THE BUZZ: The state’s firehose of funding could slow to a trickle.
The warning signs have been flashing for months, and yesterday the state’s Legislative Analyst’s Office made it clear: California is likely facing a major budget deficit — an estimated $25 billion next 12 months, with ongoing, albeit smaller, projected shortfalls in years to follow.
Let’s be clear: this will not be an absolute certainty. Lawmakers and Legislative staff on Wednesday downplayed the urgency of the LAO’s report. Assembly Budget Chair Phil Ting (D-San Francisco) noted the analyst’s office predicted a budget deficit right now last 12 months too, and the state ended up with a historic surplus.
“Projections are only that — projections,” Ting said.
But there’s no denying that the economy isn’t great right away. Inflation is up and stocks have been weak for much of the 12 months. Not to say layoffs at marquee tech firms like Lyft, Meta and Twitter, which have heightened economic pessimism throughout the state.
All those aspects have contributed to less-than-stellar revenue figures for the state during the last several months. Because the LAO sees it, meaning lawmakers are going to have far less wiggle room after they sit all the way down to hash out spending next 12 months.
WHY THIS MATTERS: California over the past few years has enjoyed historic budget surpluses, which has helped lawmakers fund things like a nation-leading $54 billion climate change package and construct up the state reserves. As Christopher Thornberg, a forecasting expert who has advised the state controller’s and treasurer’s offices, puts it, “Last 12 months, it was really fun to be in Sacramento… everyone was attempting to work out how much money they might spend.”
The excellent news is that lots of last 12 months’s spending was one-time allocations, not on-going commitments that should be funded every 12 months. Gov. Gavin Newsom purposefully vetoed several spending bills this 12 months for that reason, and lawmakers of their budget made sure to accumulate the state reserves.
The deficit projections are “realistic,” said H.D. Palmer, a spokesperson for the administration’s Department of Finance, noting that “the state is in its best-ever position to administer a downturn.”
However the LAO had some suggestions for a way Newsom and legislators should balance the 2023-2024 budget and prepare for years of shortfalls — including avoiding using reserve funds and, if possible, in January, “query the administration concerning the implementation and distribution of recent augmentations.”
Translation: if the state hasn’t sent out some of the cash it allocated last 12 months, lawmakers should see about getting it back.
BUENOS DÍAS, good Thursday morning. Rep. Mike Garcia’s victory over Democrat Christy Smith last night in CA-27 gave Republicans their 218th seat within the House — and majority control for the primary time since 2018.
More election updates below.
Got a tip or story idea for California Playbook? Hit us up: [email protected] and [email protected] or follow us on Twitter @JeremyBWhite and @Lara_Korte.
QUOTE OF THE DAY: “It’s not because we’re all smoking doobies and hanging on the beach.” PDI data wiz Paul Mitchell explaining to the Recent York Times why it takes so long to count ballots in California.
TWEET OF THE DAY
WHERE’S GAVIN? In Napa County to speak about this 12 months’s fire season and investments in wildfire prevention.
— “Update: Sacramento councilwomen threatened by man with prior assault charges, police say,” by the Sacramento Bee’s Theresa Clift and Michael McGough: “Alexander Francis Hoch, 37, is facing two felony charges of threatening the lifetime of a government official, and one felony charge of threatening to commit against the law leading to death or great bodily injury.”
— “Anaheim and its ex-mayor won’t disclose his emails and texts, so we took them to court,” by the Los Angeles Times’ Gabriel San Román: “The paper can be searching for records of other city business, including any messages related to negotiations surrounding the aborted Angel Stadium sale, which collapsed after the probe became public.”
THE REAL ESTATE EXODUS— “Hollowed-out office spaces could hit S.F.’s city budget hard — here’s how bad it could get,” by the San Francisco Chronicle’s J.D. Morris: “Under essentially the most optimistic scenario, town estimates that annual property tax losses from empty offices could reach about $100 million in 2028. A more measured scenario puts that figure at greater than $125 million.”
HOUSE HANGERS-ON: Rep. Mike Levin (D) clinched a win in CA-49 over Republican Brian Maryott last night. We’re still waiting on calls in five more Congressional seats, including the 2 closely contested seats within the Central Valley — CA-13 (Democrat Adam Gray vs. Republican John Duarte) and CA-22 (Republican Rep. David Valadao vs. Democrat Rudy Salas)
The Associated Press also has yet to call CA-03, where Republican Kevin Kiley is ahead of Democrat Kermit Jones by 4.6 points.
In CA-47, Democratic Rep. Katie Porter is leading Republican Scott Baugh, 51.4 percent to 48.6 percent.
A Dem-on-Dem contest in CA-34 has incumbent Rep. Jimmy Gomez leading David Kim, 51.8 percent to 48.2 percent.
BASS WINS — Rep. Karen Bass will likely be the subsequent mayor of Los Angeles after officially beating Rick Caruso last night. We won’t know the ultimate margin for a while, however the last vote count had Bass six points ahead of the billionaire.
— “A California police chief said his wife killed herself. Her family asks: Was it murder?” by the Sacramento Bee’s Ariane Lange and Jason Pohl: “Everyone was crying when Johnny Matthews rushed into the hospital waiting room. He was too late: Sara was already dead. His father, Joseph Matthews, tried to persuade him to view his sister’s body, but Johnny said no.”
— “What we all know concerning the victims and driver within the crash that hurt 25 sheriff’s recruits” by the Los Angeles Times’Alexandra E. Petri, Richard Winton, Brittny Mejia, Nathan Solis and Noah Goldberg: “Shortly after dawn Wednesday, a 22-year-old driver plowed a Honda CRV right into a large group of recruits with the Los Angeles County Sheriff’s Department who were on a training run in South Whittier. Dozens were injured, not less than five of them critically, authorities said.”
STREET SAFETY — “Someone is severely injured in S.F. traffic every 14 hours. This time, it was a famous local artist,” by the San Francisco Chronicle’s Heather Knight: “Every 14 hours, on average, a crash on San Francisco’s dangerous streets sends anyone severely injured to San Francisco General Hospital, upturning their lives and the lives of the individuals who love them. The talented surgeons there normally save them, and their horrific stories don’t make headlines.”
ZAPPING ALONG — “Caltrain’s shiny recent trains are finally here. Can the agency keep them running?” by the Mercury News’ Eliyahu Kamisher: “Eventually, passengers will glide up the Peninsula, with an influence outlet at every seat, LCD screen maps, and a coveted baby changing station. It’s a part of a green vision of Bay Area train travel akin to the sleek rail systems in Europe.”
— “Newsom asked cities to set targets for reducing homelessness. Sacramento’s goal? A 71% spike,” by the Sacramento Bee’s Maggie Angst: “It was considered one of the info points that prompted Newsom to call local government performance “unacceptable” and to pause billions in state funding for homelessness. He’s convening a gathering on Friday with local officials to debate the best way to address the difficulty.”
— “How did Gascón find yourself launching a criminal probe sparked by far-right election conspiracy theories?” by the Los Angeles Times’ James Queally and Sarah D. Wire: “The presence of a detective from considered one of the country’s most liberal prosecutor’s offices at an event promoting MAGA conspiracy theories was mystifying. However it was just considered one of a series of questionable actions that has won Los Angeles County Dist. Atty. George Gascón unwanted and unexpected praise from Trump and his allies in recent weeks, and shoved a little-known Michigan software developer into the crosshairs of fringe true believers.”
FAST FOOD BRAWL CONTINUES — “A Calif. law that takes wage-setting power from fast-food bosses sparks fight,” by the Washington Post’s Erica Werner: “The developments come because the pandemic, coupled with inflation, has forced employees, employers and policymakers to rethink the employment landscape across the nation in multiple ways.”
FACING THE FTX FALLOUT — “FTX lawsuit targets Steph Curry, Warriors and other crypto ‘ambassadors’,” by the San Francisco Chronicle’s Bob Egelko: “The suit said FTX has used “a few of the biggest names in sports and entertainment — like these Defendants — to lift funds and drive American consumers to speculate” in a ‘fraudulent scheme… designed to benefit from unsophisticated investors from across the country.’”
— “Clock Ticking on Nancy Pelosi Now That Dems Lost the House,” by the San Francisco Standard’s Josh Koehn: “Pelosi cruised to reelection and a nineteenth term last week, but many political insiders imagine she is going to hang it up after seeing the gavel go to the GOP.”
— Schiff passes on Dem leadership bid as Pelosi’s future stays murky, by POLITICO’s Sarah Ferris and Nicholas Wu: Schiff had mulled a bid for the caucus’ No. 1 role — prone to be minority leader, as Republicans are only one seat away from flipping the House after last Tuesday’s election — though he had not officially jumped into the race.
— McCarthy’s next step on the GOP tightrope: Navigating concessions to conservatives, by POLITICO’s Olivia Beavers and Jordain Carney: While many of the conference’s anti-McCarthy votes went to Freedom Caucus challenger Rep. Andy Biggs (R-Ariz.), five House Republicans wrote in a special name for speaker and one abstained for a complete of 37 in opposition — drawing a map for the Californian’s rocky path ahead to 218 votes.
— “Why the third in line to presidency post won’t go to Sen. Dianne Feinstein,” by the San Francisco Chronicle’s Shira Stein: “[Sen. Patty] Murray’s office said that Senate Majority Leader Chuck Schumer, D-Recent York, plans to nominate Murray — who recently was re-elected after a troublesome race — to be Senate president pro tempore, a job that typically goes to essentially the most senior member of the bulk party.”
HARDCORE HINDRANCE — “Musk issues ultimatum to staff: Commit to ‘hardcore’ Twitter or take severance,” by the Washington Post’s Faiz Siddiqui and Jeremy B. Merrill: “By mid-Wednesday, members of Twitter’s Trust and Safety team — who’re accountable for keeping hate speech and misinformation off the positioning — were discussing a mass resignation, in response to three current employees who spoke on the condition of anonymity for fear of retribution.”
— “Elon Musk says he doesn’t wish to be CEO of Twitter, or any company,” by the Verge’s Andrew J. Hawkins: “Or so he claimed in testimony at a trial Wednesday difficult his giant compensation package at Tesla. Musk, who’s the CEO of multiple firms, including most recently, Twitter, was answering questions from lawyers representing Tesla when he made the offhand comment.”
— “Sunglasses for $27,000? A desk for $60,000? Joan Didion’s estate sale made big bucks,” by the Los Angeles Times’ Jonah Valdez: “The auction, which began Wednesday morning after accruing pre-bids, wrapped up late within the afternoon with its final sale: six silver candlesticks for a mere $8,000.”
FOLLOW THE THREAD — “Is the world’s richest person the world’s worst boss? What it’s like working for Elon Musk,” by the Los Angeles Times’ Russ Mitchell.
— ‘The weirdest election I’ve ever been a component of’: How the GOP almost blew the House, by POLITICO’s Ally Mutnick, Sarah Ferris and Elena Schneider.
— “Man who led authorities on wild chase from O.C. to L.A. County charged with 18 felonies,” by the Los Angeles Times’ Gregory Yee.
CURB-SIDE MAIL — “Nearly all Santa Clara County ballots recovered near a highway will count toward official results,” by the San Francisco Chronicle’s Jessica Flores.
— “Essentially the most fragrant native plants are only heavenly. Here’s what to plant now,” by the Los Angeles Times’ Jeanette Marantos.
FLYING THE DISTANCE — “Frontier Airlines fined $2 million by Department of Transportation for trickery,” by SFGate’s Silas Valentino.
Michele Tasoff
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