ARTICLE
On Monday, January 10, Governor Gavin Newsom presented to the Legislature his budget proposal showing a remarkable increase in the collection of state tax revenue than ever before — much more than was expected when he signed last year’s budget in June 2021. When I worked in the state legislature in the 1990s, a bygone era in Sacramento, in response to the question, “How does the budget look?” the answer was always, “Worse than expected.” However, over most of the last decade — the answer to the same question has become, “Better than expected.” Here we go with the 2022-2023 fiscal year. Governor Newsom’s $286.4 billion budget proposal will be based on revenues collected through the end of December as well as an updated forecast for 2022. A cursory look at data already published shows where things are headed — a 9% larger budget plan than last year’s state record spending plan. November’s report by the California Department of Finance found that general fund revenue for the current fiscal year was some $13.3 billion above projections — in line with last fall’s indicators that led independent analysts to predict a $31-billion surplus by the end of June. In fact, in the first five months of the current fiscal year — July 1 through November 30, California took in an amount equal to more than 75% of all general fund revenue collected a decade ago in 2011-2012. Some of the surprise cash is from the fiscal year that ended June 30 of last year, collected late but counted toward the year in which the tax was due. November’s state finance report says those 2020-2021 revenues were $4.8 billion above expectations. “When this prior fiscal year-end amount is combined with the current fiscal year-to-date total, preliminary General Fund agency cash receipts are $18.161 billion above the 2021-22 Budget Act forecast,” state finance officials wrote in their November report. And there’s nothing to suggest the overall trend is slowing down. In fact, one surprising part of the cash flow into state coffers can be found in the daily tally of corporation tax revenues. Jason Sisney, a top budget advisor to Assembly Speaker Anthony Rendon (D-Lakewood), posted on Twitter this week that $2.9 billion in corporate taxes were collected in just two days, compared with $1.15 billion collected in all of January 2021. He later pointed out that once the final results are in, revenues from California’s corporation tax could end up being an astounding $6 billion above projections just for the month of December. There’s more: Lawmakers crafting a new budget in the coming months will also find a gusher of cash collected from California’s cap-and-trade program. The historic 2006 state law that imposes limits on greenhouse gas emissions also includes the quarterly auction of pollution credits, sold to companies that can then use them to exceed their emissions “cap.” The state sells credits, or “allowances,” as do companies that have lowered their emissions to the point that they have excess permits that can be sold on a state-sponsored market. November’s auction of greenhouse emission credits, overseen by the California Air Resources Board, saw high demand from companies looking for additional room under the cap. The result: $1.3 billion in proceeds deposited into the state’s Greenhouse Gas Reduction Fund (GGRF). A report last month from the independent Legislative Analyst’s Office projected a $732-million net surplus in GGRF revenues — with about $293 million available for “future discretionary spending” by state officials. A sizable amount of GGRF funds are already allocated, with one especially large portion helping finance California’s effort to build a high-speed rail system. But there’s an important relationship between the fund’s revenues and the rest of the state budget, as some programs that can be seen as helping reduce greenhouse gasses — including wildfire prevention, given the startling climate implications of these fires would otherwise be paid for out of the state’s general fund. Finding an alternate source of money means more cash for other state services favored by lawmakers, especially Democrats who handily control both houses of the Legislature. For starters, how much of the new tax boon does the governor believe to be one-time in nature? Newsom, like former Gov. Jerry Brown, has pushed to categorize billions in tax dollars as one-time funds — making it more likely that the cash is used for things such as paying down long-term debts instead of new, ongoing programs. Newsom will face pressures from his fellow Democrats and advocacy groups to do more to address the state’s gap between the rich and poor. The more progressive members of the state legislature will undoubtedly again push to expand the number of low-income adults without legal immigration status to be eligible for Medi-Cal, the state-funded healthcare program. One particular new twist to the health care delivery system is that one legislator is renewing the call for Single-Payer Health Care for California. That proposal would shift the California health care system for a 74% employer-paid insurance plan to the state. The estimated cost of that plan by the California Taxpayers Association is $183 billion annually. There may also be demands for more to address California’s homelessness crisis, though a lot of money has been allocated over the last two years and implementation of programs is a work in progress. The governor will no doubt offer new funding for the state’s COVID-19 response. And it will be worth looking at how much of that response will be funded from discretionary funds that can be spent without legislative approval. Finally, budget watchers will look to see how Newsom responds to other concerns that have arisen in recent months. He’s already promised, for example, to set aside about $300 million for efforts to address a sharp uptick in retail theft across California. And last month, he said the budget would add $100 million to litter cleanup programs in the state. Newsom is taking advantage of California’s unprecedented fiscal health to shift into crisis management mode. At Monday’s press conference, he emphasized an agenda tackling what he characterized as the “greatest existential threats” facing the state — COVID-19, climate change, and homelessness among them — while also sprinkling in some priorities, including an expansion of health care for undocumented immigrants, long sought by liberal supporters. “This proposal will be considered in light of the challenges today, and we will back in light of the challenges that present themselves tomorrow,” Newsom said. The question that will follow is the balancing act between the Governor’s proposal and the Democratically controlled state legislature which, in an election year, will want to bring home state revenues and resources to their respective constituencies. Stay tuned, as it will be an interesting year ahead.
On Monday, January 10, Governor Gavin Newsom presented to the Legislature his budget proposal showing a remarkable increase in the collection of state tax revenue than ever before — much more than was expected when he signed last year’s budget in June 2021.
When I worked in the state legislature in the 1990s, a bygone era in Sacramento, in response to the question, “How does the budget look?” the answer was always, “Worse than expected.” However, over most of the last decade — the answer to the same question has become, “Better than expected.” Here we go with the 2022-2023 fiscal year.
Governor Newsom’s $286.4 billion budget proposal will be based on revenues collected through the end of December as well as an updated forecast for 2022. A cursory look at data already published shows where things are headed — a 9% larger budget plan than last year’s state record spending plan. November’s report by the California Department of Finance found that general fund revenue for the current fiscal year was some $13.3 billion above projections — in line with last fall’s indicators that led independent analysts to predict a $31-billion surplus by the end of June. In fact, in the first five months of the current fiscal year — July 1 through November 30, California took in an amount equal to more than 75% of all general fund revenue collected a decade ago in 2011-2012. Some of the surprise cash is from the fiscal year that ended June 30 of last year, collected late but counted toward the year in which the tax was due. November’s state finance report says those 2020-2021 revenues were $4.8 billion above expectations.
“When this prior fiscal year-end amount is combined with the current fiscal year-to-date total, preliminary General Fund agency cash receipts are $18.161 billion above the 2021-22 Budget Act forecast,” state finance officials wrote in their November report.
And there’s nothing to suggest the overall trend is slowing down. In fact, one surprising part of the cash flow into state coffers can be found in the daily tally of corporation tax revenues.
Jason Sisney, a top budget advisor to Assembly Speaker Anthony Rendon (D-Lakewood), posted on Twitter this week that $2.9 billion in corporate taxes were collected in just two days, compared with $1.15 billion collected in all of January 2021. He later pointed out that once the final results are in, revenues from California’s corporation tax could end up being an astounding $6 billion above projections just for the month of December.
There’s more: Lawmakers crafting a new budget in the coming months will also find a gusher of cash collected from California’s cap-and-trade program. The historic 2006 state law that imposes limits on greenhouse gas emissions also includes the quarterly auction of pollution credits, sold to companies that can then use them to exceed their emissions “cap.” The state sells credits, or “allowances,” as do companies that have lowered their emissions to the point that they have excess permits that can be sold on a state-sponsored market.
November’s auction of greenhouse emission credits, overseen by the California Air Resources Board, saw high demand from companies looking for additional room under the cap. The result: $1.3 billion in proceeds deposited into the state’s Greenhouse Gas Reduction Fund (GGRF). A report last month from the independent Legislative Analyst’s Office projected a $732-million net surplus in GGRF revenues — with about $293 million available for “future discretionary spending” by state officials.
A sizable amount of GGRF funds are already allocated, with one especially large portion helping finance California’s effort to build a high-speed rail system. But there’s an important relationship between the fund’s revenues and the rest of the state budget, as some programs that can be seen as helping reduce greenhouse gasses — including wildfire prevention, given the startling climate implications of these fires would otherwise be paid for out of the state’s general fund. Finding an alternate source of money means more cash for other state services favored by lawmakers, especially Democrats who handily control both houses of the Legislature.
For starters, how much of the new tax boon does the governor believe to be one-time in nature? Newsom, like former Gov. Jerry Brown, has pushed to categorize billions in tax dollars as one-time funds — making it more likely that the cash is used for things such as paying down long-term debts instead of new, ongoing programs.
Newsom will face pressures from his fellow Democrats and advocacy groups to do more to address the state’s gap between the rich and poor. The more progressive members of the state legislature will undoubtedly again push to expand the number of low-income adults without legal immigration status to be eligible for Medi-Cal, the state-funded healthcare program. One particular new twist to the health care delivery system is that one legislator is renewing the call for Single-Payer Health Care for California. That proposal would shift the California health care system for a 74% employer-paid insurance plan to the state. The estimated cost of that plan by the California Taxpayers Association is $183 billion annually.
There may also be demands for more to address California’s homelessness crisis, though a lot of money has been allocated over the last two years and implementation of programs is a work in progress.
The governor will no doubt offer new funding for the state’s COVID-19 response. And it will be worth looking at how much of that response will be funded from discretionary funds that can be spent without legislative approval.
Finally, budget watchers will look to see how Newsom responds to other concerns that have arisen in recent months. He’s already promised, for example, to set aside about $300 million for efforts to address a sharp uptick in retail theft across California. And last month, he said the budget would add $100 million to litter cleanup programs in the state.
Newsom is taking advantage of California’s unprecedented fiscal health to shift into crisis management mode. At Monday’s press conference, he emphasized an agenda tackling what he characterized as the “greatest existential threats” facing the state — COVID-19, climate change, and homelessness among them — while also sprinkling in some priorities, including an expansion of health care for undocumented immigrants, long sought by liberal supporters. “This proposal will be considered in light of the challenges today, and we will back in light of the challenges that present themselves tomorrow,” Newsom said.
The question that will follow is the balancing act between the Governor’s proposal and the Democratically controlled state legislature which, in an election year, will want to bring home state revenues and resources to their respective constituencies. Stay tuned, as it will be an interesting year ahead.