Issue #229: “Trump slump” hits California’s budget
Good thing we have cash on hand!
Take a sneak peek at the questions for our next poll! Your feedback will help us make these questions as clear as possible when we have YouGov send them out to 500 random Californians.
Like what you see? Curious how Californians will answer? Your donation will help us make this poll happen.
Should California give up control of its electricity market?
Rooftop solar under attack again
Weather service cutbacks in fire country
Want to work for the best California independence think tank there is?
We’re an all-volunteer organization, and we’d love it if you joined our team.
Please check out our Volunteer Jobs page and email director@ic.institute if you see a good fit!
And a big thank you to all the volunteers who’ve joined us this year!
THERE GOES THE SUN
California’s rooftop solar debate is raging again
Jeff St. John, Canary Media
Two years after slashing compensation for rooftop solar owners who send power back to the grid, California policymakers are once again looking for ways to contain high and rising electricity rates — which means the accusation that rooftop solar pushes costs onto other utility customers is once again rearing its head.
Last month, representatives of the California Public Utilities Commission testified in a state legislative hearing that California’s system for compensating owners of rooftop solar is a primary cause of the state’s rapidly rising utility rates.
The CPUC’s rationale is that solar programs shift costs onto customers who don’t have solar.
Solar advocates and environmental justice groups have long said this “cost-shift” argument is false. In fact, they say, California utility customers would be paying even higher electric rates if the state hadn’t launched policies back in 2006 that have incentivized California homes, businesses, schools, and other utility customers to install more than 2 million rooftop solar systems since then.
California wants to kill rooftop solar — all because officials were duped by this flawed theory
Richard McCann, SF Chronicle
Maintaining, operating and expanding the electrical grid is expensive; transmission lines, substations and more need to be built and repaired to deliver electricity to homes. The rates you pay for electricity include the cost of this infrastructure. Cost shift theory argues that since home solar users generate their own electricity, everyone else is stuck paying more to keep the system running.
This theory has a kind of superficial logic. But its supporting evidence is based on a seriously flawed notion.
Instead of freeloading off the system, rooftop solar actually saves ratepayers money by preventing the need for the system to expand. It played a major role in keeping energy demand flat since 2006, especially on hot summer days when California gets itself into the most trouble. In fact, the California Independent System Operator, which runs the grid, credited rooftop solar in its decision to cancel 18 transmission projects — saving ratepayers $2.6 billion in 2018 alone.
When analyzed over time, utility infrastructure spending — more than any other type of spending on things like wildfire mitigation, clean energy incentives or subsidies for lower-income households — is what’s primarily driving up rates. Grid infrastructure spending to bring power in from remote generation to your house has increased more than threefold over the past two decades, four times faster than the rate of inflation — despite electricity demand remaining flat. Wildfire spending, meanwhile, accounted for only 12% of total utility costs recovered from ratepayers in the past two years.
Letters: Who loses when California lets PG&E’s profit motive dictate energy policy?
Yvette DiCarlo, SF Chronicle reader
The state Legislature, California Public Utilities Commission and Gov. Gavin Newsom are complicit when they base energy policy on PG&E’s desire to build costly, and often unnecessary, projects just so its 10.3% state-guaranteed return for investors kicks in.
You know who invests in the energy grid at no cost to the state and without a 10.3% profit? Rooftop solar customers — the group PG&E is so desperately trying to villainize.
It’s ungainly for PG&E to rake in record-breaking profits while simultaneously jacking up rates, so it punches down on solar customers rather than expose its board of directors or Patti Poppe, its multimillion-dollar-salaried CEO.
New California bill would undo some 20-year rooftop solar contracts
Jeff St. John, Canary Media
The bill in question is AB 942, introduced by Assemblymember Lisa Calderon, a Democrat who previously worked for decades at utility Southern California Edison. And unlike the cuts to rooftop solar incentives that California regulators have imposed over the past few years, which apply only to solar systems installed after the new policies have been put in place, AB 942 would undermine the value of solar on the nearly 2 million homes that installed panels years ago.
Undercutting state commitment to rooftop solar could also deal another dire blow to a sector that’s suffered significantly in the wake of a series of decisions by the California Public Utilities Commission (CPUC), Faruqui said. Those include the shift from net metering to the net billing tariff in 2023, as well as other moves reducing the value of rooftop solar for schools, farms, multifamily properties, and small businesses.
Did you know:
76% of Californians 76% of respondents want to double the maximum size of the Rainy Day Fund, to reduce California’s dependence on the federal government during a major natural disaster
Solar facts and figures
See California distributed generation statistics and charts here.
Statistics from Interconnected Project Sites Data Set
BUDGET AND TAXES
Rep. Young Kim rejects SALT cap proposal of $30,000, calling it a ‘slap in the face’
The Republican lawmaker says her preferred SALT deduction cap would be $62,000
Hanna Kang, Orange County Register
Rep. Young Kim won’t vote for a budget bill with a state and local tax deduction cap of $30,000.
That’s the number Kim and other Republicans from high-tax states say has been floated as an offer as the powerful House Ways and Means Committee continues work shaping major parts of President Donald Trump’s budget proposal, including the modification of tax provisions.
Before 2017, Americans could deduct the full amount they paid in state and local taxes from their federal income taxes. But the 2017 law capped those deductions at $10,000, even for married couples filing jointly.
While most Americans saw modest tax cuts under the law, about 11 million people living in states with high housing costs and tax burdens, including many in Southern California, saw their federal tax bills go up because they could no longer fully deduct property taxes.
Newsom faults ‘Trump slump’ for $12 billion budget hole
The governor will scale back a key program as he faults tariffs for sapping tax revenue.
Jeremy B. White, Politico
California’s fiscal outlook has darkened since January, when Newsom projected a small surplus. The Los Angeles wildfires delayed tax filings from a county that is home to a quarter of California residents, and the state’s Medi-Cal insurance program — which under Newsom has expanded to cover undocumented immigrants of all ages — plunged into a deficit that has already forced the state to borrow billions as costs nearly doubled in the last decade.
But Newsom pinned the majority of the blame on oscillating White House trade policies that have upended global commerce and left many California businesses reeling. California has sued to block Trump’s tariffs, citing economic fallout that could amount to $16 billion in lost tax revenue. The governor lambasted White House policies on Wednesday for diminishing tourism and shrinking vital capital gains.
The Trump factor in the state budget
Eric He, Blake Jones and Dustin Gardiner, Politico
Also concerning is the drop in stock prices since Trump launched his tariff campaign, since market declines have an outsized impact on state revenues because California’s tax structure is heavily reliant on capital gains.
“Things have been pushed and pushed in the wrong direction, principally,” Department of Finance spokesperson H.D. Palmer said, “by the effects that the tariffs are having.”
California has been flush with cash of late, pulling in $4.4 billion more this fiscal year than Finance projected when it unveiled a small surplus in January. But spending has increased as well, fueled in part by a Medi-Cal budget ballooning from growing caseloads of older Californians and immigrants living in the country illegally, among other demands.
Unlike in January, Finance will incorporate the impact of tariffs into its estimates of future revenue — meaning the state will plan on having less money to cover the increasing costs.
Republican state Sen. Roger Niello, the vice chair of the Senate Budget Committee who never misses a chance to accuse Democrats of over-spending, acknowledged that tariffs — which he opposes — may hurt the state’s revenues and that “there are certainly issues at the federal level that are having an effect.” But he said Newsom is “always overly optimistic” in his budget projections, pointing to the Medi-Cal shortfall and a minimum wage increase for health care workers that took effect last year.
Deficits...and a strong “cash position”
Jason Sisney, #CABudget (Substack)
On November 30, 2008, the state treasury had less than $4.1 billion of available cash on hand—all of it borrowed from municipal bond investors. At the time, a 35-year-old LAO analyst—me—was assigned by very busy legislative budget staff to represent them at regular meetings of the Director of Finance and staff of the Controller and Treasurer to manage the state’s dire cash situation. Monitored closely by the White House and the Federal Reserve—who feared a California cash collapse worsening the dire crisis in the financial sector—these meetings were among the key experiences of my career. I learned a lot by being there!
In the years after the cash and budget crises of the Schwarzenegger years, Governor Brown and the Legislature benefited from a growing economy and stock market. They worked diligently to improve the state’s financial health, advocated voter approval of Assembly Speaker John Pérez’s rainy day fund proposal (ACAX2 1 of 2014), and changed to a more conservative manner of state budgeting that emphasized multiyear forecasting and used portions of projected surpluses for one-time spending, not just ongoing commitments and restorations. In August 2019, Legislative Analyst Gabe Petek wrote about the “quiet transformation of California’s cash management” over the prior decade. In December 2018, marking the tenth anniversary of the state’s cash crisis, his office released a report noting “the state has made undeniable progress” that “few could have predicted” a decade before.
So, if the state’s cash position is so strong, why are such difficult budget cuts and even some tax increases needed now? Basically, it comes down to this: an ongoing imbalance of revenues and expenditures eventually would consume all the cash. Cash cannot balance the budget over a long period.
Medi-Cal coverage of weight loss drugs on chopping block under governor’s proposal
Ana B. Ibarra, CalMatters
The costly drugs prescribed to fight obesity have been driving up the cost of Medi-Cal, the state program that provides health coverage for low-income Californians. Eliminating coverage for these drugs would save the state $85 million in 2025-26, and up to $680 million by 2028-29, according to the governor’s office.
Newsom’s proposal will be taken up by the state Legislature as the governor and top legislators tackle a state budget facing a $12 billion deficit.
As proposed, coverage of the drugs would end on Jan. 1, 2026. Medi-Cal patients trying to lose weight would have to pay for the prescriptions themselves, at a cost of more than $1,000 per month, making it unattainable for low-income people.
RESISTANCE NEWS
Judges warn Trump’s mass deportations could lay groundwork to ensnare Americans
Kyle Cheney, Politico
The daily skirmishing between the White House and judges has obscured a slow-moving, nearly unanimous crescendo: If the courts don’t protect the rights of the most vulnerable, everyone is at risk.
Despite the heightened alarm of the courts, tension over due process is not novel to the Trump administration. The executive branch has long chafed over due process rights, which by design slow down initiatives that might move at lightning speed in a country without similar protections.
“Of course, due process makes it harder for the government to do what it wants,” said Erwin Chemerinsky, dean of the Berkeley School of Law. “That’s the whole point — to make sure that the government is acting in accord with the law.”
‘Powerful message’: Bay Area counties’ challenges to Trump underscore strength of local governments
Bob Egelko, SF Chronicle
Federal courts have found that cities and counties can act as sanctuaries for undocumented immigrants and do not have to turn them over to federal agents for deportation. Federal judges have ruled that all children who were born in the United States are U.S. citizens, rejecting President Donald Trump’s argument that citizenship does not extend to children of undocumented immigrants.
So far, the courts have also ruled against the Trump administration’s firings of tens of thousands of government workers and his attempt to withdraw aid for the homeless from local governments unless they promise to use the funds to crack down on immigration, abortion and transgender identity.
And late Friday, a federal judge in San Francisco blocked Trump’s orders for massive layoffs in virtually all federal agencies except military and law enforcement, saying those jobs and the programs they served had been authorized by Congress and cannot be eliminated by the president.
One thing all these cases have in common is that the winning side has included San Francisco and its longtime litigation partner, Santa Clara County. They have sued on their own and in association with local governments in California and other states.
California earthquake retrofit funding canceled by feds, leaving thousands ‘less safe’
Maliya Ellis SF Chronicle
The retrofit program was set to open applications this winter to eligible building owners across 11 California cities including San Francisco, Oakland and San Jose. But the Federal Emergency Management Agency canceled the grants last month.
The grants were among the more than $3 billion in canceled Building Resilient Infrastructure and Communities (BRIC) grants, a program to fund natural disaster mitigation projects nationwide. FEMA slashed the funding on April 5, calling former President Joe Biden’s BRIC program “wasteful and ineffective” and “more concerned with political agendas than helping Americans affected by natural disasters.”
About $870 million of the canceled funding was slated for California initiatives, according to the state’s Office of Emergency Services. The projects included the retrofits, a $50 million coastal resilience project at the Port of San Francisco, $50 million for flood adaptation in Oakland and Alameda and $2.5 million to build levees in Grayson and Walnut Creek.
Tech-Backed Dems may endanger California’s clean energy laws
Freddy Brewster, Jacobin
The bill would allow California to relinquish control of its state-run energy markets, under which an independent nonprofit organization facilitates the bulk sales of electricity generation and transmission across 80 percent of the state, and enter into a regional energy market with various Western states. The bill’s authors say this will result in fewer greenhouse gas emissions and lower energy costs for Californians.
The new multistate energy structure would be governed by the Federal Energy Regulatory Commission (FERC), an independent federal agency that regulates interstate electricity transmission and over which Donald Trump has recently asserted more direct control.
Project 2025, the ultraconservative policy blueprint for Trump’s administration that he has been closely following, calls for the Energy Department to “refocus FERC” to “no longer allow it to favor special interests and progressive causes” and prioritize fossil fuels.
If the bill is enacted, it could cause greenhouse gas emissions to rise across the drought-stricken West and jeopardize California’s clean energy laws, according to a California Senate analysis and studies reviewed by the Lever. The analysis, which was authored by California Senate Judiciary Committee staffers, is explicit in its warning: “Under this bill, California would open the state up to federal challenges.”
IN OTHER NEWS
Is the secret to housing affordability in California buried in the building code?
Ben Christopher, CalMatters
Assembly Bill 306 would freeze the building standards — the rules governing the architecture, the layout, the electrical wiring, the plumbing, the energy use and the fire and earthquake safety features — for all new housing through at least 2031. Local governments, which often tack on their own requirements, would also be kept from doing so in most cases.
The bill wouldn’t delete any of the current rules, which are widely considered to be among the most stringent of any state’s. It would also include exceptions, most notably for emergency health and safety updates. But on the whole, the California building code would be set on cruise control for the better half of a decade.
Over the last decade, lawmakers in Sacramento have passed a raft of bills aimed at making it easier to build new homes. Most of those bills have set their sights on the zoning code — the patchwork of land-use standards that dictate which types of buildings can go where. If you recall any high-profile political battles about apartment buildings in exclusive suburbs, dense residential development near transit stops or proposed mountain lion sanctuaries — that’s all about zoning.
Now some lawmakers are considering a new deregulatory target. Schultz’s freeze is the most dramatic example of a handful of bills this year that would take on the impenetrably technical, frequently overlooked and ever-changing building code — all for the cause of cheaper housing.
Assets, debts and wealth in California
Tess Thorman and Shannon McConville, Public Policy Institute of California
Households in California typically have more wealth than those in other states, despite holding more debt. Estimated median household net worth in California is $288,000, compared to $180,000 elsewhere. Although this difference reflects high home values in the state, Californians also tend to have more liquid assets than households in the rest of the US. →
Variation across households is substantial, and those near the bottom of the distribution often have minimal wealth. Those near the top of the wealth distribution (80th percentile; estimated $1.3 million) have net worth over 100 times higher than those near the bottom (20th percentile; estimated $12,000). Latino and Black/other households disproportionately have low wealth, as do those with lower levels of educational attainment. Wealth is higher among older households, who have had time to build assets and pay down debts. →
Demographic groups hold different portfolios of assets . . . Checking and savings accounts, retirement accounts, home equity, and vehicle equity are the most common assets, and become larger and more common with age and higher levels of education. Homeownership rates and equity are low among Latino households, driven largely by their younger age profile and lower education levels. In contrast, Black/other homeownership rates are low even after we account for factors like age, income, and education levels. →
. . . and different types of debt. Three in four households owe some money on unsecured debts (those without collateral), like credit cards, student loans, and/or medical bills. Older households are less likely than others to hold any unsecured debt, as are white, Asian, and immigrant households. Latino households are more likely to carry credit card debt and Black/other and Latino households are more likely to carry education-related debt than white and Asian households.
‘This is a big problem’: Two California weather offices no longer provide 24/7 warnings
Anthony Edwards, Jack Lee, SF Chronicle
The moves come amid a broader upheaval of weather service operations touched off by federal budget cuts.
Collectively, the Sacramento and Hanford (Kings County) offices provide forecasts from Redding to Bakersfield, including Lassen, Yosemite, Kings and Sequoia national parks.
Hanford’s office is down roughly 40% of its typical staffing levels, and Sacramento’s office has around a 30% vacancy rate, according to a person with knowledge of the situation granted anonymity in accordance with the Chronicle’s sourcing policies. The vacancy rates were unprecedented for the weather service, the person said.
In addition to producing daily weather forecasts, local weather service offices provide warnings for life-threatening weather events such as flash floods, wildfires and blizzards. Last summer the Park Fire erupted in Sacramento’s service area and became California’s fourth-largest blaze in history. In 2021, the KNP Complex fires threatened massive trees in Sequoia National Park in Hanford’s service area.
ICYMI: MORE ICI ORIGINAL CONTENT
Texas v What? Debunking 5 big myths about secession
The High Price of Fear: California could defend itself for a fraction of the cost
Fire and Flood: Why California should control our own water system
Just 9 states make up more than half the U.S. population