Welcome To California’s “4-H Club” Of Policy Concerns

Thursday, January 16, 2020
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For all the storm and fury emanating from the national’s capital, national politics at the beginning of 2020 boils down to three words, all beginning with the letter “i”: impeachment, Iran, and incumbency.

Those first two words are self-explanatory.

Incumbency? That’s the two parties’ ability to dominate the conversation via the institutions they control (the executive branch and Senate, for Republicans; for Democrats, the House of Representatives).

California, on the other hand, is accustomed to a different alphabet soup: the “three e’s” of economy, education, and environment. Woe to the Golden State incumbent lawmaker or candidate hopeful who isn’t fluent in the language of futuristic jobs, better public schools, and preserving a spectacular landscape.

But in early 2020, and after Gov. Gavin Newsom’s unveiling of his proposed budget for the coming fiscal year, it’s a different policy diet in California—what I call the “4-H club.”

That’s not to be confused with the network of youth organizations of the same title that promotes citizenship, leadership, and life skills (the four “H’s” are head, heart, hands, and health).

What are California’s four policy “H’s”?

Homelessness. In case you doubt that this topic is on California lawmakers’ radar, check this November poll that asked Los Angeles residents to list their county’s biggest problems. Homelessness crushed climate change, quality of schools, taxes, immigration, and public safety.

That won’t go unnoticed in new year that’s also an election year. The question: what will Sacramento do about it?

Gov. Newsom got the jump on the legislature last week, signing this executive order creating a new California Access to Housing and Services Fund ($1 billion to combat homelessness, including $750 million in the new fund, he hopes). Newsom’s also made available a supply of camper trailers that can be used as temporary housing and has given state agencies until the month’s end to make available surplus state properties and facilities as shelter options.

But as the year progresses, here’s a question that Newsom needs to answer: not who’s on first, but who’s in charge of homelessness policy?

As a candidate for governor, Newsom pledged to appoint California’s first-ever homelessness czar, a cabinet-level role. But a year into his tenure, there’s no such minister. In December, Newsom hired Matthew Doherty to be his “expert advisor” on homelessness (Doherty led such efforts at the federal level during the Obama administration). But for now, it seems that Doherty isn’t California’s Czar Matthew I—at last week’s budget presser, Newsom insisted that he himself is the czar, not any of his appointees.

The significance of this: Newsom and lawmakers will quibble over homelessness allocations between now and the mid-June budget deadline. Things may grow more contentious if the legislature tries to force the governor’s hand (for example, Democratic assemblywoman Luz Rivas has introduced this measure calling for the creation of a secretary on housing insecurity and homelessness to oversee a proposed Office to End Homelessness, which would include the current Homeless Coordinating and Financing Council and be located within the governor’s office).

That’s good thinking: the new homelessness secretary won’t be homeless in Sacramento.

Housing. A sobering statistic to ponder: based on the housing unit–to-population ratio in similarly wealthy states likes New Jersey and New York, California is expected to face a shortfall of 3.5 million homes by the year 2025. At present, the Golden State ranks 49th in housing units per capita.

The question: is there room in Sacramento for a productive approach to addressing California’s housing crunch?

And that takes us to the saga of SB 50, aka the More HOMES (Housing, Opportunity, Mobility, Equity, and Stability) Act.

Introduced last year by Democratic state senator Scott Wiener, SB 50 would have prohibited many cities from banning multistory apartment buildings around public transition hubs while ending local zoning rules reserved for single-family homes, thus effectively opening up the entire state to more multifamily housing.

However, the measure stalled in the state senate as lawmakers responded to the idea in true NIMBY fashion—more housing’s fine, as long as the build-up is in someone else’s district.

A tweaked version of SB 50 is in play this year. Cities could opt out of some of the new law’s requirements if they develop commensurate housing plans. And the new law wouldn’t kick in until 2023, giving cities two years to figure their next move.

What will be its fate? That depends on how much muscle is exerted by a few Sacramento power players—the League of California Cities, which didn’t care for last year’s version;  Senate President Pro Tem Toni Atkins, who’s promised to take a more active role in the housing-density debate after taking heat last year for not pushing for SB 50’s advancement; and Gov. Newsom, who set a goal of 3.5 million new housing units for California by 2025, back when he was running for his current day job.

Talk about a crowded space.

Hunger (for more revenue). Newsom’s budget proposal checks in at $222.2 billion. To put that in historic perspective: Jerry Brown signed a $115.4 billion state budget into law in 2012, the second year of his return to the governor’s office. Arnold Schwarzenegger’s sophomore budget, signed in 2005, totalled $113 billion.

If Newsom’s budget were enacted as presently drafted, it’d constitute a $7 billion increase over last year’s spending plan. But that’s a mighty big “if,” given Sacramento’s voracious spending appetite.

One reason why Sacramento is awash in revenue, in addition to a booming economy: a tax increase on millionaires that went into effect in 2013 via the ballot. That rate increase—first begun by the “temporary” Proposition 30 and extended until this decade’s end by 2016’s Proposition 55—helped turn a $27 billion deficit in 2011 to a $21 billion surplus last year.

Still, the natives are restless—specifically, the all-powerful California Teachers Association, which wants to run a ballot measure this fall amending the fabled property-tax-limiting Proposition 13, which has been in effect for over four decades. The so-called “split roll” approach would increase taxes on commercial and business properties but not on California homeowners, with K–12 schools and community colleges reaping about 40% of the anticipated $12 billion annual revenue windfall.

Newsom reportedly isn’t on board with the “split roll” approach, preferring instead to work out a legislative solution that avoids a ballot fight (historically, when asked by pollsters, California voters aren’t wild about revisiting Prop. 13).

So how, then, could the governor make amends with the teachers’ union for not backing their ballot measure? Newsom’s budget proposes $900 million to hire more teachers. There’s also another $100 million dedicated to giving public school teachers $20,000 apiece if they commit to four years of teaching high-need subjects at high-need schools.

That’s a start—“a billion here, a billion there, and pretty soon you’re talking about real money,” quipped the late senator Everett Dirksen. Still, it’s not the much-grander annual payday that CTA wants, which is one reason why the union’s relationship with the governor is more complicated than either side would like.

HENRY. No, not the Tennessee Titans’ tailback currently running roughshod over his playoff competition, but an acronym that hits home in California: “high earner not rich yet.”

Californians’ net worth totals over $6 trillion, or about $160,000 per resident. Though it constitutes only 12% of America’s population, the Golden State holds about 17% of the nation’s wealth.

How’s the wealth spread out? Two percent of California’s population lives in the state’s wealthiest zip codes; that 2% holds 20% of the state’s wealth. Meanwhile, three-quarters of California’s population lives outside the state’s wealthiest 300 zip codes; they hold less than one-fifth of California’s wealth.

Keep this in mind as this year’s budget negotiation progresses: what if anything are California’s lawmakers doing to allow taxpayers to keep more of their earnings, enable a bridge to wealth, and make everyday life in the Golden State more affordable?

Newsom’s proposed budget does include a tax cut for small business owners. And his spending plan more than doubles the state’s Earned Income Tax Credit from $400 million to $1 billion, affecting one million additional California households.

Still, comprehensive tax reform remains a distant memory—California’s last significant run at tax cuts having occurred over two decades ago.

In the meantime, the assault on California’s high-end earners continues.

Last year, the California School Board Association proposed a ballot measure pushing the top income-tax rate from 13.3% to 15.3% or 16.3%, depending on seven-figure income levels. The top corporate income rate would go from 8.84% to 13.84%. It was pulled, for fear of overlap with the “split roll” ballot measure (though it may show up on the 2022 ballot).

Back in the legislature, Assemblyman David Chiu wants to eliminate the state’s mortgage interest deduction on vacation homes and reconfigure it for primary homes (the amount of interest a filer could claim would be reduced from the current $1 million to $750,000). Savings from both changes would be redirected to help alleviate the California’s homelessness crisis.

So much for wealth retainment.

Which goes to show: in California, not all “H’s” are treated the same.