Flush With Cash, California Has Problems That Are No Quick Fix
(Bloomberg) -- With cash rolling in from a projected $45.7 billion budget surplus, California Governor Gavin Newsom proposed a spending plan designed to address a paradox of the most populous U.S. state: It’s thriving financially, yet beset with systemic challenges that threaten its long-term growth.
The Democrat aims to tackle the “existential threats” of Covid-19, climate change, homelessness, the wealth divide and public safety with a record $213 billion budget for the coming fiscal year. The plan unveiled Monday, which still must be approved by legislators, proposes a tenfold increase -- to $500 million -- to clean up homeless encampments, for example, which the governor called the state’s “most vexing and serious issue.”
California is home to the world’s fifth-largest economy and remains a leader in progressive causes such as banning internal combustion engines in new cars by 2035. Yet it continues to lurch from crisis to crisis, including wildfires, crime, port congestion and now an omicron variant surge, despite some of the toughest virus-mitigation standards in the nation.
Some of the state’s most pressing problems, like a shrinking population and high cost of living, can’t really be solved by the budget alone. Others like homelessness received increased funding, but that money pales against the scope of the problem, with an estimated 161,500 unhoused people across the state as of 2020.
To some, the spending plan is a step in the right direction, addressing California’s income inequality by offering tax credits to low-income workers, additional funding for pre-kindergarten classes and universal health care even for undocumented residents.
“I think the governor has proposed a good starting point for making a series of one-time and ongoing investments in the major challenges facing the state,” said Chris Hoene, executive director of the nonprofit California Budget and Policy Center, which focuses on policies impacting the economic and social well-being of residents with low and middle incomes.
Others see a recurring issue with Newsom’s administration, hopping on issues that are trending with voters, but rarely solving problems over the long term. “They sell the sizzle,” said David McCuan, chair of the political science department at Sonoma State University. “Actually delivering, they don’t have those kind of successes.”
California’s population declined for the first time in history in 2020 and the state lost a congressional seat last year. A number of high-profile companies have relocated their headquarters, including Hewlett-Packard Enterprise Co., Oracle Corp. and Tesla Inc., in part because of the cost of living.
But the economy is still strong, with gross domestic product rising 21% in the five years ended December 2020 and tax receipts coming in well above plan, thanks to the state’s dependence on high-income earners. Of the $45.7 billion surplus, $20.6 billion can be used for discretionary purposes.
The governor, running for a second term this year, proposed hundreds of millions of dollars in grants and tax breaks for small businesses while continuing to spend heavily to promote California’s tourism economy. He also pledged $3 billion over two years to pay down the state’s unemployment fund debt. In recognition of pocketbook issues that are hitting the less wealthy harder, Newsom announced he’d scrap an inflation-indexed hike in the gasoline tax for the fiscal year.
While not directly addressing corporate departures, he proposed $250 million in incentives annually for three years for qualified companies headquartered in California that are investing in research to mitigate climate change.
To Republicans, who account for less than a quarter of registered voters and a minority in the statehouse, Newsom’s new budget emphasizes many of the same failed policies. State Senator Jim Nielsen, a Republican from rural Red Bluff, said that’s evident in the governor’s proposals for drought mitigation.
The state passed a $7.5 billion bond proposition in 2014 to address the water crisis and yet no storage projects have begun, Nielsen said. Newsom earmarked an additional $750 million in spending on drought mitigation efforts in the new budget, including passageways for fish and technology to reduce farmers’ irrigation needs.
Nielsen’s skeptical too of the governor’s proposed homeless initiatives, which include construction of tiny houses.
“I’m not very confident,” said Nielsen, the vice chair of the Senate’s budget committee. “Most of what we’re doing is just throwing dollars out there and not really accounting for how it’s used.”
At a press conference Monday, Newsom touted success he’s had finding homes for 58,000 people, with the government leasing or buying old motels to use as shelters, and said cities will have accountability for their efforts to address homelessness. His new budget proposes $2 billion in additional spending to address the issue, even as areas such as San Francisco and Los Angeles face uphill battles trying to find places to build temporary housing.
“I hope people see a real road map here and a strategy and to the extent people have better ideas, boy, we look forward every day to hear those,” he said.
Newsom, who handily beat back a recall effort last year, has also vowed progressive policy proposals such as expanding abortion access. A group of more than 40 abortion providers and advocacy organizations have recommended the state expand its ability to provide services to out-of-state residents if the landmark Roe v. Wade law is overturned.
While there wasn’t a “mass expansion specifically” regarding abortion in the budget, Newsom said Monday he would be working on policy proposals with legislators in the coming weeks.
The governor’s plan includes $255 million in grants to local law enforcement and a new “Smash and Grab Enforcement Unit” designed to address the rash of shoplifting gangs swarming stores.
The proposal illustrates the tough position Democrats find themselves in this mid-term election year with the more liberal wing of their party pushing for police and criminal justice reforms, while many voters are worried about crime rates.
“The smash and grab unit is the all-sizzle approach,” said Sonoma State’s McCuan, “as opposed to actually doing things that can change the dynamic.”
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