Newsom’s California economic forecast: veto message edition

Loyal readers of Gov. Gavin Newsom’s veto messages may have noticed a new theme popping up lately. 

• Newsom, again and again: “With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined.”

Bills to boost health insurance subsidies, exempt manufacturers from certain sales taxes, help more kids get mental health care through their schools and let some California students ride public transit for free all fell before the governor’s nearly identically worded appeals to fiscal rectitude. Of the 27 bills that Newsom has rejected since the end of the legislative session, 18 (exactly two-thirds) used some version of that now familiar line.

The governor, lucky him, has never had to lead the state during a long-term economic downturn. But with the income tax revenue coming in 11% below expectations so far this year, it appears that Newsom is starting to channel his inner Jerry Brown.

Veto messages shouldn’t always be taken at face value. A governor rarely gets punished politically for playing the responsible adult in the room, and so this new much-used phrase could simply be politically convenient boilerplate — a way for the governor to kill a bill he doesn’t like without having to say exactly why. 

But veteran Capitol lobbyist Chris Micheli, who noted the recurring veto message, said he believes it could represent a meaningful shift in the administration’s economic outlook.

• Micheli: “A veto message that includes a statement that a bill that spends money should be done through the budget process is a standard message of Governor Newsom and his predecessors. Nonetheless, I think the specific language he is using in these veto messages reflect…a change in the fiscal outlook.”

H.D. Palmer, a spokesperson for Newsom’s Department of Finance, said in an email that the governor has been telegraphing his budgetary concerns for months, pointing to the administration’s record-setting spending plan that dedicated nearly all of its surplus to one-off expenditures.

• Palmer: “As we have said at several key points this year, and as the Governor has again emphasized in his recent veto messages, the likelihood of continued declines on the receipts side of the ledger means that we have to closely watch the expenditures side.”

That could also help at least partially explain why Newsom, otherwise a big fan of electrical vehicles, has taken such a public stance against Proposition 30 — a ballot measure that would increase funding for EV infrastructure by increasing income tax rates on millionaires. 

One argument against the measure: About half of California’s income tax revenue comes from the top 1% of earners and that money tends to whipsaw around with every boom and bust of the stock market. If a recession is on the horizon, the argument goes, making the state even more dependent on a volatile revenue source could be a bad bet.

Or, as the governor might put it, “it is important to remain disciplined.”

CalMatters is tracking more than two dozen of the year’s most consequential and controversial bills that were sent to the governor’s desk. So far, Newsom has signed nine of them.

Programming note: As part of a collaboration with CalMatters investigating wage theft across the state, tonight CBS California will take a closer look at the issue from the business point-of-view.

The stories are scheduled for 5 p.m. on KPIX 5 in San Francisco, at 5 p.m. and 9 p.m. on CBS 2 in Los Angeles, and at 6 p.m. and 10 p.m. on CBS 13 in Sacramento.

Other Stories You Should Know

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1 Newsom in New York

On Monday morning, Newsom jetted east to take part in the 14th annual Climate Week NYC, an annual gathering of politicians, CEOs, philanthropists, members of the coverage-setting intelligentsia and activists that’s meant to showcase and advocate for different climate change solutions. 

Think: An international trade show, but for averting the apocalypse. 

This isn’t Newsom’s first time at the event — he gave an opening speech in 2019. But this year he has a few extra goodies to show off. 

On Friday, the governor signed a suite of bills that lock California’s ambitious emission-reducing and grid-greening goal into state law. That follows recent back-to-back announcements by the state’s climate regulators — and cheered on by the governor — to phase out the sale of both gas-powered cars and heavy-duty trucks.

Today, Newsom plans a “fireside chat” on climate at the Clinton Global Initiative. His New York events will also be yet another opportunity — along with the political ads in Florida, the trip to D.C., the abortion billboards and the country-cross debate challenge — for Newsom to bolster his national name ID. The governor insists he has no plans to run for president, but some (unnamed sources) claim to know otherwise. 

While Newsom touts the state’s climate policies in New York, Californians are being beset with a host of environmental challenges back home:

• Thousands of dead fish continue to wash ashore across the San Francisco Bay, the result of a toxic “red tide” algae bloom unprecedented in its scale. Experts say it’s likely the result of insufficiently tight sewage filtration and a warming ocean.
• Though the Mosquito Fire has now burned more than 76,000 acres across the foothills northeast of Sacramento, a little early week precipitation helped firefighting crews create fire lines around 39% of the blaze.
• A plan to convert a stretch of open desert in the Coachella Valley into a 12-acre artificial wave pool for surfers is not getting an entirely welcoming reception from the drought-stricken community.

2 A visit from the acting governor

As soon as Newsom crossed the airspace into Nevada, the power and responsibilities of his office officially fell to California’s second-in-command: Lt. Gov. Eleni Kounalakis.

But don’t expect any big bill signings by her before Newsom returns Thursday, she told CalMatters on Monday. The sit-down was recorded and we’ll be sharing that soon. But here’s one sample:

Kounalakis, co-chairperson of the Proposition 1 campaign, said she’s spending more time on the abortion rights measure than on her own reelection campaign. That includes raising money: Three weeks ago, she said, the Prop. 1 finance team decided it needed more cash to raise awareness with voters. 

So she used every contact she had in her Rolodex; one of them was the Federated Indians of Graton Rancheria, a gaming tribe that is dead set against Proposition 27, the online sports betting measure that is being funded by DraftKings, FanDuel and other out-of-state companies and that Kounalakis also publicly opposes.

By her account, she got the call from Graton leaders late on a Friday night: They said Native American women also cared about abortion rights, enough so that the tribal council would write a $5 million check.      

Asked if she agreed to be more vocal against Prop. 27 in return, she said no. But she does plan to donate $100,000 of her own money to support Prop. 1.

The conversation was in service of the CalMatters Voter Guide, which will include interviews with many of the candidates running for office statewide in California this November. 

And in case you missed it, the guide has a new feature. Along with all the statewide races, the propositions and the contests for congressional, Assembly, state Senate and U.S. Senate seats in California, we now have a page and candidate information on the four state Supreme Court posts up for retention and confirmation (yes, that’s on your ballot, too).

3 New rules for legal weed

Over the weekend, Newsom also signed 10 bills to boost the beleaguered legal cannabis industry. 

Among the more attention-grabbing pieces of legislation are bills that prevent employers from punishing workers for using marijuana off-the-clock, require local governments to allow medical dispensaries to deliver cannabis, and fast-track the voiding of old marijuana infractions from criminal records. 

Another bill that has gotten less attention but which could ultimately have a transformative impact on the state cannabis industry: SB 1326.

Authored by Salinas Democratic Sen. Anna Caballero, the bill would allow Newsom to enter into trade agreements with other states that have legalized recreational use. Supporters say that would provide a release valve for California’s saturated market. 

But there’s a catch: The policy can’t go into effect until the attorney general deems that doing so wouldn’t get California in trouble under federal law. It’s unclear what Attorney General Rob Bonta thinks about the idea; his office said it is waiting for a formal request to weigh in.

But cannabis advocates across the country are optimistic.

• Adam Smith, founder of the Oregon Craft Cannabis Alliance: “I see this as a real turning point…We hope and expect this is going to really initiate the conversation nationally.”

This while at least some political observers predict that this year’s midterm elections could radically shift the national politics around marijuana.

It’s fitting that Newsom would be the one to enter into these inter-state arrangements. When California voters legalized recreational marijuana in 2016, he was the face of that campaign.

This week’s raft of new marijuana laws come at a moment of crisis for California’s legal weed industry. As the Los Angeles Times has been reporting in an ongoing series, the state’s black market continues to thrive, regulated businesses are often unable to compete and the torrent of cannabis cash in some communities has unleashed a wave of political corruption.

Other things worth your time

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Migrants flown from Texas to California don’t know why or who paid // Los Angeles Times

The tiny corner of California that isn’t in drought // KTLA

Tensions rise between the L.A. Times and its billionaire owner // Politico

Sherri Papini sentenced to 18 months for California kidnapping hoax // Sacramento Bee

Labor talks for ports from California to Washington state stall // Wall Street Journal

Despite ‘clean bill of health’ ‘Fat Leonard’ stayed out of jail // San Diego Union-Tribune

L.A. Times to co-host debates with mayoral, sheriff candidates // Los Angeles Times

How electric vehicles could rescue the US power grid // Wired

Is Silicon Valley’s golden era coming to an end? // Guardian

Bill Walton to San Diego mayor: You have failed on homelessness // Voice of San Diego

Nurse’s mental struggles were hidden until fiery crash killed five // Los Angeles Times

Travelers, asked to mow the lawn, slam Airbnb for chore lists // Business Insider

Adnan Syed, subject of hit podcast “Serial,” walks free // Baltimore Sun