Eureka

Advice For The Governor: Fix A Bad Labor Law, Beware Of Tax Increases—And Focus On Narrowing The State’s Social Divide

Tuesday, February 11, 2020

If the first month of the first year of the century’s second decade is an indication, Californians are in for a long 2020.

It’s an election year, so rhetoric will be heated and tempers short as the campaign trail runs through California in March, for the state’s primary, then returns in the fall for the general election (the presidential race won’t be contested in reliably blue-state California, but several House contests will).

Already, nerves are frayed as Californians have had to cope with unsettling news in the new year—in the past few weeks, the shocking death of basketball great Kobe Bryant and the fear of coronavirus as it takes root in the Golden State.

As for the government in Sacramento, there’s good news and bad news to report early into the legislative new year.

On the positive side, the state is replete with revenue, thanks to  a vibrant economy (California’s closing in on 120 months of job expansion) and the dollar haul that comes with imposing some of the highest taxes in the nation.

But that tax structure isn’t sturdy—it’s more a teetering man on a unicycle than it is a sturdy mule train. Of the nearly $103 billion in personal income–tax revenue that’s estimated to appear in the state’s coffers by July 1 (the beginning of California’s fiscal new year), 47 percent comes from the top 1 percent of the state’s taxpayers, or roughly 15,000 tax returns.

That income-tax stream constitutes slightly over two-thirds of general fund revenues. Seven decades ago, personal income taxes accounted for barely one of every ten dollars in California’s state general fund.

About the 1950s in California: the decade began with the legendary Earl Warren as governor (he resigned from his office in 1953 to become the fourteenth chief justice of the US Supreme Court). As the decade ended, California was led by another fabled governor, Pat Brown, who fashioned himself as the “builder” of a growing state (freeways, waterways, and universities are all part of Brown’s legacy).

The 1950s also culminated with California addressing issues beyond infrastructure—in 1959, for example, Brown signing the Federal Employment Practices Act, which barred business and labor unions from discriminating against employees or job applicants based on their ancestry, national origin, race, or religion (gender was added in 1970).

In 2020, it remains to be seen if the legislature and the governor can rise to the great challenges of the moment. Take the issue of California’s chronic housing shortage. In 2018, Newsom campaigned for governor on the promise of building 3.5 million housing units in California by 2025, or about 500,000 new homes a year (that’s five times California’s annual home construction rate over the past decade).

While Newsom reeled in a healthy catch of housing-related bills last year, it remains a story of the big fish that got away: SB 50, which sought to reverse California’s penchant for single-family homes and suburban sprawl in favor of dense development around transit centers. SB 50 sat stalled in a State Senate committee in 2018 and 2019. This year, progress was anticipated after the measure was modified in hopes of consensus approval.

But that wasn’t to pass. Three days before the calendar turned to January, SB 50 was defeated in a Senate floor vote (a parliamentary trick was used to pull the measure out of committee and get it before the full Senate). The housing-building governor now has to figure what options he has to kick-start home construction.

There are other Sacramento plot lines to watch this year: In what direction will the state turn in addressing a homelessness crisis that’s grown to become foremost on voters’ minds? Will there be a state takeover of Pacific Gas & Electric, the nation’s largest utility, in the state government’s crosshairs since it first declared bankruptcy and then intentionally shut off power to millions of people during windstorms to prevent wildfires and avoid liability? Can the contentious relationship (or lack of one) between the Trump administration and California’s Democratic leadership grow any worse (it just might, given that the federal government kicked off February by announcing it won’t allow California to collect a health-care tax on managed-care organizations, which could cost California nearly $2 billion annually)?

We’ll see how these and other policy matters play out this year.

In the meantime, in this, the initial 2020 edition of Eureka, we offer some unsolicited advice for Governor Newsom, now in his second year as California’s fortieth chief executive.

This issue includes the following contributors:

  • Robert Lapsley, president of the California Business Roundtable, recommends that Newsom come out in opposition to a “split-roll” property tax measure possibly headed to the November ballot.
  • John Kabateck, past head of the California chapter of the National Federation of Independent Business and a former aide to California governors Arnold Schwarzenegger and Pete Wilson, explains the urgent need for Newsom to revisit the work-restrictive Assembly Bill 5
  • Joe Matthews, an editor and California columnist at Zócalo Public Square and a veteran observer of California politics, explains why Newsom should devote his second year in office to narrowing the Golden State’s regional and social divides
  • Bill Whalen, Virginia Hobbs Carpenter Fellow in Journalism at the Hoover Institution and a research fellow specializing in California and national politics, suggests that Newsom should resist the temptation to dabble in presidential politics this election year—his turn to run for the highest office in the land may be coming in his second gubernatorial term.

We hope you enjoy this latest installment of Eureka—and that it gets you thinking about where California stands and whether America’s nation-state is moving in the right direction.

Happy reading!