California Focus: 2013 preview

By Daniel Weintraub

As the New Year dawns, California politicians find themselves in a strange position. The economy is improving, the public is growing more optimistic, and the Democrats’ control of super-majorities in the Legislature should reduce gridlock –the one thing that’s always guaranteed to sour voters on government.

But that also means that this is the year for the Democrats to produce — or stop blaming the Republicans for blocking all the great things they would otherwise be doing for California.

Their to-do list is not a short one. From the state budget to tax reform, financing the schools, overhauling water policy and implementing federal health reform, the Legislature is going to be busy this year. Lawmakers will also need to keep close watch on two risky, only-in-California projects: the construction of a bullet train and the start of the state’s market-based program to reduce greenhouse gas emissions.

Depending on how the federal budget negotiations go in Washington, D.C., lawmakers here could also be scrambling to react to cuts in federal aid and, possibly, a recession brought on by higher taxes and a blow to consumer and investor confidence.

Even with a favorable outcome in Congress, however, California’s budget is still out of whack – and that will be the first order of business for Gov. Jerry Brown and the Legislature.

The problem is relatively small compared to past years, thanks to voter approval of a tax increase in November. Overly optimistic assumptions about income tax revenue and a few unforeseen developments have left a projected shortfall of about $2 billion for the fiscal year that begins July 1.

Brown will not likely propose cuts in school spending to close that gap. He campaigned for his tax increase by warning that schools would be hit hard if the tax measure failed, and voters would not take kindly to a reversal now. That means that health and welfare programs for the poor are probably in line for still more cutbacks, even after years of belt-tightening.

As part of the budget discussion but also separately, many Democrats want to look at tax reform. California’s tax system is notorious for its volatility, with revenues rising rapidly in good times and then crashing when the economy slows. The share of state revenue that comes from the income tax has soared in recent decades relative to collections from the sales tax. The corporate income tax has also declined as a share of the state’s overall revenue. And many on the political left have been hoping for years to alter the protection given to commercial property in Proposition 13, the voter-approved constitutional amendment that caps property taxes.

It might be a long-shot, but all of these issues and more could be addressed in a tax reform package this year. Democratic leaders have pledged not to raise taxes further this year, but they could still design a bill that would be expected to grow revenues more quickly – and perhaps with more stability – in the future than the current system is projected to do.

Some Democrats have suggested such an approach in the past, but those efforts stumbled in fights with Republicans over how to define a tax package that is “revenue neutral” – increasing some taxes while reducing others but leaving overall revenue unchanged. Now, if all of the Democrats vote for the bill, giving it a two-thirds majority, they can simply say they intend for the package to be neutral, but it would not be legally required to meet that standard.

The way California pays for its schools will also be a subject of debate along with the budget. Brown is expected to propose, as he did last year, freeing local districts from many of the mandates adopted by the Legislature over the years, giving them more flexibility to set their own priorities. At the same time, he wants to direct a larger share of the new money schools will be getting in the years ahead to districts that serve low-income children, on the theory that those kids need more resources to keep up with children from families who can afford to buy them books, computers, tutors and other education aids.

The next big item on the agenda will be the continued implementation of Obama’s health reform law. The law takes full effect on Jan. 1 2014, and much of the work still to be done will be in the hands of the state bureaucracy.

But lawmakers must decide whether to expand Medi-Cal to millions of low-income working people, a move they will probably make since the federal government will be paying most of the cost of doing so. And Democrats also believe it is essential to align California’s insurance regulations with those in the federal Affordable Care Act. The biggest of those changes left unaddressed last year: a law to stop insurance companies from rejecting customers based on their medical histories.

Also on the agenda for 2013: the state’s water supply. An $11 billion bond measure passed in 2009 and then twice pulled from the ballot is now scheduled to go before the voters in 2014. The measure was a compromise intended to ensure the state’s long-term water supply while also protecting the environment. But critics say it is too big and filled with pet projects. Legislators will likely try to rewrite and possibly shrink the package this year.

Finally, two issues that are technically beyond the Legislature’s purview at this point will still get plenty attention from the public, and ultimately from the politicians.

One is the construction of the state’s high-speed rail line, a $70 billion project that is supposed to eventually link San Francisco and Anaheim (via Los Angeles). The state plans to have the first leg of the project, in the Central Valley, under construction by this summer. But many questions remain about where the money to complete the line will come from and whether the train will become a white elephant without enough riders to finance its operation.

Another major project taking root this year is the state’s effort to regulate the emission of greenhouse gases believed to be the cause of global warming. The state Air Resources Board has already begun regulating those gases – mostly carbon dioxide – and took a major step late last year by creating a market in which businesses can buy and sell the right to emit those gases.

The idea is to give companies flexibility so that those that find it easiest to reduce their emissions will do so and then sell some of their pollution credits to firms for whom reductions would be more costly. The system is getting underway slowly, but the last time the state intervened in a major market – electricity – the changes led to a meltdown in the market and were largely repealed. So lawmakers will be keeping an eye on how utilities, refineries, cement plants and other large, heavy industries react to the climate change rules.

These are the top issues of the year from this vantage point a week into January. And while that’s plenty to keep legislators and the governor busy, it’s almost certain that some natural or man-made disaster will force its way onto this list before the year is out. Still, here’s hoping that the year ends with an outlook for the future no less bright than it is today.

Daniel Weintraub has covered public policy in California for more than 25 years. He is the editor of the California Health Report at

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