| | | | |  | | By Blake Jones and Camille von Kaenel | DON'T PANIC (YET): Banks have collapsed. Layoffs are in the news and a deficit is looming in California. But it’s not 2008. Not even close. As part of his May Revision, Gov. Gavin Newsom is expected to announce tomorrow that the state’s projected $22.5 billion deficit has grown. "It is very clear that the problem that the governor and the Legislature are going to have to solve is going to be much larger than it was in January,” said H.D. Palmer, a spokesperson for the Department of Finance. But Sacramento’s budget wonks aren’t panicking — at least not yet. Newsom is confronting a financial situation unlike any he has endured since entering office. California coffers swelled over the past two years, injected with congressional spending meant to inoculate the country against a prolonged pandemic recession. His final budget proposal for the year will factor in state taxes falling $4.7 billion short of deficit projections between January and March — not to mention another $700 million dip in withholdings in April.
|  California Gov. Gavin Newsom listens to community leaders as they talk about flood preparedness, Tuesday, April 25, 2023, in Allensworth, Calif. (AP Photo/Marcio Jose Sanchez, Pool) | AP | Still, it could be worse — and has been. The deficit during the Great Recession, as the housing bubble popped and Wall Street melted down, was more than quadruple the size of today’s shortfall. In contrast, California’s treasury now holds more than $100 billion in cash, including over $23 billion in its main reserve account, even after a barrage of storms prompted a tax deadline extension for most Californians. There’s reason to think Newsom will propose more spending cuts, delays or maybe a drawdown from reserves beyond what he put forward in his January budget proposal, but don’t expect a gutting of core programs like we saw 14 years ago. Nonpartisan analysts aren’t warning of a tailspin either, even as California’s volatile, progressive tax structure has shuddered under sluggish capital gains earnings and the Federal Reserve's moves to curtail inflation through higher interest rates. "Falling state income is more a return to budgetary “normal than a major budget crisis,” said Gabriel Petek of the Legislative Analyst’s Office. HAPPY THURSDAY AFTERNOON! Welcome to California Playbook PM, a POLITICO newsletter that serves as an afternoon temperature check of California politics and a look at what our policy reporters are watching. Got tips or suggestions? Shoot an email to cvonkaenel@politico.com or send a shout on Twitter. DMs are open!
| | | | JOIN US TONIGHT - PLAYBOOK MEET & GREET! We did it before and we're doing it again! Join California Playbook and POLITICO’s growing team in Sacramento at Smic’s Sip & Quip on Thursday, May 11, 2023, for an evening of cocktails and conversation. As POLITICO expands in California, we're convening our most influential readers in Sacramento and beyond. Swing by and have a cocktail on us—you never know who you might run into! Register here. | | | | | |  | WHAT YOU NEED TO KNOW TODAY | | THE DOOR CRACKS OPEN: San Diego and other cities across the country are preparing for an increase in people crossing the U.S.-Mexico border with the looming expiration of the pandemic-era policy known as Title 42. The policy authorized the U.S. to turn back most border crossers, including those seeking asylum. U.S. officials expect as many as 13,000 people a day to cross the border – double the current average. Families from Kazakhstan, Cuba, Haiti, Venezuela and elsewhere lined up this morning in Tijuana to await appointments to seek entry to the United States,according to the San Diego Union-Tribune. Local officials said they asked the federal government for additional aid, including from the Federal Emergency Management Agency, out of concern existing shelters would lack capacity.
| | | On The Beats | | | A DROP OF BUDGET NEWS: Newsom announced this afternoon he’s proposing a budget increase for one issue that’s been in the news: flood control. The administration says the revised budget will recommend an additional $290 million in one-time funding for flood response in the Central Valley and across the state, on top of the $202 million proposed in January. The money would be split between disaster relief and local flood control projects. IT would also reinstate a floodplain restoration program that had been cut in the January budget proposal. Newsom also announced that the state will pay to raise levees protecting the city of Corcoran and the nearby state prison from the re-emergent Tulare Lake. HOT OFF THE GRILL: The Supreme Court on Thursday upheld a California law requiring certain humane treatments in the production of eggs, pork products and veal. Proposition 12, which was passed by voters in 2018, sets minimum confinement standards, including requiring pregnant sows to have no less than 24 square feet of space. The law was challenged by the American Farm Bureau Federation and National Pork Producers Council, who argued that Prop 12 violated the Commerce Clause because it required out-of-state farmers to adhere to California regulations. The Supreme Court upheld a ruling by the lower court that dismissed the suit. In throwing out the case, SCOTUS sided against the Biden Administration, which, according to AP, had urged justices to rule in favor of the pork producers to avoid throwing a "giant wrench" into the pork market. — Lara Korte FOREST FOR THE TREES: California is in desperate need of seedlings to reforest the nearly 1.5 million acres of land rendered barren by wildfire. But there’s a global shortage of seeds and plants. Now, state and federal officials are partnering to help solve the problem with a company with whom they’ve had an uneasy relationship – timber giant Sierra Pacific Industries. Bolstered by a state $3 million grant, the Northern California-based company, the largest private landowner in the country, broke ground on a nursery in April that aims to eventually double California’s production of seedlings. Cal Fire chief Joe Tyler hopes the program will help the state turn the corner on reforestation efforts, he told forestry and fire professionals at a meeting of the state’s wildfire task force today in Santa Cruz.
| | | | DON’T MISS THE POLITICO ENERGY SUMMIT: A new world energy order is emerging and America’s place in it is at a critical juncture. Join POLITICO on Thursday, May 18 for our first-ever energy summit to explore how the U.S. is positioning itself in a complicated energy future. We’ll explore progress on infrastructure and climate funding dedicated to building a renewable energy economy, Biden’s environmental justice proposals, and so much more. REGISTER HERE. | | | | | | | AROUND CALIFORNIA | | — GOP voters in liberal bastions could have outsize role in California’s Republican primary, by Los Angeles Times’ Seema Mehta: While the GOP’s presidential delegate-allocation system in California has been in place for nearly two decades, it’s poised to make an impact next year, largely because the state’s primary is taking place early, on March 5, and there is an open race for the Republican nomination. — “Feinstein breaks stalemate over three judges in return to Judiciary Committee,” by the San Francisco Chronicle’s Shira Stein: “Feinstein, who returned to the Senate Wednesday after a nearly three-month absence, was wheeled into the Senate Judiciary Committee over an hour late to a standing ovation from both sides of the aisle and met by the flock of reporters and photographers that have closely followed her return.” — “Conservation group sues California oil regulator for approving wells with inadequate environmental review,” by the Hill’s Sharon Udasin: “The wells in question — approved by the California Geologic Energy Management Division (CalGEM) — are located in Los Angeles and San Luis Obispo counties, in close proximity to homes, beaches and important habitats, according to the lawsuit.”
| | MIXTAPE | | — “California created the nation's only pension for aging boxers. But it's failing to deliver,” by the Los Angeles Times’ Melody Gutierrez — “Coast Guard suspends search for 3 people after aircraft crashed off California coast,” by NBC News’ Marlene Lenthang — “Community colleges push for more affordable housing. But will California pay for it?,” by the Los Angeles Times’ Debbie Truong
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