded by taxes and required for all residents. It was a tough sell: Gov. Jerry Brown all but said he wouldn’t support it, insurers fought it, and the cost projections were the kiss of death.
Roberson of the nurses union said a new bill in the works will be a fine-tuned version of it.
“What it’s going to take is political will, to sit in a room and not emerge until we find a way to reach that goal,” she said.
Thus far this session lawmakers have not proposed a single-payer bill. Some support a bill to extend coverage to those in the state without legal immigration status—estimated to cost about $3 billion annually to cover more than 1.5 million undocumented residents.
Of course all of this presumes that a recent Texas federal judge’s ruling that the Affordable Care Act is unconstitutional ultimately withers under appeal. Otherwise, in what California Democrats would view as a nightmare scenario, the state would have to shelve plans to expand health care access and instead scramble to minimize the number of Californians who would lose it.
—By Elizabeth Aguilera
Environment: Making a global climate agenda work
When it comes to environmental bona fides, Gov. Jerry Brown casts a long shadow—really long, with a lifetime of ground-breaking climate change action behind him.
A new chief executive with his own environmental credentials will want to chart his own path, so what might Newsom do to get out from behind Brown’s environmental legacy?
“He will definitely try to differentiate himself from Brown,” said Mary Creasman, chief executive officer of the California League of Conservation Voters. “But what I don’t think we will see is a departure from the big pieces—cap and trade, a commitment to 100 percent clean energy, those are consensus issues.”
It will fall to Newsom to reach the lofty goals Brown and the Legislature set. Nearly everyone agrees that the easy work is done, and what comes next will be painful and require the full attention of the state’s leader.
“The next governor has to be in the “how” business,” Newsom told CALmatters, referring to mandates about electric cars, renewable energy and emissions reductions, among others. “The next governor actually has to deliver on all that… This is very difficult, very challenging. The good news is I love this stuff. This is in my wheelhouse. It’s a point of passion.”
But Brown’s decades-long environmental legacy has not been comprehensive, and has been heavily weighted to pet projects.
Chief among them is the state’s cap-and-trade system of setting emissions limits on major industry and auctioning credits for companies that can’t operate under their pollution caps. Newsom favors maintaining the program, calling it “vital.” (Besides, the Legislature already extended the system to 2030.)
Nor is he inclined to dump plans for the state’s multi-billion-dollar plumbing project, a proposed system of tunnels to channel water from the Sacramento-San Joaquin Delta south to connect to the thirsty farms in the Central Valley to the browning lawns in Southern California.
Newsom has rejected Gov. Jerry Brown’s long-sought plan for twin tunnels, optimistically named the California Water Fix, telling CALmatters “I think if we walk down the path of two tunnels, we’re in litigation and no project.” Instead he has signaled support for narrowing the project to a single tunnel, telling the Los Angeles Times. “I’d like to see a more modest proposal, but I’m not going to walk away,” he has said. “Doing nothing is not an option….The status quo is not helping salmon.”
Environmental advocates are hopeful that Newsom takes a harder line against California’s powerful oil interests, a heavily polluting industry that critics say got a free ride during Brown’s terms. Brown was unapologetic about accepting campaign contributions from oil and gas groups; Newsom pointedly notes he does not.
The Brown administration put in place a few last-minute industry-friendly regulations in December, courtesy of the Air Resources Board. One decision continued subsidies to polluters worth hundreds of millions in the cap-and-trade system. Another was the agency’s inaction on what some experts believe to be a flaw in the carbon-trading market, which the non-partisan Legislative Analyst’s Office concludes California could fall well short of meeting its long-range greenhouse-gas reduction goals.
Newsom’s ability to withstand the influence of the industry will be tested as the state is scheduled to continue it emission-cutting zeal.
The governor-elect is on the record opposing fracking, a controversial technique that uses high-pressure injections of water, sand and chemicals to open underground fissures to stimulate production from new and already existing wells. Brown consistently rejected calls to ban the practice.
State officials also face mounting calls to cease oil and gas production outright from the Keep It In The Ground movement, which argues we have enough fossil fuels to transition to a clean power future. Few elected officials have championed that politically loaded cause.
“There is a huge opportunity for this governor to start addressing the supply side,” said Kathryn Phillips, director of the Sierra Club in California. “Brown was very reluctant to go there.” She suggests a first step: Newsom should commission a study examining how to assist areas of the state economically tied to the oil industry.
Environmental justice issues are likely to be higher on Newsom’s agenda, advocates say. He’s talked about putting people at the center of all environmental policies, a critical consideration for low-income communities that bear the brunt of poor air and water quality. Although many state resource agencies now include advisory groups representing “fence-line communities”—homes and schools sited near oil refineries and industrial plants—critics say they are window-dressing.
While polling consistently demonstrates Californians’ keen interest in environmental protection, Newsom could decide the state is on-course—with myriad laws and regulations firmly in place—and direct the “bold” moves he’s promised at housing or health care.
Environmental groups warn that competency shouldn’t breed complacency, and say they’ll be closely watching whom Newsom appoints to head key commissions and agencies. And they expect he’ll deliver on his pledge to lead California’s fierce clashes with the Trump administration, and to continue international leadership on climate change.
“We are really talking about a true transformation of our economy, our infrastructure, that’s what is lying ahead for California,” Creasman said. “I don’t think we can understate what getting to those required goals is going to take. Having that drive and ambition on climate change is what’s needed now.”
— Julie Cart
Higher education: More data and ‘cradle to career’
Advocates hope Gavin Newsom will be the higher education hero who rescues the state’s massive, nationally renowned system from the twin challenges of lean budgets and growing demand. But will he deliver?
Newsom says he sees higher education as the culmination of a cradle-to-career journey towards economic opportunity, and his calls for the state to increase funding for the University of California and California State University have fueled speculation that he will loosen the purse strings more than has Gov. Jerry Brown, who often admonished the universities to live within their means.
“There’s no greater return on investment,” Newsom said during the campaign.
Both universities are asking the state for sizeable budget increases in the 2019-2020 school year: $278 million for UC and $456 million for Cal State, which plans to grow its enrollment by five percent after turning away 32,000 qualified applicants last year.
Newsom has proposed the state offer two years of community college for free, a plan that 80 percent of Californians support, according to a recent Public Policy Institute of California poll. A bill that would add a second year to the state’s College Promise program—which currently covers one year of tuition for full-time students at participating community colleges—is pending in the legislature.
He has also said he wants to provide college savings accounts for every kindergartner, an idea he implemented as San Francisco mayor amid a recession.
As lieutenant governor, Newsom served on the UC and CSU governing boards, repeatedly voting against tuition and fee hikes—drawing praise from students and concern from some administrators.
“He was supportive of higher education in general but he certainly didn’t always do things that (UC President Janet Napolitano) thought should be done,” said Henry Brady, dean of UC Berkeley’s Goldman School of Public Policy.
Newsom told CALmatters the state needed to boost spending on Cal Grants to help cover students’ living expenses, though he didn’t say how much. He’s also championed an unusual approach to the student debt crisis: creating a state bank to offer low-interest loans.
Faculty unions who often considered Brown out-of-touch have helped fund Newsom’s campaign.
“Governor Brown wanted to make sure students graduated in four years, but in our view he didn’t think about what infrastructure needs to be in place to make that happen,” said Jennifer Eagan, president of the California Faculty Association, which represents CSU professors. “I think Newsom has a much clearer sense of the experience our students have.”
Eagan said faculty will be watching to see if Newsom’s proposed 2019-2020 budget, scheduled for release in mid-January, provides enough funding to avoid student fee increases.
Higher ed think tanks also like Newsom’s promises to take action on such unsexy issues as a statewide database that can track individual students’ progress through all stages of their education, and a coordinating council to streamline planning among the UCs, CSUs and community colleges.
“There is very much a wonkiness about Gavin that is good—he understands research and data,” said Michele Siqueiros, executive director of the Campaign for College Opportunity.
Better data would give Californians a better sense of how well efforts to improve college completion rates—such as reforming remedial education at community colleges and CSUs—are actually working, said Hans Johnson, director of higher education research at the Public Policy Institute of California.
One area of uncertainty: how Newsom will approach California’s new online community college. Aimed at providing job training for younger adults, the controversial college, still in development, was one of Brown’s signature higher education projects. Will Newsom side with his union supporters, who have been critical of the plan?
Community colleges Chancellor Eloy Ortiz Oakley, who has spearheaded the project, says he’s confident Newsom’s desire to support technological innovation will win out. Besides, he pointed out, other labor unions helping design the school’s curriculum, such as the Service Employees International Union, have also backed Newsom.
“While he may have pressure on one end from labor, he’s also getting a lot of pressure from labor unions that represent California’s working poor,” Oakley said. “And they strongly see this as an opportunity for their employees to gain access to better economic mobility.”
For now, Newsom is enjoying a honeymoon among a higher education community in which many felt ignored by Brown. But any effort to significantly expand higher education funding will confront pushback from fiscal conservatives and competing budget priorities. Fail to follow through on his promises, and Newsom could face the same ire from students and faculty that plagued Brown during his tenure.
— Felicia Mello
Justice: A continued pendulum swing
In recent years, California has shrunk its state prison population in part by reducing some nonviolent felonies to misdemeanors and making it easier for nonviolent offenders to be released on parole. As the pendulum has swung away from reflexive tough-on-crime legislation, voters have legalized marijuana and lawmakers have passed a plan to end cash bail.
Newsom steps into office having championed these changes, and bearing expectations that he will see them through amid pressure to roll them back.
“The criminal justice reforms that have begun thus far—all of them are still in the process of being implemented. It takes many years to update local… practices to align with changes in state policy,” said Lenore Anderson, executive director of Californians for Safety and Justice, an advocacy group that has pushed for many of the recent changes.
For example, the new law banning money bail calls for each county to set up ways to evaluate people who have been charged with crimes to help determine if they should be held in jail while they await trial. That work could start now—even while the bail industry is trying to overturn the law—so supporters of ending bail will be watching to see how much money Newsom proposes to help counties establish pretrial services. The bail industry appears likely to qualify a referendum for the 2020 ballot, putting pressure on Newsom to help defend the precedent-setting law signed by Gov. Jerry Brown.
Anderson worked on criminal justice policy for Newsom when he was San Francisco mayor, and said she expects that as governor he will consider efforts to expand crime reduction programs already in place in some California cities. That could mean more programs to divert homeless people who commit low-level crimes away from jails and into housing and drug-treatment programs, or more “restorative justice” practices that bring criminals and crime victims together with a facilitator to come up with ways for offenders to repair the harm they’ve caused.
Newsom’s experience as a mayor “means he’s familiar with what kind of new innovations need to be scaled up,” Anderson said.
Furor over police shootings may also shape Newsom’s first year as governor, with legislators likely to consider bills meant to reduce the number of civilians killed by police. It’s an emotional issue on all sides, with civil rights advocates calling for a tougher legal standard to justify use-of-force and police arguing they need maximum legal protection to perform a dangerous job.
Legislators shelved a bill last year to raise the legal standard for police use of force, but a new version will likely be back this year.
“We are not all on the same page right now, but we think there are ways to get there. I think the new governor is going to play a big role in that,” said Ronald Lawrence, vice president of the California Police Chiefs Association.
“We remain open-minded and collaborative, but we are also in a situation of trying to educate people on what police officers go through. It’s not a perfect world and there are a lot of dangers out there.”
Newsom opposes the death penalty and has said he would pursue another ballot measure asking voters to repeal it. (Voters rejected such measures in 2012 and 2016.) Other death penalty opponents will likely push him to do something more directly as governor.
“There are four governors across the United States who have put in place a moratorium on executions,” Natasha Minsker, a director with the American Civil Liberties Union said, citing Oregon, Washington, Pennsylvania and Colorado.
“That is the kind of leadership a governor can take on the death penalty that we would certainly be advocating for.”
Newsom has vowed to end the use of private prisons, a campaign promise that could complicate Brown’s efforts to reduce crowding in the state corrections system.
On drug policy, Newsom has already demonstrated his differences from Brown. Newsom led the campaign to legalize marijuana, which Brown did not get involved in, and said he is “very open” to a bill Brown vetoed allowing San Francisco to establish a legal clinic where addicts could shoot illegal drugs.
— Laurel Rosenhall
The Economy: The reality of the coming downturn
The problem with starting at the top is that there’s nowhere to go but down.
Newsom will be taking the reins of state government at a time of strong (if unevenly distributed) economic growth and flush state coffers. All that cash will come in handy if he hopes to enact even a fraction of his ambitious policy proposals.
Even so, it’s impossible to seriously consider ending child poverty or funding universal pre-school, as Newsom plans to do, “without having a revenue conversation,” said Chris Hoene, the executive director of the California Budget & Policy Center.
The brewing 2020 ballot battle over whether to strip commercial landowners of Proposition 13 property tax breaks is the most obvious—and potentially lucrative—opportunity. Newsom has not stated clearly whether he supports such a proposal.
But the good times won’t last forever. In fact, with a volatile stock market and a trade war with no end in sight, the end could be approaching.
“Economic growth may be in the process of peaking as the impact of tax cuts fade and rising interest rates start to curb spending,” said Lynn Reaser, who chairs the state treasurer’s Council of Economic Advisers.
Even if the economy as a whole holds strong, Washington D.C. is its own source of uncertainty. Significant changes to Medicaid spending—which could reduce federal transfers to Sacramento by tens of billions of dollars, for example—“would feel like a large recession hit to the state budget,” said Hoene.
Gov. Jerry Brown has been warning about coming hard times for years now.. He’s been preparing too. By the end of next July, the state is projected to have $13 billion socked away for a rainy day. But most analysts say that cushion will only last a year or two in the face of even a moderate recession.
A downturn will hit the state budget, and Newsom’s ambitions, particularly hard. That’s because recessions tend to have a disproportionate impact on investment returns and roughly 30 percent of the state’s discretionary spending comes from the top 1 percent of earners—the investor class.
Newsom has spoken broadly, if a little vaguely, about the need to rejigger the state’s tax code to flatten things out. Expanding the sales tax to services, an oil severance fee and revising the property tax limits of Prop. 13 are all “on the table,” he has said.
But making more dramatic changes to the tax code would be a “multi-year effort,” he concedes. And there’s a reason that governors have avoided tackling this issue for decades.
“Wouldn’t it be nice if we got ahead of that?” said Chris Thornberg of the consulting firm Beacon Economics. “But of course what I would argue is that given history, given what we’ve seen in the past, you bring somebody like Gavin or (former governor) Gray Davis in and, instead of trying to be fiscally prudent, they say, ‘f— it, man, let’s make everybody happy right now.’”
And however the next governor handles the good times, sooner or later, said Mike Genest, finance director to former Gov. Arnold Schwarzenegger, he will have to confront the “slow moving monster:” the growing costs of retirement benefits owed to public-sector workers.
The state Supreme Court recently heard a case about whether future benefits can be pared down. But even if the court give the governor that tool, he may be reluctant to wield it. And for many cities whose budgets are already being swamped by these costs, that ruling may not hold off bankruptcy, said Genest.
“It’s conceivable that (Newsom will) slide through the whole eight years without it getting to that point,” he said. “But if he does, then the next guy or gal is totally hosed.”
— Ben Christopher