In the days after Governor Newsom signed California’s $308 billion budget—which includes record spending across sectors bolstered by a nearly $100 billion surplus—TPR/VXNews interviewed California Senate Majority Leader Emeritus Robert Hertzberg on the highlights of the 2022-23 state budget package. The Senator elaborates on the one-time infrastructure investments embedded throughout the budget for climate resilience—including grid reliability, EV charging, wildfire, water recycling, and more. While state reserves this year benefit from significant windfall in capital gains taxes, Hertzberg emphasizes the long term need to correct California’s financial structure to avoid volatile impacts to the state budget year after year.
Leader Emeritus Hertzberg, recalling the state's $54 billion deficit at the onset of the COVID 19 in 2020, share with our readers what's driving the state's economic comeback, which has resulted in the $100 billion surplus padding the $308 billion budget just signed by Governor Newsom.
Senator Bob Hertzberg: It’s all capital gains tax. When I was last speaker in 2002, the budget was under $100 billion, and the following year it went to $78 billion because of volatility. The tax structure of California is not healthy, so we get these wild swings in revenue. If you look deep into the budget, it’s predicted that in a few years we're going to have another downturn. We happened to have an upswing these last few years, but surely we're going to face a downswing
There are, however, a couple of bits of good news when you look at this volatility seriously. First is that starting with Gov. Schwarzenegger and later with Gov. Brown, the State has created a series of four rainy-day funds, which we didn't have under the law before. We have the underlying big reserve which is $23 billion. We have a second safety net reserve which is $900 million. We have a public school system stabilization reserve, which is $9.5 billion. We also have a special fund for economic uncertainties. Basically, it's about $40 billion.
That's good in the sense that these reserves will protect us against future downturns. But, in reality, it’s basically a band-aid that masks the underlying issue with respect to the financial challenges of California’s budgeting process.
The second thing that's important to note is that in this fiscal year’s budget we're not going to have a lot of new ongoing commitment for revenues. I believe almost 91 percent of the budget is one-time money that helps with infrastructure and other programs and projects. We have been smart in planning long-term. Clearly, we are the beneficiaries of this extraordinary growth from IPOs and capital gains taxes; the tax increase also contributed to the surplus. Bottomline, it's good news in the short term, and there's a lot of good in it.
By and large, however, the takeaway comments are that we need to keep thinking long-term and think about how to correct our financial structure. We just have to have the political will to do that. Secondly, the fact that the governor basically did a lot of short-term stuff is critical. Under the Constitution, 40 percent of the budget has to go to schools. We now have $22,893 per pupil going to schools, which is a really big deal. Let’s just hope it gets spent in a way that increases performance of students.
Help our readers reconcile what the legislature approved last month and what the governor signed. Are there any deltas that should be highlighted?
A couple of things. Number one is that in the Legislature, there was more concern about spending this money on infrastructure. One of the benefits of infrastructure is that it has a significant economic feedback effect. For every dollar you spend on infrastructure, something like 74 cents comes back in payroll taxes, sales and strengthening the economy. And there are a lot of needs in California for infrastructure, bridges and roads that need to be corrected.
The Governor wanted more money to put in the pockets of individuals who are suffering the difficulties with gas prices and the cost of living going up. When you talk to folks, they're really concerned about the cost of living given surging inflation. Of this money right now, the centerpiece of the agreement is a $17 billion relief package that offers tax refunds to millions of Californians. About 23 million Californians will receive direct payments of up to $1,050. Hopefully this will give them some level of relief as we're facing these inflationary pressures.
Elaborate on the $53.9 billion in new investments included in the Budget to boldly address the climate challenges California faces… like extreme heat and wildfires?
With a lot of these issues, like fire for example in the Northwest portion of the San Fernando Valley, people are scared getting up every single day. We're therefore doing setbacks, clearances and imposing safety measures. We're also increasing the number of firefighters dramatically.
In the old days, you had rainy days before you had the high winds. The rainy days would reduce the risk of brush fire. Now, the rain is coming later and the winds are coming earlier. So, when you have a spark we suffer these extraordinary fires. We're also investing in technology to detect these fires earlier, reduce them quicker and increase setbacks for people in their homes who are in the fire areas.
The year before last, the amount of air pollution caused by the fires was equivalent to 24.2 million automobiles on the road. Here we are, on the one hand, working our heart out to try to reduce greenhouse gases, yet we have these fires that just obliterate any ability to have an impact on our contribution to global well-being.
Elaborate on the promised impacts of the Budget’s drought and water resilience package?
Four years ago, Assemblywoman Laura Friedman of Glendale and I did a significant multi-year effort to deal with conservation. Conservation is a new way of life. We did it on the heels of Gov. Brown’s effort to reduce cutbacks by 25 percent. I have another bill this year to reduce indoor water use, and we're battling because many agencies don't want to reduce the indoor water use. I'm saying we’ve got no choice.
We have this difficult situation where we have a number of districts like Orange County and Las Virgenes doing a fantastic job in recycling water, but they built these systems based upon a higher flow. Now they're saying we need a higher flow to be able to get the systems to recycle, but we're not going to have it. We're trying to deal with water conveyance issues, and we're trying to put money into water recycling so that we don't take as much water from the North and the farmers.
We put 3 million gallons of water a day out of Hyperion into the ocean that's been cleaned up to federal standards. In my view, that's dumber than a box of rocks. We should be capturing every ounce of that water and recharging the groundwater.
Address how the Budget package aims to accelerate our State’s transition to zero-emission vehicles (ZEV), including expanding ZEV access and affordability and supporting the build out of infrastructure?
The idea there is we have set these extraordinary and important goals with respect to reducing our reliance on fossil fuels, but we need the infrastructure to do that. When I talk to DWP’s Marty Adams, he tells me that we have 4,000 volt transformers on our poles, and we need to go to 20,000 volts transformers if we're going to complete a move to electric vehicles. There's a ballot measure coming up that proposes increased taxes on wealthy individuals to build more charging stations.
It also has to do with giving grants to people because part of the problem is electric vehicles are too expensive. People are scared to buy electric vehicles because there are not enough places to charge them. We've got to build up the charging stations, and you need the infrastructure to handle the electrons to be able to do that in addition to having electricity for homes and businesses. As the market grows, all this will become more affordable, but it's a huge undertaking and this is a big step forward to be able to pay for the infrastructure to get there.
Speaking of keeping the lights on, there was an end-of-session energy budget trailer bill before the legislature. Elaborate on some of the compromises that have had to be made to support energy reliability and relief to ratepayers?
This issue was perplexing to many legislators who got this bill. I'm somebody who has energy crisis PTSD. I lived through it and know what it's like when there's no energy to power a hospital or streetlights. We’ve faced a lot of things recently, but there's nothing like electricity going out or having no water. The Governor is very sensitive to that.
Last year, there was an issue with peaker plants that are used maybe three or four weeks a year when there's a high demand for electricity. These may be pretty dirty, but they make sure the lights stay on. The Governor is trying to deal with the challenge of whether Diablo Canyon or some of these peaker plants are appropriate to be removed.
How do we keep the lights on? We're in this transition period that's very challenging. The environmental community makes an important statement about how they look on this, but I have deep sensitivity to the Governor’s view. The answer is we've got to speed up the process as quickly as possible because if the lights go out, we end up polluting more than ever.
Continuing with assessing the potential impacts of the recently signed State Budget, what is the significance of the legislature’s approval to fund the Central Valley portion of California High Speed Rail?
We tend to think the Central Valley is a train to nowhere. The Central Valley is bigger than dozens of states in terms of its population. The Valley matters a lot and its food production and other elements are important in terms of growth.
When you read about the Golden Gate Bridge or the Hoover Dam, critics came out and said there never was going to be enough money to make them work. In San Francisco, they said the ferries will never be replaced with a bridge. I look at high-speed rail as a long-term project. If we get the federal matching dollars, there will be a framework to then move to the next level. I just wish we could move faster.
At the end of the day, you will have people living in more affordable areas where they can build cheaper. In Lancaster, for example, people are driving up the 14 but if you can build a tunnel or some other solution, we can make the quality life a lot better for folks. This will ultimately be a good thing, and I'm happy the Governor earmarked $4.1 billion for t.
Let's pivot now to housing. Please highlight the “California Dream for All” program and the legislature's work to make homeownership attainable?
Homeownership for All is basically a loan program out of the general fund to be able to lend money to people that want to buy houses. Homeownership is valuable, and it would help thousands of families who could not get a house otherwise, but it doesn't provide any new construction.
A big reason we have the problem we have now is supply. My theory is if you have more construction, it brings down the price and takes away some of the pressure on these increasing prices that we're seeing now in the marketplace. The bill that I've been working on has to do with the $25 billion bond that only results in new construction. The idea is we'll do a down payment on one of these projects, but it has to be new construction because we have to increase production.
As November approaches, there will be not only local and state races in California, but also national races for Congress. Should the Republicans, as presently predicted by the pollsters, take one or both houses of Congress, how much of the Governor and Legislature’s agenda is at risk?
A lot. There's so much we're doing in so many different fields. For example, with the clinics, we're looking for a matching fund from the federal government that is larger than what the state's contribution is. Many of these things are also on waivers. And at the county level for mental health facilities, one of the big issues that everyone complained about is that if you're going to take people off the street, where do you put them if they have mental-health issues? There are these limitations in the federal law where we can't have more than 16 units together, so those waivers become really important. The waiver allowed us to build a hospital in downtown Los Angeles.
With the sentiment that's happening in politics today, it's harder to have a rational conversation. So much of what I've seen is ABC, “anywhere but California.” That hurts us in a pretty significant way. However, we are California, and we will persevere. We will figure out a way forward that helps our folks.
Lastly, help our readers better understand the state legislative process? There are 40 members of the Senate and 80 members of the assembly; elaborate on the process challenges of “getting stuff done?”
I think first of all, it's always been out of sight, out of mind. It's really hard to understand not just the state, but the county as well. There are 88 cities in LA County that encompass hundreds of special districts, water districts and many other local agencies. The complexity takes someone with a PhD in public policy to figure it all out. The big message, if I just wanted to make it simple, is that every law that happens in every city and every in every county comes from the state.
Most people don't know anything about how the state legislature works. They may know who the Governor is; they might read press releases here and there. Two of the big issues to pay attention to is how the state funds education and the prison system. Those two things alone take up the vast amount of the budget. A lot of the social safety net is passed to the counties.
May I suggest that people try to develop a relationship with their legislators? It's not that hard if people are willing to reach out. One of the programs that a lot of schools have is a 4th grade trip to Sacramento. Every time I talk to these kids, years and years later I learn it had such an impact on them to understand how the state works. Supporting those kinds of programs at least gets the next generation some level of understanding of the state and how it works.
My last suggestion is to do the hard work, ask the hard questions and challenge the status quo. There’s a political-industrial complex out there. Rise to it. When you read what's going on, always read with a skeptical eye and understand that most people are trying to spin their own agenda. Think through as you engage issues that are important to you. You might be surprised at how effective you can be.