Gov. Gavin Newsom spent the past week working through a stack of hundreds of bills, signing significant legislation on everything from housing to abortion rights. But he also vetoed more bills than he had in the last two years combined while sending a particular message: Now is no time for California to go on a spending spree.
With inflation, war in Europe and higher interest rates pounding the stock market, many of Newsom’s veto messages contained a refrain about the uncertain future finances of a state that has enjoyed record budget surpluses in recent years: “With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined when it comes to spending.”
As Newsom wraps up his first term as governor, political observers say he’s learned from others’ experience of California’s boom and bust economic cycles.
“Gavin Newsom is clearly a progressive who’s worrying a lot about a recession,” said political analyst Dan Schnur. “He knows from watching his predecessors that there’s no better way to destroy a governor than budget deficits.”
Among the legislation Newsom tackled before Friday’s midnight deadline were bills to crack down on retail thefts, increase family and disability leave, support the state’s hiring of people with disabilities and make it harder to recall elected officials. Newsom’s track record on bill signings this year comes with the added scrutiny of not only his re-election bid in November, but also increasing signs that he is a potential presidential contender. That has raised speculation his actions on bills are tailored to his White House aspirations.
The governor’s office said Saturday that Newsom vetoed 169 of the 1,166 bills sent to his desk and signed the rest.
According to the governor’s office and a comprehensive October 2020 veto survey by the California Senate Office of Research, Newsom vetoed 66 of 836 bills in 2021 and 56 of 428 in 2020, when the legislature cut back on its bill volume to devote time to the COVID-19 pandemic emergency. The Senate research office survey said Newsom vetoed 172 of 1,042 bills in 2019, his first year in office.
Newsom’s veto rates — 14% this year, 8% in 2021, 13% in 2020 and 17% in 2019 — have been more or less in line with his Democratic predecessor, Jerry Brown, and lower than those of Republican Arnold Schwarzenegger, according to the Senate research office survey.
Newsom has previously cited concerns about reckless spending. In rejecting a bill last fall on part-time community college faculty, he said “this bill would create significant ongoing cost pressures on the state and community college districts,” and that “such a high expenditure is better addressed in the state budget process.”
But analysts say such comments have become more frequent this year. Newsom has noted in multiple veto messages that “the legislature sent measures with potential costs of well over $20 billion in one-time spending commitments and more than $10 billion in ongoing commitments not accounted for in the state budget.”
He used that language in rejecting a bill to make kindergarten attendance mandatory. And he repeated those concerns in vetoing SB 1387. The author of that bill, Sen. Monique Limόn, a Santa Barbara Democrat, hoped to boost diversity in state office by requiring a report with demographic information about people appointed by his office.
Newsom wrote that his office “makes an intentional, transparent effort to build a diverse and qualified pool of candidates for these positions,” but noted that the bill “is estimated to cost millions of dollars not accounted for in the budget.”
Newsom’s frugality comes after California has enjoyed years of record budget surpluses, leaving many asking: What gives?
H.D. Palmer, spokesman for the California Department of Finance, said that the administration has been signaling caution for months in its budget documents about risks to the state’s revenue stream, and the veto messages shouldn’t be a surprise.
The governor’s May budget revision noted uncertainty in the economic forecast, especially as the plummeting stock market and cooling housing market squeeze one of the Golden State’s largest sources of revenue: capital gains taxes.
The finance department’s latest revenue report said general fund revenues for the first two months of the fiscal year are $2 billion below the revenue forecast in the enacted budget. And the state ended the last fiscal year in June nearly $2.2 billion below forecast. That means the state is “roughly $4.2 billion below projections in our most recent revenue forecast,” Palmer said.
The overwhelming majority of the state’s discretionary surplus funds are committed to one-time measures such as boosting reserves, prepaying billions in state debt, making supplemental deposits into reserve funds and the $9.5 billion in inflation relief payments set to go out next week to some 23 million Californians.
And although California has continued to add jobs, with an 11th month of increases, many have been lower-wage, while high-paying technology companies have seen recent layoffs and hiring freezes. Palmer said that has been reflected in lower withholding receipts from income taxes, where the top 1% pay account for nearly half the revenue.
“The likelihood of continued declines on the receipts side of the ledger means that we have to closely watch the expenditures side,” Palmer said.
Newsom’s nod to tighten spending as the economy wobbles may also be driven by his ambitions. Though the governor has insisted he’s not planning a run for president, he has been mentioned frequently as a future contender for the Democrats, especially with President Joe Biden and Vice President Kamala Harris polling poorly.
The governor, who polls and last year’s failed recall suggest will easily be reelected, has helped feed those presidential rumors by spending campaign money on ads in Republican states blasting the GOP on abortion, guns and transgenders.
Schnur said an underwater budget would undercut Newsom’s appeal to swing-state voters along with a perception the state is awash in crime. Among the last bills Newsom signed Friday were a package aimed at tackling the retail smash-and-grab robberies that have made national headlines. He vetoed a bill Thursday that would have eliminated solitary confinement, something that might not play well with a tough-on-crime crowd.
Newsom also vetoed a bill that would have allowed drug injection sites in cities as a treatment approach, but signed bills to expand recycling and to protect people who seek abortions or transgender treatments in California from states where there are more restrictions.
“He’s trying to sign everything he can to make the left happy unless it would also frighten swing voters in purple states,” Schnur said. “If he goes hard left enough on environmental and social issues, it gives him cover for sticking with the center on crime and spending bills.”