MOORLACH UPDATE — Clean Drinking Water Funding — June 11, 2019

Interview requests regarding the state’s Budget Conference Committee and various components of the budget continue.

The Associated Press picked up on one short question that I asked Sunday evening when the compromise on the Cap and Trade spending was before us. “What is the nexus between Cap and Trade and drinking water?” The answer was very weak, as the amount of greenhouse gases that will be avoided is de minimis. But, this hair-brained approach solved the tension about the Governor wanting to impose a water tax, so I left well enough alone. It’s provided in the Miami Herald piece, which is the first one below.

When is a good time to ask for tax increases? During a recession? Probably not. During a bumper crop year? Maybe. I’ll have to assume that the Governor believes now is the time to take the virtual pedal to the metal. The next shoe to drop? Higher electricity rates to start and fill a fund for utility caused wildfire in order to provide for victim reimbursements. The Mercury News provides the first shoe in the second piece below. I did not see the 9-1-1 tax included in the final budget documents, so stay tuned.

The third piece below provides a good recap by the California Globe. The “tax conformity” proposal between the Federal tax bill and the state’s version looks like a cherry-picked proposal similar to heads I win, tails you lose. The state will take revenue enhancements in order to pay for the expanded earned income tax credit.

Hold on to your wallets. It looks like we will be voting on the budget on the Senate Floor after 10:18 a.m., thus meeting the 72-hour in print rule.

25th Anniversary Look Back

In the June 11, 1994 edition of the Daily Pilot, liberal columnist Fred Martin was back with his vitriol over campaign season. This time because I had purchased space on a Democrat slate mailer. That Martin received the mailer confirmed his party registration. And, it gave him another opportunity to throw a punch.

Slate mailers are just advertising opportunities. Candidates pay to be on them. And, I was encouraged to purchase onto a Democrat slate. The joys.

To reiterate, it was the incumbent who made an issue of partisanship, not me. I focused on the investment strategy. But, if you weren’t watching closely, you fell for this clever diversion by Mr. Citron. The irony is that I have wonderful relationships with my Democrat friends.

John Moorlach, who failed to oust county Treasurer-Tax Collector Bob Citron, kicked up a big fuss because Citron is a Democrat. [Getting] his name and mug shot in a “Democratic Voter Guide,” on the front of the mailer was a photo of John Kennedy and the paean, “Continue the Democratic Tradition.” Inside was a laundry list of candidates to vote for, led by such well-known conservatives as Kathleen Brown, Gray Davis, Michael Woo and David Roberti.

For the last Look Back, go to MOORLACH UPDATE — Biggest Budget, Biggest Deficit — June 10, 2019 .

California taps clean air money

to pay for drinking water


California legislative leaders agreed Sunday to spend $130 million a year to improve water systems in communities where people can’t drink from their taps, something Democratic leaders say amounts to a crisis in one of the nation’s wealthiest states.

To pay for it, the state would tap a fund dedicated to reducing greenhouse gas emissions, a move that alarmed some environmental activists who say its set up an unfair choice between clean air and water.

“What kind of choice is that?” said Kathryn Phillips, director of Sierra Club California. “People shouldn’t have to choose between clean water and clean air.”

The plan is part of the state’s $213 billion budget and is a compromise between legislative leaders and new Democratic Gov. Gavin Newsom. Newsom had originally proposed a 95-cent tax on most residential water bills to pay for the fund. But lawmakers rejected that proposal, fearing political consequences of creating a new tax in a year when officials estimate the state will have a $21.5 billion surplus.

Instead, legislative leaders on Sunday agreed to take the money from the state’s Greenhouse Gas Reduction Fund. Through its cap and trade program, California requires its big polluters, like oil refineries and farms, to buy credits that let them pollute.

Becky Quintana is glad lawmakers found a way to fund water improvements, regardless of where the money is coming from. She lives in Seville, a town of less than 500 people in California’s Central Valley where the local elementary school relies on a grant to bring in bottled water for the students. Some days, she said, the school has to cancel classes because they can’t flush the toilets.

“People chose water over air, right? I mean I would,” Quintana said Monday at the state Capitol in Sacramento, joining other activists in light blue “Thirsty for Justice” T-shirts as they held a rally to pressure lawmakers into approving the funding. “We need the money. We need water.”

To pay for the water improvements, budget writers are taking money away from the agricultural industry, which uses it for activities such as upgrading diesel engines and reducing methane pollution. Lawmakers voted to cut that funding from $284 to $127 million.

About $100 million of that would go to a new clean drinking water fund, according to a document provided by the state Assembly. Another $30 million would come from the state’s general fund.

The money would not build things, but it would help some distressed public water systems with their operating costs. The goal is to avoid situations like 2007, when officials in the rural Central Valley community of Lanare had to shut down a new water treatment plant because they could not afford to run it.

California’s cap-and-trade program is the backbone of the state’s efforts to reduce greenhouse gas emissions. The state has already achieved its goal of reducing emissions to 1990 levels and is attempting to go 40% below that level by 2030. The program has generated more than $9.5 billion since its inception, according to a 2019 annual report.

The state uses money from the program to pay for projects aimed at reducing greenhouse gas emissions or improving the environment and public health. Some of the money, for example, goes to the high-speed rail project that would run electric trains, ideally reducing transportation emissions. California law also requires 35% of the proceeds be spent on low-income and other disadvantaged communities.

Republican Sen. John Moorlach from Costa Mesa was skeptical about the connection between clean drinking water and reducing greenhouse gas emissions.

But Newsom’s administration said when communities with unsafe drinking water have to bring in lots of bottled water, it clogs the roads with big trucks that pollute the air.

Sen. Bill Monning, a Democrat from Carmel who authored a bill to direct how the money would be spent, said greenhouse gas emissions have caused climate change, which has caused an increase of naturally occurring contaminants in drinking water like arsenic and lead.

“It’s directly connected,” he said. “Without climate change, without greenhouse gas emissions, you don’t have this immediate public health crisis.”

But many drinking water problems are connected with pollution from the state’s massive agricultural industry, whose heavy use of fertilizers and other chemicals have seeped into the drinking water of nearby communities. That’s why lawmakers have tentatively agreed to take most of the money from the agriculture industry’s portion of the greenhouse gas fund.

Emily Rooney, president of the Agricultural Council of California, called it “a creative solution for the drinking water crisis.”

“Obviously we want to protect our ag programs in the greenhouse gas reduction fund, but this is also a serious commitment on behalf of the governor to resolve a problem that definitely needs to be addressed,” she said. “I’m not going to get in the way of that.”

California budget: More than $2 billion in new state taxes even with $21 billion surplus?

New hikes for health insurance mandate, 911 system upgrades

By John Woolfolk

Gov. Gavin Newsom is in an enviable position: a record surplus of $21.5 billion in his first proposed budget.

But as his plan moves toward the June 15 deadline for approval by a friendly Legislature dominated by his fellow Democrats, Republicans and taxpayer advocates are pushing back against what they say are more than $2 billion in new taxes and other levies tucked within the voluminous document.

“Despite a budget surplus of $22 billion,” the governor is asking for billions in new taxes, said Senate Republican Leader Shannon Grove, R-Bakersfield. “California is already unaffordable for too many people.”

The bulk of that revenue comes from $1.7 billion in “tax conformity” proposals to align California’s tax rules with the major changes made to the federal tax code by President Trump and Republicans in Congress in late 2017.

The budget also includes $300 million from a health insurance mandate — a tax penalty aimed at keeping insurance premiums in check by spurring the healthy who spurn coverage into buying a plan — and $200 million from a revised tax to bolster the 911 emergency system, Grove said.

Another Newsom proposal to raise $200 million from taxes on water bills, milk and fertilizer to fix contaminated drinking water systems in disadvantaged communities around the state died in a legislative committee over the weekend.

Kevin Liao, a spokesman for Assembly Speaker Anthony Rendon, countered that much of the surplus goes toward bolstering budget reserves and paying down debt and pension liabilities so the state can better weather an eventual economic downturn. He said the criticism is premature with the budget still in final negotiations over the next week.

“It’s not that there’s a ton of new ongoing spending being proposed,” Liao said. “A lot of it is one-time spending.”

Department of Finance spokesman H.D. Palmer quibbled with the characterization of some of those measures as taxes, which require a two-thirds vote for approval. He said the Legislative Counsel concluded a third of the dozen measures in the tax conformity package can be approved on a simple majority vote.

Palmer said he expects the Legislative Counsel to make a similar finding on the health insurance mandate, though he conceded the proposed 911 measure will require two-thirds votes.

The budget surplus and tax talk are in stark contrast to the situation former Gov. Jerry Brown confronted when he took office in 2011. Brown faced a $26.6 billion deficit. He resisted the Legislature’s call for new taxes, and the approved budget included some $15 billion in cuts. Brown later won voter approval for new taxes and, along with the improving economy, the state’s finances turned around.

Democrats now have enough votes to pass taxes over GOP opposition. Though Newsom cautioned about the threat of another recession, for now the state’s coffers are overflowing.

Newsom’s budget described the tax conformity package, which would include “flexibility for small businesses, capital gains deferrals and exclusions for Opportunity Zones and limitations on fringe benefit deductions,” among other measures, as “beneficial to California.” Those proposals have not been agreed on by the legislature and are expected to be debated in the coming days. The governor wants to use the revenue to pay for an expansion of tax credits for low-income Californians.

Some taxpayer advocates have withheld criticism on the conformity proposals for now, which they say offer potential benefits in simplification for taxpayers.

“The conformity package is intended to be tax neutral — meaning the overall effect is that it does not increase taxes or decrease taxes on taxpayers in the aggregate,” said California Taxpayers Association President Rob Gutierrez.

The proposed state health insurance mandate is modeled on the discontinued federal requirement under the Affordable Care Act. It would pay for raising and expanding subsidies through Covered California — the state’s insurance marketplace established under the ACA.

The proposed 911 tax would pay for improvements to the state’s 911 emergency reporting system, allowing the Office of Emergency Services to begin upgrading the California Public Safety Microwave Network to a digital system to enhance emergency response communications.

Newsom’s proposed budget said that a more stable funding structure will allow OES to fully implement a statewide Next Generation 911 system. Benefits would include faster call delivery, increased routing accuracy, call overflow and backup systems, updated geographic information capability and wireless location data, and incoming text capability.

Liao said the proposal merely modernizes a fee structure that has grown outdated as consumers abandon landlines for cell phones.

The Safe and Affordable Drinking Water Fund tax that Newsom had proposed would have put a levy on water bills — perhaps $1 a month — and on fertilizer and dairy to provide funding for the State Water Resources Control Board to help impoverished communities, mostly in the Central Valley, pay for water quality improvements.

The tax had been met with controversy and opposition from lawmakers of both parties, and was excluded from the budget agreement announced by a legislative conference committee Sunday. Instead, according to the compromise, much of the money for the water quality projects will come from the state’s cap-and-trade program.

“Even the poor (would have had) to pay that tax,” said Sen. John Moorlach, R-Costa Mesa, a member of the Budget Conference Committee. “I think everyone has communicated to Gov. Newsom that it would be a bad idea.”

California voters’ appetite for new taxes remains an open question. They overwhelmingly approved Brown’s call for higher sales and income taxes with Proposition 30 in 2012, and in 2016 endorsed keeping the higher income taxes another dozen years with Prop 55.

Southern California voters last June recalled Democratic state Senator Josh Newman over his support for a new gas tax, but voters statewide rejected November’s Proposition 6 to repeal that tax, which will add 5.6 cents to the price of a gallon starting in July.

Earlier this week, voters in the massive Los Angeles Unified School District panned a proposed parcel tax, with just 45 percent in favor of Measure EE, well short of the two-thirds margin needed for approval. Jon Coupal, with the Howard Jarvis Taxpayers Association, said that may give lawmakers pause as they ponder new tax hikes.

“We’ve got a $22 billion surplus, revenue remains strong, so the threshold question is why are we discussing any tax hikes,” said Coupal. “The state is pretty flush.”

Gavin Newsom’s California Budget: Undocumented Immigrants Will Get Health Care Coverage

Water tax abandoned, tax credit credit for low-income people

By Katy Grimes

California Democrats reached a budget deal late Sunday agreeing to pay for undocumented immigrants living in the country illegally to have full health benefits, while abandoning the $140 million water tax on residential customers.

Undocumented immigrants between the ages of 19 and 25 will be eligible for Medi-Cal, California’s health insurance program for the poor, disabled, and now for those living in the country and state illegally.

State officials estimate about 90,000 additional people will quality at a cost of $98 million per year, AP reported.

Gov. Gavin Newsom announced his plan in January to bring back the Affordable Care Act for Californians — Obama mandated health care — as well as cover the health care of young undocumented immigrants. “Newsom’s plan to reinstate the individual mandate to force healthy people to buy the state health insurance, is one way to fund this,” California Globe reported. The individual mandate imposes a hefty tax on those who choose not to buy health insurance.

Unresolved is Newsom’s plan to provide $800 million in tax refunds for low-income people – a state EITC – earned income tax credit, which provides an earnings subsidy to low income families with one child. To pay for this refund, Newsom proposed adopting some of the Trump federal tax code changes – and limiting deductions for business losses. Trump’s 2017 tax law cut the corporate tax rate, reduced personal rates across the board, and did away with the State-and-Local-Tax deduction known as the SALT deduction.

Public schools are always one of the state’s biggest budget slices. In Newsom’s budget California public schools will receive $102 billion next year. “When all funding sources are accounted for (federal, state and local), the budget package includes $97.2 billion for TK–12 education,” the California Department of Education reported last year.

Gov. Newsom proposed in his May Budget Revise $650 million in additional grants to homelessness agencies and local government to help fund emergency shelters, housing assistance, and new construction, adding up to $1 billion in spending on the homeless in the Golden State. This was approved by lawmakers in Sunday’s budget committee meeting.

The budget conference committee however, sent their approved budget bill package to the governor somewhat unfinished and with placeholder language, the way they do with spot bills.

“The Budget Conference Committee held lengthy meetings on Monday and Tuesday of last week to close out the differences the two houses had on the budget. Then the Governor’s office, through the Department of Finance, the Speaker of the Assembly and the President Pro Tem of the Senate spent the next few days hammering out various compromises with practically no input from the minority party,” wrote Sen. John Moorlach (R-Costa Mesa) Monday in his official blog.

California Globe understands there will be much negotiating and horse trading before the fiscal year end of June 30.

This is the new budget process that took on a life of its own once the majority vote budget and deadlines took place under Proposition 25 in 2010. Prop. 25 ended the requirement that two-thirds of the members of the California State Legislature had to vote in favor of the state’s budget in order for the budget to be enacted. Prop. 25 also requires state legislators to forfeit their pay in years where they have failed to pass a budget in a timely fashion, but this has never happened as lawmakers now send an unfinished budget to the governor, and negotiate until years’ end.

Once lawmakers realized that they could pass major state policy – not through the proper committee process which include public hearings, public oversight – but through a $1,000 appropriation in a trailer bill, too many of the big changes in the budget are now buried in massive quantities of text and decided behind closed doors.


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