California budget deal gets early start on deficit

From CalMatters Capitol reporter Alexei Koseff:

Not filling open positions in state government, cutting a school facilities program and several climate initiatives, delaying funding for public transit — these are some of the first steps that California officials plan to take to deal with a looming multibillion-dollar budget deficit.

Facing a shortfall estimated at somewhere between $38 billion and $73 billion next year, Gov. Gavin Newsom and legislative leaders announced Thursday an “early action” plan to tackle part of that gap before the regular budget process later this spring.

The $17.3 billion package includes some program cuts, but mostly relies on new revenue, internal borrowing and funding delays and shifts for savings. It is expected to come up for a vote in the Legislature next week. The governor has been calling for early budget action since January.

• Newsom, in a statement: “I thank our legislative leaders for their partnership in taking this major step to address the shortfall with a balanced approach that meets the needs of Californians and maintains a strong fiscal foundation for the state’s future.” 

Newsom, Senate President Pro Tem Mike McGuire of Santa Rosa and Assembly Speaker Robert Rivas of Salinas, all Democrats, signaled two weeks ago that they planned to take this step, but continued to negotiate the details. Cuts to housing and homeless programs that Assembly Democrats objected to were recently removed.

Among the major proposals are a nearly $4 billion expansion of a tax on health insurance plans that allows the state to draw matching federal funds; delaying $1 billion for transit infrastructure and $550 million for preschool, transitional kindergarten and full-day kindergarten facilities; shifting $1.8 billion of cap-and-trade revenue, intended to reduce greenhouse gas emissions, to backfill other programs; and reducing funding for state departments by more than $760 million, based on their vacant positions, while deferring another $1.6 billion in employee pay.

The strategy faces criticism from Republicans, who called it “gimmicky,” though they do not have the votes to block the plan, which requires only a simple majority.

• Assembly GOP Leader James Gallagher of Chico, in a statement: “This deal is a swing and a miss from Democrats. California’s budget has major league problems and Newsom is proposing JV solutions. With a $73 billion deficit, this gimmicky agreement is not the homerun Gavin thinks it is.”

The early action plan also includes language to freeze one-time funding from past years and an agreement to tap into half of the state’s reserves in the upcoming budget.

• McGuire, in a statement: “We are all committed to delivering an on-time balanced budget and this early action agreement is a critical first step to shrink the state’s shortfall.”

They are far from finished. Next up, Newsom will present his revised budget proposal in May. That will kick off a month of deliberation with the Legislature, which must pass a balanced budget by June 15 or forgo its pay.

For the record: This item was updated to remove a reference to a CalWORKS program cut that is not part of the early action plan.

If you’re trying to keep score between business and labor in the 2024 legislative session, you could do worse than track the California Chamber’s “job killer” list and the California Labor Federation’s priority list.

The two lists came out on the same day this week, but only one bill appears on both: Senate Bill 1116, which would allow jobless benefits for striking workers. The same proposal provoked a big fight last year, culminating in a veto by Gov. Newsom.

The Chamber’s initial list of nine bills also includes ones that would increase unemployment insurance taxes for businesses, expand paid leave for workers and ban certain chemicals in consumer products. It also includes one that is getting a lot of national attention — a measure to require employers to let workers ignore calls outside office hours. The Chamber says it will continue to add bills to the list.

• Jennifer Barrera, president and CEO, in a statement: “These proposals would add significant costs and burdens to California’s small businesses, creating an even more challenging business climate in our state.”

The labor federation list is more expansive — 17 sponsored bills that include ones to raise wages for education workers and to ban the use of artificial technology to replace human call center workers or grocery cashiers. The list also includes another that Newsom vetoed last year that would have mandated human back-up drivers in autonomous trucks. 

• Lorena Gonzalez, the federation’s chief officer, in a statement: “Labor’s agenda is focused on empowering workers to shape the future of work, instead of allowing corporations and tech companies to continue playing by their own rules and amass wealth while workers struggle to get by.”

Unions racked up some significant legislative victories during “hot labor summer” last year, capped by a deal with fast food businesses that included the minimum wage hike that took effect this week and that has dominated much of the recent Capitol chatter.

But the Chamber also prevailed: Of the 18 bills on its 2023 job killer list, only three became law, or 17%. That’s less success, however, than its longer-term track record. By its count, between 1997 and 2022, only 58 of 824 bills that the group labeled “job killers” became law, or 7%.

From CalMatters politics reporter Yue Stella Yu:

Whoever didn’t vote in a U.S. House primary in Silicon Valley may have helped make history.

Tied for second place in the March 5 primary with exactly 30,249 votes each, Assemblymember Evan Low and Santa Clara County Supervisor Joe Simitian are both advancing to the November general election, joining top vote-getter Sam Liccardo, former mayor of San Jose, according to results certified Thursday by election officials in Santa Clara and San Mateo counties. 

The stage is set for a competitive three-way November runoff — a first since California adopted its top two primary starting in 2012. All three are Democrats.

• Low, in a statement: “This historically close race shows that every vote really counts…. I look forward to continuing to share my vision for the future with every voter in the coming months.”
  
• Simitian, in a statement: “Sometimes it takes a while for democracy to work. This has been one of those times. Call it a cliffhanger, a rollercoaster, a wild ride — but it has absolutely been worth the wait!”

It was the only contest among the state’s 52 congressional districts still undecided into this week. The top two law says that if there’s a tie for second place, both candidates advance. But that provision was rarely looked at until Low and Simitian kept jockeying for second with every vote count.

“It’s basically as rare as a four-leaf clover or getting a peanut with three nuts in it,” Democratic strategist Michael Trujillo said.

It also means that California could have its first member of Congress elected without a clear majority in a long time, given how close the primary was among the three frontrunners, he added. Liccardo finished with 21% of the vote, while Low and Simitian each had about 17%.

For Liccardo, who now has an additional opponent to worry about, the tie complicates the race, strategists say. “It makes the calculus of where or who to hit… a lot harder, because there’s no guarantee those votes come back to you,” said Democratic consultant Andrew Acosta. 

The race to replace the retiring Rep. Anna Eshoo will only get more expensive. It is already one of the most expensive House races in California, with candidates spending a collective $5.3 million, according to data analyzed by OpenSecrets. 

Read more about the race ahead in Stella’s story.

From CalMatters deputy editor Adam Ashton:

The next chief moneymaker at California’s $494 billion public pension fund can get to work without having to worry about one of CalPERS’ most troubled investments — a real estate debacle that turned into an eyesore in the capital for almost two decades.

The California Public Employees’ Retirement System took care of that problem this week when it sold a prominent block at a steep loss to the Shingle Springs Band of Miwok Indians, closing the books on a property it once planned to turn into Sacramento’s tallest building.

The property, vacant since 2006, had long been a sore point between CalPERS and the city of Sacramento. The block at 301 Capitol Mall sits in between two landmarks — the Capitol and the Tower Bridge. The lot became known as “the hole in the ground.” CalPERS sunk some $70 million into the property and sold it for $17 million, The Sacramento Bee reported. 

The tribe said it has “no immediate plans” for the lot, but Sacramento leaders say they’re optimistic about a fresh start. 

• Sacramento Mayor Darrell Steinberg: “The Capitol Mall is the front door to our downtown, and we are thrilled to see the Shingle Springs Band of Miwok Indians assume stewardship of a property that is so important to their identity and to the city’s future.” 

CalPERS made the deal in the same week that it tied up another loose end. CalPERS announced the hiring of Stephen Gilmore from a New Zealand sovereign wealth fund to be its next chief investment officer. That’s a critical role that CalPERS has struggled to fill. He’ll be the third CIO at CalPERS since 2018 following the unexpectedly short runs of Yu Ben Meng and Nicole Musicco.

Gilmore will be charged with setting the strategy for CalPERS to earn its annual investment target of 6.8%, a number it has not reached since the 2020-21 financial year. It’s off to a good start, hitting 10.3% at the midway point this year.