California Update: AI to the (Fiscal) Rescue; Spencer for Hire in LA?

- It is Wednesday, May 20th, 2026, and you're listening to Matters of Policy and Politics, a podcast devoted to the discussion of policy research from the Hoover Institution and issues of geopolitical, national local concern. I'm Jonathan Reus, and every month I have the privilege of moderating a discussion on politics and the economic situation of the Golden State with two Hoover fellows and experts on these issues. Bill Whalen and Leo Hanian. Bill Whalen is the Virginia Hops Carpenter distinguished policy fellow in journalism and the regular host of the show. And Leo Hanian is a Hoover Senior Fellow and Professor of Economics at the University of California Los Angeles, both right for Hoover's web channel, California on your mind. Good day, gentlemen. How are you doing?

- Doing well. Jonathan Lee, hold up okay with the June glue.

- Good to see you, fellas. We, we had 90 degrees yesterday here in Southern California.

- Outstanding,

- Wonderful. Gentlemen, let's begin by discussing California's financial house. Governor Newsom last week announced the May revision to the new budget for the coming fiscal year on July 1st. Highlights of the May revise include a $16.5 billion unexpected windfall that erases earlier projections of a $2.9 billion deficit within that $350 billion proposed budget. As a result, governor Newsom claims that California will be deficit free over the next three years. However, the budget works out with this level of 350 billion. It works out to be approximately $27,000 per household. A 73% increase from the $201 billion budget he inherited in 2019. Lee, in your column for California on your mind this week, this week, you write that the concentration of tax liability on the top 1% of earners is enormous. They're shouldering roughly 40 to 50% of revenue. First Bill, can you take Governor Newsom at his word on deficit reduction? And secondly, Lee, what does this tax concentration on the wealthy mean for the future of California's economy? I'd also like to get your perspective on the potential of the billion dollar tax that is about to qualify for the November ballot. But Bill, why don't you get us started?

- Well, having worked in Sacramento, I can tell you that every governor puts his finger on his thumb on the scale when it comes to the budget. California's required to have a, a balanced budget by law, unlike the federal government. But to balance it, you get into all sorts of shenanigans. For example, governors traditionally will anticipate revenue. They know it's not gonna show up. And so you have deficits moving forward in that case. Here is my concern about the, the governor's budget proposal, and I'd like to get these thoughts on this as well. So the governor did one thing in January that turns out to be very smart. He kind of lowballed revenue expectations so that when more revenue came in, it would make for an easy balance of the budget. But he got very lucky in that the, the aforementioned tax windfall that you mentioned, Jonathan, 16 point half billion dollars, 12 billion of which came in the form of capital gains. In other words, the stock market is coming to California's rescue. And the question here, Lee, I'm gonna turn to you on this, is this really any way to run a railroad in this regard? You were just spending money year over year, hand over fist and just trying to find ways to keep up with it. And so in this case, the state of California literally found money under the sofa, which was this newfound tax, tax windfall. But the problem is, Lee, I don't see how you could keep doing this year in and year out just hoping that the stock market's gonna rescue in the capital gain. So your thoughts, Lee?

- Yeah, bill, well, yes, it's a little like praying for rain and rain comes. That's not really a way to run fiscal policy for a state. So we did have a bit of a revenue waterfall, and that comes typically from IPOs or big top big, big capital gains on stock sales. And you know, the budget has increased just remarkably. Jonathan, you mentioned 73% during, during, you know, since the time the Newsom has been governor, it was, the budget was about 201 billion in Browns last year, and it's looking to be 3 49, 300 50 billion in Newsom's last year. So that's just an extraordinary increase. I don't, I don't believe there is any state in the country that has a similar percentage increase, including states such as Texas or Florida, which have had substantial population gains, whereas California's not had substantial population gains. And the reason we can, the reason California can spend so much is because there's just a handful of what I call the golden geese, extremely productive high income earners who do, who are engaged in IPOs and in in capital gains on asset sales. And this is where with a lot of the money comes from in 2021, for example, the about the top 0.05%, to put that in perspective, about 5,200 tax filings out of roughly 18 or 19 million tax filings in California, about 5,200 of those paid 30 billion in personal income tax revenue. So that's just extraordinary. But Bill, as you noted, you just can't count on that.

- Right? So Lee, I went back and I, I looked at a couple other states to compare their budgets and here's what I found. So I turned to Florida, which is of course Gavin Newsom's favorite nemesis. Ron DeSantis, R DeSantis, who like Gavin Osom is finishing up his second term. I will, will leave office next year. He comes into office in 2019, Lee and Jonathan, he signs a $91.1 billion budget, which by the way included about $130 million in line item of vetoes. We forget the governor of California has line item in Vito authority could pair back the budget if he so chose the last DeSantis budget proposal. Lee came in at $117.4 billion. So if that gets approved, my crude math tells me that's about a 29 30% increase since he's been in office. So that's not half of the, of the Newsom spinning spree. So, okay, you're saying Waylon, you're being a partisan hack here. You're picking on a Democrat by pointing out a Republican. Well, let's look at another Democrat who's running for president, we assume, and that's Illinois governor JB Pritzker, the first budget he signed. And he too, like Newsom DeSantis is a finish of his athe office. First budget he signed in 2019, Lee is $40 billion. The last proposed budget in Illinois is $56 billion. If that goes through, that's a 40% march on his watch. But you know, still a lot of spending, but not quite California's. Lee, I would point you back to May of 20, 23, 3 years ago when Governor Newsom in the same position he was last week with the May revised to the budget, he steps up to the plate. And keep in mind, this is a very kind of unusual time in California. It was only eight months after the governor, excuse me, excuse me, I've got the story wrong here. This is January of 2023 when he's rolling out his budget proposal for that year. This is eight months after the previous May revise when he had trotted out the then record $97.5 billion surplus Lee. And what was Newsom doing? He was breaking the bad news that California was staring at a 22 point a half billion dollars deficit. So Lee, you remember this, you've written about this. You went from 97 point half billion dollars in surplus to 22 and a half billion dollars in read, $110 billion swing. Fantastic if you will. And what was telling about that moment, Lee, was that the governor trotted out a chart and the chart showed the ups and downs of capital gains as a percentage of personal income. Lee, it had reached a peak of 9.7% in 2021. And what Newsom showed in the chart, it was expected to decline by 5% by 2025. So you're saying big deal, 4% swing, well that's tens of billions of dollars in revenue when you have a 4% swing in in taxes like that. But the point is, Lee, the governor back then was saying, look it, capital gains are volatile. We can't live like this. But here we are in May of 2026 Lee, and it seems we're still living by the same rules.

- Yeah, yeah. Bill, this has been a problem with California for, for decades because you, the budget is so highly dependent on personal income, tax revenue, personal income tax revenue is so highly dependent on the top 1% and their incomes are viable because the stock market goes up and down and sometimes there's a lot of IPOs and sometimes there aren't. So it's a revenue rollercoaster. There's either a waterfall or, or a trickle, and that's just not a stable way to run a state's fiscal policy. Just, it just doesn't make really much sense. And when you look at the amount of revenue that's generated, it comes from those, you know, remarkably high earners and also a very high top tax rate, which is about 13.3%, which I believe is the highest in the country. And that 13.3 can rise to as much as 14.4% on wage income. The tax is a nonpartisan research organization. They study taxes and fiscal policy for the US as all, and also across the states. And they rank, they rank the states one to one to 50, one being the one being the most competitive. California is ranked number 48 in terms of tax competitiveness. And big reason why is because the extraordinarily high tax rates on personal income on the top earners.

- Okay, this would be a good time to point out that I, by the way, got my $3 refund from the state of California the other day. Do you guys know how frustrated it is to get a $3 check from the state of California?

- What are, hey, but what are you gonna spend it on?

- Probably the gas it'll cost to go to the bank to cash the check is what I'll do. It's, it's frustrating just to deal with the $3 check. And I almost expect the ATM to spit it out saying, are you serious? Okay, credit the state of California for giving you the money back. But $3, $3 gets you, I think, I think you go to the store, I think candy bars are now $2 or two for $3 or something like that. So I could, I could get two candy bars, less than half a gas and cake, less than, less than half a gallon of gasoline. But thank you. State of California. But so Lee, this is all very interesting. So here we have a California, the top 1% of households provide 40 to 50% of all personal income tax revenue. And yet there's this idea for it's soon to qualify for the ballot, we'll see if it actually goes on the ballot. And this is the idea of taking away 5% of all California billionaires wealth. So Lee, tell me how this makes sense. Well,

- Yeah, it does make sense for me, kinda a policy point of of view because a wealth tax on Californias means a wealth tax on California billionaires means that California billionaires will move elsewhere. And not only we take, will they take their wealth with them, they'll take their incomes with them as well, and they will be no longer filing California income taxes. They will go to states such as Texas or Florida and Nevada to establish primary residency. So this can really, really backfire. Bill, those who propose the initiative are trying to get around the, the problem I just mentioned about people voting. I'm sorry about people leaving. So they put in a limit that you, that you, anyone who was a resident, I think before January 1st, 2026 would be subject. And then, you know, bill, what did you see? Well, the co-founders of Google, Larry Page and Sergey, Bryn, I bel, it appears they both are leaving as of January 1st. Peter Thiel, venture capitalist is moving to Florida. Travis Knik, who founded Uber is left interesting outside of tech. Steven Spielberg, who directed Jaws raised the lost dark Jurassic Park. Everyone knows who he is. He is also left, I believe, for New York. And then before that, Elon Musk left to, to Texas, Larry Ellison who founded Oracle, left Charles Schwab of of his eponymous firm left. So this is just simply not good tax policy because the, those who have that kind of wealth can very easily manage multiple homes. They can spell, still spend substantial time in California if they're able to establish residency in a low, in a low tax state. So I just, I just don't get this bill. You know, governor Newsom came out saying that I don't support this at the state level. That is correct. He, that's the correct response. But you know, bill, this came from the Service employees International Union, roughly, roughly about a year ago. You know, I would've liked to have thought that the governor would've, would've tried to shut this down because just the anticipation of a wealth tax is leaving some of the most remarkable Californians to leave. I'm disappointed that he didn't show much leadership in this regard and just waited several months to say, oh, you know what? I don't support this.

- He could in theory, shut it down, Lee, in this regard, it is about to qualify for the ballot. I think they have the signatures in hand to get on the ballot, if you will. So it could be go for November, but what the governor could do is he could sit down with the, with the union and say, okay, you know, will it take to call this off? They're gonna want a lot of money. And this, this is the question I want you to address here, Lee, I'm curious about the long-term effect of this initiative that goes through. Just to clarify again what it, what it is. It says that if you're a billionaire in California, if you have a billion dollars worth of wealth and you live in California, the state of California is gonna get 5% of your wealth and you can collect it over a five year period. And as you mentioned, if you leave California, you're still subject to it. So there's a constitutionality question as well, I think Lee, but I'm concerned about the long-term prospects in this regard. You tell me which one kind of has you bothered. One is the fact that you are raising this one-time source of money for what's gonna be permanent spending in the budget. In other words, you're gonna take all this money, you're gonna put it to healthcare programs. It's not like those healthcare programs are gonna end after five years. You're gonna have fewer billionaires to tap into, in theory less revenue, but still these programs in place. So what you're gonna have to do, Lee, you're gonna have to either renew, you know, two twos, renew the tax, but then probably lower the threshold for who pays. So instead of now having, you know, a billion dollars in wealth, you're gonna have maybe nine figures of wealth as the, as the kicking point. And then once you burn out of the nine figures of wealth, you have to go down to eight figures of wealth. And on it goes, in other words, Lee, it's sort of like when we pass a temporary tax increase back in the 2010s to tide us through a budget problem. And that's about to get renewed. So you know it very few things as a temporary tax increase in California. So does that concern you, Lee, or is it the picture of driving billionaires outta California and do billionaires take their businesses with them, which means ultimately jobs and for future billionaires coming into California. Now there's some billionaires who are very happy to stay here. Jensen Wonger, Nvidia, for example, said he'll gladly give the money to the state of California. He doesn't have a problem with this, but Lee is the, is the, is a concern here, one of what they call in the Midwest a brain drain that you're just gonna drive billionaires out and ultimately with them drive out business, drive out creativity, and California loses its edge.

- That's the real risk. California is a very special place, but there are substitutes for California, including the areas of tech, such as in Austin, Texas, where tech firms, including Apple, have made enormous investments. The real risk is that no government programs ever temporary, no taxes ever temporary. So there, these people are smart. They know that, you pointed out that you pointed out the, in the surtax increase in the tax rate to 13.3% backs in 2010, that was under Brown, that was under, you know, the mother of all budget crises where California was issuing essentially IOUs. I mean it was almost to we, we were almost to the level of Argentina, right?

- But that was supposed to originally last four years, Lee, and then it got renewed after four years for another 12, and it's about to get renewed again. So again, beware of one time or be aware of anything advertised as either one time or temporary.

- Yeah, that top rate, that top rate hike was supposed to be temporary and it, and it, I believe it also included a sales tax, sales tax hike that was, that did did turn out to be temporary, but the tax on the top was not temporary. So highly creative people, highly predictive people, they're well paid, they have the capacity to have multiple homes and you know, no one feels like, you know, no one, even when you can afford it. Nobody likes feeling like they're being leased and nobody likes seeing their money burned up and go down the drain. And, you know, bill, when you look at this budget and roughly a 73% increase over the governor's two terms, you know, I mean, I'd like to ask, I'd, I'd love to hear from a California news who says, yep, I can definitely feel I can definitely feel better or more public services and goods today than eight years ago. Yep, I can definitely see that. And here's where I can see that. I would love to, I would love to hear that from someone because I just don't see it personally and you know, we all pay taxes and you wanna see that money being used effectively, you wanna see it going to goods and services that you benefit from that other California's benefit from. And it's just hard to make the case, in my opinion, that that 75% is really moving the needle.

- By the way I'm seeing up here in the Bay area leading Jonathan ads against the billionaire tax already. And this barely happens in California politics where you advertise against something before it qualifies for the ballot, but yet the ads are out there. They mentioned, by the way, the Hoover institution, I think what they're referencing, Lee, is a, a study that our colleague Josh Ra put together on the effects of this. I think he estimates it's a $25 billion hit to the state budget. So if this does go in the ballot, you're headed for a real, real fierce fight over the airwaves in California. And it'll be fascinating because on the one hand, there'll be the arguments of good government and we'll see if Gavin Newsom and and company lead that argument. And the other side it's gonna be just full fledged progressivism, just, you know, billionaires are bad and let's take their money and let's redistribute the wealth and be very curious to see California's obviously a progressive state. I'd be curious to see how strong of a message that is.

- You know, it's interesting. Yeah, Joshua, this study that comes to very different conclusions than the conclusions reached by, I believe was Emmanuel s is an economist at Berkeley. I've, I've known him for an awful long time, probably 25 3 years. We both came outta grad school about the same time. And you know, it's interesting, Josh has been, Josh has been on much more of the right side of the predictions that come from tax increases. He wrote a paper several years ago that made the point that that 13.3% increase didn't generate nearly as much revenue as what the state was expecting because they don't take into account adequately the idea that people can get around taxes. One way of getting around those taxes is to relocate to another state. And you know, it's interesting in terms of this tax, in terms of the wealth tax, yeah, I can see the ad, the ads will be things like Trump has cut funding enormously for healthcare. We need to restore those cuts. The billionaires can afford it. It'll be just a one time thing and please vote yes. And that's what, and that's what it's gonna be. And I hope voters are able to see through this because you don't kill, you know, the, the number one, you know, when you take a course in public sector economics, whether it's undergraduate or graduate, both SaaS and RO are experts to this area. But the first rule is don't kill the golden goose. And the golden goose is the one that where you get your revenue from. And what we're seeing, what I'm really worried about is that we're killing the golden goose. We lost Elon Musk, huge loss, enormous loss in terms of his creativity and what he meant to California. And in terms of how, how big of a check he wrote, we lost Charles Swap, we lost Larry Ellison of Oracle. We lost the co-founders of Google. These are, you know, one in 10 million people and you do not want to lose them, but we've lost them. It's bad for the state, just, I'm just really worried You've got a 75% budget increase, which is not sustainable. And we just can't continue to have continued demands for more and more and more and more tax revenue, particularly from those who are most able to leave.

- Jim, let's also talk about a related topic and that's the AI bonanza where billions of dollars are getting flushed through the United States and California. There's three companies and anthropic open AI and SpaceX who are expected to hold their IPOs later this year. And they're expected to generate enormous revenue for the state of California. If you recall Facebook more than a decade ago, generating $1 billion in revenue for Sacramento after $100 billion valuation. These companies will produce several times that. But I wanted to ask about the potential downsides of AI for California. There'll be more wealth generated for sure, notwithstanding the revenue volatility we just spoke about. But will unmitigated AI mean equality of opportunity for Californians? Lee, can you talk about that?

- Yeah, you know, the huge question within economics and public policy and you know, the economy more broadly is how AI will change our economy, change our society, change the demand for workers of different types. There are some economists who think this is gonna be doomsday throwing NASA mobl at MIT Nobel Prize winner has the view as a very pessimistic view. I have a optimistic view, but frankly no one knows. These are really, all these are really educated guesses. But the reason I'm not so pessimistic is because the economy has always been, has always evolved on the basis of labor saving technological change. You go back to the 18 hundreds and nearly one outta two workers were on the farm. In other words, we needed 50% of our workforce to produce the food we ate to stay alive. Today that's under one out of under 1% to produce all our food and export food to other countries. So technological change in the past has always opened up other avenues for people. Human beings are incredibly, we simply don't know what the worker of 20 years from now will be like and how complimentary AI can be. I mean, in my own world, AI is remarkably complimentary. It is not a substitute for what I do, but it makes me, you know, incredibly much more productive than I would be without it. You know, a broader, a broader concern I have about California California's IT sector is that you is that it just simply hasn't had the underlying strength that it once did even before ai. So if you go back to, you know, nine or, you know, 1998 or so, there were about as, yeah there were, there were only a few, a few, a few less workers in it in 1998 than there are now. We had enormous growth in it during that time. We were, you know, by far and away the leader in it. But as we see Apple and Microsoft and, and Google establish hubs in Florida and Texas and as we see newfound companies that could be onto unique technologies, including, including recycling lithium, which is a rare metal and goes in batteries for EVs and, and and phones. We lost a company to Nevada. I just, even without, even without ai California's IT sector was not the same as it was back in the 1990s. And so that's a bigger concern I have because whatever AI does it's gonna do to the country, California needs to worry about the our own problems which are leading to an IT sector that doesn't have the resiliency or the dynamism. It had 30 years, 30 years ago.

- Yeah. So one thing we know about AI is it's gonna be very good friends for the, for the next governor of California in this regard. Jonathan, you mentioned SpaceX and it's possible IPO, which could be in 2026 or they may push it off into 2027. But that means is that if you mentioned the Facebook IPO, which is a hundred billion dollars, the SpaceX IPO Lee and Jonathan I've seen estimated at what, something like $1.75 trillion. So that's 17 times the Facebook IPO, I'm not sure if that would translate to 17 times more the windfall for Sacramento, but it means a bunch of cash is gonna come tumbling in in theory to the state next year. But there's a downside. And the downside we saw this week with Governor Newsom going to Washington DC, which was supposedly a state visit, he went to meet with Lee Elden, the EPA administrator and try to take care of some other California business. But he also found time to give remarks at the Center for American Progress, which is a very progressive think tank in Washington. And basically it's a preview of a 2028 campaign. And Newsom was asked about AI and he kind of quickly went into juggling tap dance mode in this regard. He looks at surveys like Lee mentioned, and he sees that young people in particular really, really, really are afraid of ai. So he is not gonna outright embrace it as a politician. On the other hand, he's gonna accept it as a guy who wants to be futuristic as a Californian. He has a real juggling act here. And it is a combination of job displacement. I think something like 120,000 tech jobs were lost in this country last year, half of them from California. So it's a problem in the California tech sector, but then lead the ongoing bouncing act that is California. One thing about ai, AI takes the shape of data centers. You can help a rural California economy by putting a data center out somewhere in the Central Valley or beyond. But there's a problem, Lee, these data centers are very thirsty. You know, what else is thirsty? Agriculture. So now is now's a California governor, you have to make a choice to who gets the water, the data center or the farmer.

- Yeah. Who gets the water, the data center or the farmer and who gets the electricity? Because the data centers are just energy, energy hawks. And we don't really have the, we don't really have the state electrical infrastructure and grid to support enormous investments in data centers. And we would like to have those thought leaders here in California, but if we don't, if we can't give them water and we can't give them the electricity, then they're off to Texas. So yes, on the one hand there's gonna be another revenue waterfall from these IPOs. But on the other hand, you know, California just has not been a leader in terms of looking down the road and saying what do we need to do in terms of the basics, electricity, water, and natural gas, all of those, all of the, all of those are challenges that are faced in the state and you know, we just keep kicking the can down the road regarding those investments.

- Well, it's one more policy matter missing from a rather policy like governor's race. Jonathan, shall we talk a little politics here?

- Sure. So we're in the home stretch of the California gubernatorial primary. The race continues to be fluid with former California Attorney General and Health and Human Services Secretary Javier Basser, and the lead with 19% conservative media personality, Steve Hilton and liberal billionaire Tom Steyer each holding its 17% according to a recent Emerson poll. And the rest of the field are, take each taking up some small smaller percentages of vote Bill, could we potentially see a Republican in the top two of California's open, open primary process? And could that, could that candidate be competitive in a runoff?

- I'm not sure the candidate could be competitive in a runoff given just the imbalance between Democrats and Republicans in California. It's a two to one disparity, but I think a Republican will make the runoff. And I believe that Republican will be Steve Hilton. Late last night, the California Democratic Party released a poll that it did so by beware, it is a California Democratic Party poll. But here are the numbers that came out with Steve Hilton Republican, 22% Javier Bera, former state attorney general, former federal health secretary, 21%. Tom Steyer, the billionaire who just seems to have endless spending ability in California. He will spend about 200 billion million dollars in his primary by the time it's over, he's in third place at 15%. Chad Bianco, Republican Sheriff of Riverside Counties at 10%. Kenny Porter, former congresswoman, ran for the Senate in 2024. She said 7% and San Jose Mayor Matt Mayhan at 4%. So you believe that poll, it's a Hilton Becerra runoff. And I probably find that believable. This is a fluid contest in this regard. The Emerson poll, whose numbers you're referring to, Jonathan, it showed that about 12% of the public was undecided and 28% were willing to change their vote. So that's 40% of the vote. That is fluid, that is willing to move. That is incredibly volatile at, at this point in the California campaign where usually you have a, a pretty entrenched front runner. The one thing I noticed, Lee, is kind of the sheer ugliness this campaign at this point. And there seemed to be kind of two basic lines of attack. There are pro Tom Steyer ads that accuse Javier Becerra of all sorts of horrible things. Probably the worst one being that he is a puppet for Chevron in big oil and fossil fuels. On the other hand, pro Besera anti Starr ads accuse him of profiteering as a hedge fund guy. Just kind of a phony progressive, if you will. Nothing positive or uplifting going on here. So it is kind of proverbial race to the bottom of that regard. Lee?

- Yes, well, well put a race to the bottom. So I've seen ads from Porter Sty, Basser, you know, fi firing shots at at each other, not so much people firing shots support her because she's so far behind now. But I've seen articles about Steyer essentially paying just flat out paying people on social media to post about him, which is, you know, obviously concerning, you know, Besser iss a very interesting case because he was nowhere for months and months and months. He was nowhere in terms of the polls. 3%, 4%, maybe 5%. And then swallow has to drop out. And then, you know, all all of, well, I shouldn't say all swallow support, but you know, enough goes to besera that suddenly he jumps up. And I don't really, there's nothing different about Javier Besera between today and six months ago, except that now he's perhaps the leading the leader in the poll, depending upon which poll you look at versus being nowhere in sight.

- Yeah,

- A a couple of months ago. So my, my guess is that behind the scenes, the state democratic party is throwing its support behind him. I don't think Steyer's particularly favored within the state party. I don't think he has a particularly good relationship with the governor at this point. The governor obvi, of course, has stayed out of this. But, you know, and I haven't met, you know, I people, a number of people asked me, well, you know, who, what do you think about these governor candidates? And who do you think I should vote for? And I don't give people advice on who they should vote for. But no, I haven't met a single person. And I talk to Republicans, Democrats, and those without party affiliations. Nobody is excited. I'm in, I'm, I'm, I'm curious that Matt Mahan has not gained traction. He is obviously very intelligent, very well spoken, although I think his presence demo doesn't come across as well as it should on debates. He has had some, a number of policy wins in San Jose, and yet he is what, around five or 6%,

- 4% in that poll that I mentioned. You know, the, the, the Behan thing is, is curious in this regard. I see a lot of his ads here in the Bay Area. I'm not sure why they're spending money in the Bay Area advertising when they should be down in southern California trying to name his raise. Id raise his name id, but that's for his strategist a question. And his ads, he talks a lot about San Jose, which I can tell you is kind of an afterthought for a lot of other Californians. They don't look at San Jose the same way they look at San Francisco or Los Angeles. It just doesn't have the same big city appeal. So that's a problem for him. Maybe I'm gonna give away my age here and my generational bias, but in the ads he's walking around with his shirt pulled out with a three day scruff. He looks kind of like a venture capitalist or a tech bro. He doesn't look like a leader. So I think that's kind of a problem as well. But then just the message, he has not really called out the status quo in Sacramento the way I think he probably should have. But here's the challenge. He's a young man. He sees the future obviously running statewide, which means he has to be playing a long game for 2020 for 2030 or beyond. So probably not a good idea to go scotched earth in this campaign and come back and fight another day. But you know, Lee, you mentioned that Javier Becerra, nothing's changed about Javier Becerra over the last six months, but I think what changed in the race is this regard. I think that people in democratic circles, especially those around the governor, looked at these candidates and they looked at Steyer, who wants to do the billionaire tax, he wants to do single payer healthcare. He, they looked at Katie Porter, who is a very ambitious Elizabeth Warren kind of politician in her bet as well. They just didn't see a Democrat they liked, but they saw Javier Besser and I think they saw somebody they could work with. And I think Becerra translated out of Spanish very loosely means status quo in that regard. That it's a continuation of Newsom policies, if you will. I don't know what Javier Becerra would do if elected, because his ads are kind of very vague. It's a lot of bashing at Donald Trump and pointing out that he sued the bejesus outta Dr. Donald Trump when he was Standard Attorney General. But again, getting back to our comment earlier about AI and other policies, I'm not sure where he would take the state. Good luck, California.

- Yeah, I'm not sure where he would take the state. I not sure whether he would know what to do. And he's a person who has, he was what a health and human services director in the Biden administration. But I can't find any evidence, even from the Biden administration that he played a particularly important role. That he was particularly highly regarded, that people thought he did a great job. There's a lot of discussion including a, a New York Times article that's gotten a lot of attention about losing 85,000 children. And he says, no, that's not what it meant. We called them up and you know, we, you know, nobody, nobody, nobody called us back. But, you know, just pushing that aside, you, what you, if you look at Javier Besser and say, okay, where, where's the big policy idea? Where is the accomplishments that will really make me wanna vote for this person? I just don't see that there's a lot of the, you know, I, I've, I looked at, you know, when, when the major issues of California, of course is housing. So I looked at his, I looked at his website and I'm just not seeing the type of any, anything beyond really. We're gonna build more housing and we know the cost of of building housing is too high and you know, we're gonna get it done. That sounds like what Gavin Newsom said many, many years ago in which housing permits today, you know, they're very, they fluctuate a lot over, over, over the months. But if you average 'em out over newsom's newsom's two terms, even taking out the COVID period, it's not like the needle is moved. They're really not any different than it was before. And the number of people have pointed this out. So the issue is, are you able to identify the key problems with why California isn't building more housing? I don't think he has actually, Tyre, in my opinion, has better, has better ideas on housing than be Sarah. But yeah, bill, I agree with you. The, the state democratic Party feel like he's gonna be the anointed one because he will be the guy that doesn't make the change. And what really worries me about that is that every time you elect the person, that's not gonna make the change. You just get more of what you've seen and what we've seen in the last few years in California is not really what we want more in the more of in the future.

- Now Newsom ran in 2018, as you mentioned, with a very ambitious agenda, especially on housing as so-called Marshall plan for housing, as he called it. So maybe we should go easy on beating up these guys, not having a lot of ideas because it's not so much where you start, it's where you finish as governor. But I'm looking at the Steyer campaign in this regard. So he, last report, he has spent at least $150 million in the primary. So I'm just at featuring surprise himself, adjusting for inflation. 'cause that's 150 is now, we're now well past that. So he has now beat Meg Whitman's record in 2010 she ran for governor and she spent 144 million of her own dollars in that effort. So he is now, he's now set a new record for that. I did a little math here, gentlemen. So if you go back to the 2018 primary John Cox, the Republican finished second four, four, 4,742,825 votes. So if Steyer in theory has to get one more vote than that to finish second, if it's gonna be the same turnout, blah, blah, blah, that translates to about $40 a vote, maybe $45 a vote. I just wonder if it would've been more efficient for him just to get on the air with one ad and say, if you vote for me, I'll give you 45 bucks, which maybe will get you six gallons of gas, but good luck folks. But, but no,

- That'd be six to seven gallons depending upon where you buy and depending upon if you get 91 or 87.

- Yeah. Another surprising dynamic of this election cycle is the, is the fact that the early voting shows 37% of ballots from GOP voters. Yeah. And then also Gen Zs and millennial millennials in 18 to 34 age group only accounts for 10% of ballots. Bill a question for you that the early voting portion, how, how significant is that for Republican competitiveness in this race and then also regarding the Gen Z and millennial factor? It reminds me of a policy story that you did for the Hoover hoover.org series in which you talk about boomer leadership fading. Is this a fact? Is this the lack of interest in this election from millennials and Gen Zs? Is that that a factor that many of the candidates are indeed from the boomer generation?

- Yeah, I think that's one of the problems here. So the media in California been running around writing this story asking is California turning red? This is based on early voting returns, as you mentioned, Jonathan. It showed 37% of ballots that came in were for Republican candidates, and that's up 11% from 2022. So does mean California's more conservative? No, I think that's kind of Lucy and Charlie Brown in the football in that regard. If you're Republican, you have a very easy choice. It's a binary choice. It's either Hilton or Chad, Bianca, one of the other. But as Lee mentioned, if you're trying to choose a Democrat, you're still trying to make sense of this field. And so I think that's really what these ballots represent, more so now that California's becoming more conservative, but just the, the Democratic choices aren't that clear. Now, the 18 through 34 H Group, gen Z and millennials, Jonathan, that's a problem because only 10% of the ballots return belong to them. I think they're just largely turned off in this election. They're turned off in part by just really nobody is offering something invigorating in terms of a policy idea. You know, Tom Starr goes on TV and talks about the billionaire tax. That's not invigorating though. That's pound to flesh politics, if you will. So I think young voters are looking to get turned on by someone, if you will. And I think maybe that's a good seg for us to turn our attention to Los Angeles and a candidate who is doing a lot of things that in theory would appeal to young voters, including some very gonzo AI induced advertising.

- Yeah. Another surprise, Spencer Reality TV star Spencer Spencer Pratt's rise in the La mayoral race. If our viewers remember Spencer Pratt lost his home in the Palisades fire over a year ago in that event, motivated him, motivated him to throw his hat in the ring for mayor of Los Angeles. He's running a quality life issues wildfire, the Ford ventured wildfires, homelessness, crime, water, et cetera. And he's running effective and amusing social media campaigns in preparation using ai. In preparation for the show, I just saw one of Nancy Pelosi, Karen AB Bass, and others singing a spinoff of the Mamas and Papas California dreaming singing California Burning Bill. What explains Pratt's rise in the cycle? And will he, will he be competitive as in this race?

- It's easy to dismiss this as well. This is the power of AI advertising, if you will. And yes, it's The Mamas and Papa's Ads is another one, which is done to the tune of troop, actually cures California love Lee and Jonathan. There are ads that are straight out of the Comet books with Spencer Pratt as a lightsaber wielding superhero. And Gavin Newsom is the Joker outta Batman and Karen Bass, the mayor of Los Angeles, is kind of a grinning fool and so forth. And boy, it is eye candy. But I, I think a couple things are going on here. First of all, I'm having very bad flash personal back flashes, flashbacks to 2016 when I gave a lot of talks saying that Donald Trump was just not gonna go anywhere in politics. And boy was I wrong. Now, I'm not saying that Spencer Pratt is Donald Trump, although Trump did come out earlier today and didn't quite endorse him, but he said that he likes Pratt a lot. He's a MAGA guy he thinks, and so that'll become an ad if Pratt makes the runoff. But I think Pratt is doing two things here. One, he, he has found a, a way to stay in the news and advertise through AI and just kind of his message, discipline to stay in the news. But secondly, he's just tapping into something there that we all underestimated. And that's just the very sorry state of Los Angeles as an incumbent. The last thing you want to do is to be put in the position of trying to defend the indefensible and be it the Los Angeles fires, be it the condition of homelessness in the city. The city's inability just to do fundamental services. The city's just kind of hostile relationship to the business community. Mayor Bas finds herself in kind of an invincible spot. So maybe that should mean that Ni Ramen, who's the progressive council member, who's the third person this race, maybe it's opening for her know, she seems kind of also kind of out of the same bad deck of cards. Here's somebody who is running in a early June primary and she has the great idea to suggest the other day that maybe people in Los Angeles should not be allowed to have backyard barbecues when there's a threat of fires. Well, good luck. Good luck in the short ham saying, well, you know, Memorial Day is fast approaching and candidate ramen doesn't. You have backyard barbecues. Bye-bye if you will. I think it's as simple as this, Spencer Pratt is just tapping into Los Angelina's frustration with the status quo. And you see it both invokes poi in terms of him rising in the polls, but you also see it in very subtle ways. For example, I was watching a Lakers playoff game a couple weeks ago, and there was Pratt sitting in the second row right off the court, you know who seats he was sitting in GD bus, who's family sold the Lakers recently. She's the billionaire by the way, probably upset about that tax as well. So I think there's just more there, there than we thought about. But Lee, you're in Santa Barbara, you're closer to the grads. What, what do you make of the rise of Spencer Pratt?

- You know, bill, interesting that he was sitting in the second row. I know that Jeanie Buss has donated the maximum to his campaign. Now she may have done the maximum to Karen Bass and, and Rama as well. I don't know. But what I can tell you is that there are many very democratic, very influential, very wealthy people in Los Angeles that are just fed up with Karen Bass. The, who typically would not vote with. Now, I don't know, is Pratt is, is

- He's a Pratt's Pratt's a registered Republican. This is a problem in Los Angeles County. Okay. S are 18% of the registered vote. So yeah, if, if he makes the runoff and, and sorry to interrupt Lee, but the way this works is if okay to crack 50%, then the two candidates advanced in November, and most recent poll I saw had ba first place Pratt was in second place with 22%, and Raman was in third place about 18%. So if that poll holds that he advances to the runoff and as a Republican who'll be tied to Donald Trump,

- Yes. So that's the potential problem for him, because that just won't play well in Los Angeles. But there's just an overwhelming level of angst within the city that cuts across any political, that cuts across political parties, across cuts across religion, it cuts across every social fabric that LA is a mess and something needs to be done. And what I find interesting is that not, not that Bass is leading the race, but just that she has any support at all. I mean, you look at what happened with the LA fires and it is just a complete devastation in terms of her leadership, and I think there's wide agreement about that. But though, you know, the union support has gone to bass and I really worry that there's just so many votes now tied to whatever, you know, whatever, whether it's the SEIU or the teacher's unions, whatever union it is that that now seems to make for so much difference in terms of people making choices when something, you know, even for an uninformed voter, if if things aren't going well, then you don't reelect the person that failed. You look for somebody different. So I find it just intriguing that she is, that she's the front runner, but I with your sentiment that it probably will be a runoff between Bass and Pratt. Last time I ran it was a runoff between what Bass and Caruso and Caruso spent an enormous amount of money on that race. I'm, it is interesting that he chose not to run this time. He is a registered Democrat. I think he would've been a, a, a compelling candidate for a lot of people. He would've said, Hey, you didn't pick me last on, you know, look how, look how much better things could have been. I had my own firetrucks in the Palisades before the fires even erupted. But PRT has, PRT has just gone from a guy that was, had a few followers on social media, but oh my god, he is like a dog with a bone. He has just tremendous energy. He has just been all over the Palisades fire. And I think he is, I think he was one of the, one of the individuals who, who identified some of the deficiencies and the fire department's responses. But he has just come out of nowhere and I think people are looking for something different. But yeah, the Republican tag is gonna be difficult for one, if the, if that runoff curse

- Right. He came into nowhere, Lee. But this, this boom started a few weeks back when LA actually had a candidates debate and he and the other two got before the cameras and he did pretty well and became apparent that there was some there, there that he wasn't just some frivolous character. And, and as you mentioned, he was just really on message when it came to the fires. Not long after that he started seeing some negative ads coming out against him and the thinking was, what's going on here? And the thinking was that Mayor Bass is trying to elevate him now to get him in second place because as a Republican and you know, reality TV guy, he's not serious. Pickens come November. But boy, this is, and I attend the Punier. This is playing with fire if you get into a November election with this guy, because he is, you know, he is relentlessly on message when it comes to one thing. And that is the city's awfulness awful approach to handling the Pacific Palisades Fire Lee, the terrible response to the fires and then just what's happened in the aftermath of it. And he just, as you mentioned, he is a dog of the bone. He keeps coming back to it. But the mayor just cannot defend any of this. She can't defend why she was out of the country when the fires struck. She can't explain really why the reservoir was empty. She can't explain, you know, why, why the city was slow to get in there. She can't explain why it's been slow to rebuild and he just keeps coming after us. So again, if I'm Karen Bass, I'd think long and hard about wanting to have him as my opponent in November. I think again, because of the numbers, she would ultimately beat him. But boy, in this political climate, be careful.

- He has been relentless. And Bill, it's interesting, during that debate, he was really sharp in my opinion. And you know, he's not a politician, but you contrast his performance with say, the performance of Steve Garvey during the Senate campaign of, what was that, 24 and the debates with Garvey. He just, he, he, he wasn't there. I mean, I think he's a very impressive person, but he just, he just didn't have the sufficient knowledge base or policy base to really have an awful lot to say. He would simply criticize Schiff and criticize the status quo, but there wasn't really a lot, he didn't have the depth that was needed to make, to move the needle whatsoever.

- Yeah. Well, final thought on this. I'm just, I'm curious to how far the silent vote's gonna carry him. I have friends who Los Angeles like you do Lee, and they're gonna vote for him. And these are not Republicans, they are just fed up with the status quo in Los Angeles. They don't like Mayor Bass, they just really wanna send a strong message to the political establishment. And this is their way to extend a middle finger at Los Angeles by voting for Spencer Pratt.

- Yeah, Aaron Bill, there's, I know people, some, I know people who know people in the entertainment industry, which of course is remarkably liberal, right? And of course they all live in the Palisades or Santa Monica or Beverly Hills, and either they've been affected or friends or family have been affected and they're just flat out, completely fed out. They want change. And they see a energetic young guy who bears his soul and says, I will do better. And look all, look at all the bad things. And he knows all the bad things and he has some sensible ideas for how to fix the bad things. And it's his hard, you just can't push him outta the room. You say, yeah, this, this guy's for real.

- Okay, well the next podcast will either talk about how he got this right, we were very wrong, what's the results are in,

- In wrapping up the show, let's talk about California's place in national politics. Politico had a headline last week, which read, quote, Newsom tries to balance California's books and head off 2028 liabilities. What the author Jeremy White means by that is, as Gavin contemplates a 2028 presidential run, he hopes to blunt criticism that he mismanaged California's finances during his governorship. At the same time, he's promoting California as a successful model of progressive governance, proposing a leaner budget spending cuts and targeted tax increases to stabilize state finances through 2028. Look at me now and look at California now. He'll say after the coming AI cash bonanza we discussed a moment ago, gentlemen, bill, has Governor Newsom effectively shed his vulnerabilities for a presidential run in 2028?

- In a word no, in two words. God no, it's, I read that article too, and I really disagree with the author in terms of his thinking that California's fiscal condition is a, is a, you know, major liability for Newsom. Running for p you know, I mentioned Illinois finances earlier. Illinois is trying to balance books in part by imposing attacks on, on, on internet users, in, on companies that do internet business in Illinois. So progressive voters in theory are okay with taxes. And so keep in mind, Newsom's running for president, he's dealing progressive mindset. I'm not sure that California's finances are really a headache. What I'd look at though is it's not so much the sum, it's the parts of the sum that are probably but newsom here. What is it gonna say when the first attack ad comes out in a, in a purple state that hits him for offering health benefits to illegal immigrants. What's he gonna say? When an ad comes out, which talks about how the Newsom administration handed out 90,000 taxpayer funded tablets and allow inmates to watch porn, what's he gonna say about the 12 and a half million dollar diaper giveaway? One of Lee's favorites that kind of stinks. I think it stinks more the baby poop and that the nonprofit that got the contract has direct ties to first partner Jennifer Siebel Newsom. The bottom line is this, Newsom's gonna talk about California as his progressive paradise, as he likes to call it, a place with no peers, but his opponents are gonna talk about it as Paradise lost. And the problem, I think, Lee, it's, it's very easy to offer visuals to Paradise Lost begins with people on Skid Row in Los Angeles or, you know, lying around San Francisco homelessness, and it goes on. So, no, I don't think he is anywhere positioned to head off the, the attacks that are sure to come. Lee, what do you think?

- No, I mean, he's completely vulnerable. It's, you know, there's, there's a photo of him and, you know, this will come, we'll get tired of seeing this photo of him walking through Skid Row in a beautifully tailored suit. I mean, he is a tall, good looking fella. He is holding a latte. He's strutting along and there's a black fellow on the ground laying on the ground reaching up to him. Yes. With his, you know, his hand, his hand held high looking, looking for a, a handout or just a hand up. And the governor's just simply walking by not even looking at him. I don't fault the governor for not, for not stopping and, and, and trying to help this fellow, they're obviously security concerns, but it is just the most, is just the worst look in terms of an ad that would come out regarding him. And homelessness. And homelessness in, in has increased on his watch by about 30,000, roughly about 30,000, 35,000, something like that. And school quality is abysmal. You just go down the list, there's water, electricity, fires. He, and it's interesting, bill San Francisco Chronicle, you know, progressive Newspaper has been on him for years about not tending to state business. And in a recent, in a recent editorial from their editorial board, they said, as Gavin Newsom is sucking all the oxygen out of California regarding his 28 presidential, and we thought we would talk about the governor's race there. He's, he's a candidate in terms of policy and outcomes that it's just gonna be hard to defend. And I think he'll, I think what he will try to run on is I'm the fighter. I'm the guy that came out of the ashes of the Democratic Party, of the loss of Biden, and I'm the guy that's fighting for the little people and the teachers and the unions and workers and not to have a federal government that overrides us. And I'm, I'm the guy who pushes back against Trump, and I think he's just gonna, I think that's gonna, that he's gonna be a, a, a one trick, a one trick pony as far as that goes. But at the end of the day, I don't think that's gonna be enough.

- No, that's a good observation. So this appears at the Center for American Progress. That's exactly what you did, Lee. He talked about how, you know, Democrats have to fight and, you know, have to push back against Trump on redistricting and other matters. And that could have great potency in the Democratic primary if it comes down to a contest who hates Donald Trump the most. And therein lies the question of how many other governors will be running for president. And if one of those governors say Pritzker or Josh Shapiro in Pennsylvania has the audacity to actually go apples to apples and compare their state to Newsom's, if you will. And then, so start the conversation on California. But the problem is kind of, you know, come the general election, if you will, where California will be put on trial, if you will. It'll be a little bit, kinda like Shades of Massachusetts and Michael Caucus back in 19 88, 40 years ago. But the same general theme of, you know, look at what Gavin Newsom's done to California. And I mentioned, you know, the prisoners and their tablets, for example. What about transgender sports, for example? Newsom's kind of trying to have it both ways on that topic. I think it'll just be very easy for Republican to just point out that Newsom and California are just out of the American mainstream.

- Yeah, I, I mean, but we've talked about this before, but I can't think of a swing state where he plausibly, at least right now, if the elections held right now, I can't think of the swing state that he would win. And of course, you need to win the swing states.

- Well, as always, gentlemen, thank you for your time. Have a great weekend.

- It is Sweet House. Always fun.

- You've been listening to matters of Policy and Politics, a podcast of the Hoover Institution. Don't forget to subscribe to this podcast wherever you might hear it. Also, get alerted to new episodes of the show and the latest articles at California on your mind from Bill and Lee by signing up for the Hoover Daily report at hoover.org/hdr. I'm Jacque Tis sitting for Bill Whalen, who will be back for another episode of Matters of Policy and Politics Next week. Thank you for listening.

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