Newsletter: California’s state budget problems might soon return



In assessing the near-term future of the California economy and how it affects the state budget, Gov. Gavin Newsom has recently taken to comparing his role to that of an airline pilot.

And it even comes with an impersonation of that voice on the loudspeaker toward the end of a flight.

“We’re about to begin our descent,” Newsom joked with reporters last month after an event in Sacramento. “We’re still at 36,000 feet, but we’re about to begin our descent.”

The governor isn’t the only one who is preparing for a landing. But none of those watching the horizon know when or how fast it will happen. Nor do they know how it will affect myriad vital state services when the high-flying economy of most of the last decade runs out of gas.

SEAT BELTS, EVERYONE: BUDGET BUMPS LIKELY ON THE WAY

Last week’s report by state officials of (another) record low measurement of unemployment in California included a reminder that national economic data are nearing uncharted territory.

The longest U.S. economic expansion in data dating to 1854 lasted for 120 months — achieved during the decade of technology industry growth in the 1990s. State researchers noted in employment data released last week that the current streak stands at 116 months, which bears a moment of reflection: Even the strong economies in the years after World War II, as well as those of the 1960s and 1980s, were shorter than the current streak that began in July 2009.

California has been a major part of the national story. The state has added almost 3.4 million jobs since February 2010, reported the state Employment Development Department, accounting for more than 15% of all the new jobs created in the country during that time period. As of October, California’s jobless rate stood at a historically low 3.9%.

No one expects the streak to go on indefinitely, but there’s no exact science to figuring out when things will change. The state’s nonpartisan Legislative Analyst’s Office reported this month that its “state fiscal health index” has declined for six consecutive months — a potential sign that the anticipated descent is at hand.

“Declines of this duration and magnitude have not been observed since the last recession,” the analysts wrote.

Researchers at the Public Policy Institute of California crunched their own numbers this year, estimating that even a mild recession could shrink state tax revenues by as much as $36 billion over three years. That could blow a pretty big hole in the historically large $19-billion cash reserves called for in the budget Newsom signed in June.

The governor is already hashing out the contours of his 2020 budget proposal behind closed doors, a plan he’s required to send to the Legislature no later than Jan. 10. And it feels as though we’re already getting a few previews. Newsom has said he expects to ask legislators to spend significant money on some kind of effort to mitigate either wildfire threats or the effects of preventive electricity shutoffs — or spending that helps address both issues.

State government assistance could also be needed on the local level in the coming year. Last month, State Auditor Elaine Howle released a new analysis of cities across the state at risk of a fiscal crisis. Some of those problems are at least partly due to local officials’ having to set aside more money than ever to cover pension promises made to government employees.

Newsom seems to be subtly reminding everyone, the public and interest groups alike, that the days of multibillion-dollar surpluses are over. A key estimate of the near-term horizon is due this week, when the nonpartisan Legislative Analyst’s Office releases its annual fiscal outlook. We’ll be watching for not only the analysts’ take on the relative temperature of the economy but also whether growth in state government expenditures — the analysts have already estimated general fund expenses in the current fiscal year will be $23 billion above what was spent in 2017-18 — is sustainable in the event of a mild recession.

One final footnote: Only a handful of incumbent legislators were serving in Sacramento during the last cycle of severe state budget deficits. As much as an economic slowdown would challenge Newsom, it would also challenge the skills of his legislative partners. And almost no one likes to be the one deciding which important program ends up on the chopping block.

THE DEMANDS OF DEMOCRATS: LONG BEACH WRAP-UP

California Democrats met over the weekend in Long Beach to weigh party endorsements in legislative and congressional races. But the main event was the race for the White House, as reporters gauged the reactions of the party faithful to the presidential candidates who showed up.

As Seema Mehta wrote, the 12 White House hopefuls participated in a Saturday forum held by Univision. But much of the action took place elsewhere at the sprawling Long Beach convention center or at nearby restaurants and bars.

The race’s newest entrant, former Massachusetts Gov. Deval Patrick, wasted no time in soaking up the scene. Mehta caught up with Patrick for an extended interview.

And Sen. Kamala Harris, the state’s best-known hopeful, hoped to boost her fortunes with the endorsement of the high-profile United Farm Workers union.

NATIONAL POLITICS LIGHTNING ROUND

President Trump spent more than two hours at Walter Reed National Military Medical Center on Saturday for what the White House said were medical tests as part of his annual physical. Unlike previous visits, this one wasn’t on his weekend public schedule.

— Democratic lawmakers on Sunday laid out their road map heading into the second week of public impeachment hearings against Trump. Some see it as a do-or-die phase of their impeachment inquiry after a week of detailed public testimony.

— Louisiana Gov. John Bel Edwards narrowly won a second term Saturday as the Deep South’s only Democratic governor, handing the president another gubernatorial loss this month.

— Vermont Sen. Bernie Sanders held a rally in Los Angeles over the weekend as part of his presidential campaign’s outreach to young Latino voters.

— Former President Obama on Friday warned the Democratic field of White House hopefuls not to veer too far to the left, a move he said would alienate many who would otherwise be open to voting for the party’s nominee next year.

NO STATEWIDE STINGS OF MINORS BUYING POT

California state agencies send minors into thousands of liquor stores and bars each year to attempt to buy alcohol or cigarettes. The stings catch hundreds of clerks and bartenders selling to underage customers.

But two years after the state began licensing marijuana shops, the agency tasked with enforcing cannabis laws in California has not conducted similar stings targeting the state’s multibillion-dollar pot industry, the largest in the country.

“Teen access, use and harms related to marijuana are skyrocketing,” said Scott Chipman, vice president of Americans Against Legalizing Marijuana, a leading opponent of 2016’s Proposition 64. “Minor decoy programs are one of many enforcement strategies that could be useful, especially if there is sufficient media regarding the outcomes.”

TODAY’S ESSENTIALS

— Add another big proposed ballot measure to the possible mix for California’s election next November: legalized betting on sports, an idea being pushed by a coalition of influential Native American tribes.

— A new poll shows that a broad majority of Los Angeles voters think that the city and county have been ineffective in spending money earmarked to combat homelessness and that new policies are needed to address a crisis they equate with a natural disaster.

— Newsom has called a March 3 special election to pick a successor to former Santa Clarita Rep. Katie Hill, the Democrat who stepped down amid accusations that she’d had affairs with congressional and campaign staff members.

— A proposal to divert high-speed rail money from the Central Valley to California’s big cities has split the state’s political leadership.

— California remains the top U.S. destination for international students, who primarily come from China and India to attend USC and UC campuses, but enrollment dipped slightly for the first time in at least a decade.

LOGISTICS

Essential Politics is written by Sacramento bureau chief John Myers on Mondays and Washington bureau chief David Lauter on Fridays.

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