How could that possibly happen?

Three reasons:

• Sacramento politicians haven’t had the guts to fix a very flawed roller-coaster tax system that generates barrels of revenue in good times but goes bust when the economy sours.

• They spend too much money. That’s self-evident. At any rate, they’re spending more than the state is taking in. A lot more.

• All that aside, rising interest rates cooled the economy by increasing borrowing costs. That stifled home buying and business expansions, according to independent Legislative Analyst Gabriel Petek, who projected the $68 billion deficit last week.

Tax deadline chaos

The analyst says the state stumbled into the red ink hole partly because the federal government extended the normal tax filing deadline this year from April until November. It wanted to ease life for Californians harmed by last winter’s drenching storms. California followed the feds’ lead and did the same.

So what? It meant Gov. Gavin Newsom and legislators didn’t know how much revenue they had to spend before the deadline for passing a budget. They needed to enact a spending plan by the start of the fiscal year July 1. But the revenue data weren’t available until tax returns were filed in the fall.

Their solution was to blindly overestimate the taxes the state would collect.

If they’d known the revenue flow was slowing, mitigating steps could have been taken: spending cuts, tapping reserves, internal borrowing.

“The [tax filing] delay really messed us up,” says H.D. Palmer, Newsom’s budget spokesman. “If we’d had that cash data on hand in spring like normal, it would have required solutions to close the gap and we’d have a much smaller problem today.”

OK, but they could have had the foresight to act long before spring. On Newsom’s watch starting in 2019, annual state spending has jumped by 53% — more than $100 billion from the $203 billion budget he inherited from Gov. Jerry Brown to $311 billion currently.

Yo-yo tax system

But overspending is only part of the problem. There’s another part that neither Republicans nor most Democrats want to talk about: a volatile tax system that overreacts to economic changes.

Less money came in than expected because of California’s warped tax system. It relies mostly on wealthy-income taxpayers — regardless of whether they’re having a good or bad year. The system functions like a yo-yo, performing erratically depending on whether the economy is booming or busting.

Specifically, the state feeds off taxes on rich people’s capital gains, especially their stock earnings. Sometimes stocks tumble. And capital gains become investment losses.

The top 1% of earners pay nearly 50% of the state income tax. And the top one-tenth of 1% pay 28%.

“These lucky folks get a lot of their income from capital gains and stock options,” Palmer says. “It turns out that 2022 was not a great year for the financial market. The Nasdaq dropped 33%, the biggest drop since the Great Recession in ’08. The Nasdaq is relevant because of California’s high-tech economy.”

The top 10% of earners — with taxable incomes above $200,000 — kick in roughly 80% of the tax. California has a very progressive tax system, with the lower 60% of earners paying only around 2%.

The legislative analyst says the state took in $26 billion less than expected in the last fiscal year — “a severe revenue decline.” And he forecasts a “serious” $68 billion deficit through the next fiscal year.

Personal income tax receipts were 22% — $19 billion — less than forecast just from April through November, Palmer says.

Service economy

Putting this in perspective, the personal income tax supplies two-thirds of the state general fund. Back in 1950, when our tax system was stable, the income tax accounted for only 10%. Then, the sales tax was the main revenue source, feeding 60% of the general fund. Today it’s just 16%.

A big reason the sales tax has diminished in importance is that we’ve become less of a retail economy and more of a service economy. But we’re one of the few states that don’t tax services. Our tax system is stuck in the mid-20th century and should be modernized.

What’s needed is to reduce income tax rates at all levels and extend the sales tax to services.

That doesn’t mean taxing haircuts, lawn mowing and baby sitting. But we could tax labor on car repairs, as parts already are. Tax Lakers tickets and concerts. More important, tax attorney, accountant and interior designer fees — services used mostly by big business and the wealthy.

But that thought scares politicians. Most would love to vote for an income tax cut. And it would require only a simple majority vote of the Legislature. But extending the sales tax to services would necessitate a two-thirds vote. That would take strong gubernatorial and legislative leadership. And it has never materialized. Too politically risky.

Former state Controller Betty Yee, a Democrat who’s running for governor, advocated such tax reform for years but backed off.

“People focus on one aspect without looking at the entire system and then just beat me up for wanting to tax services,” Yee told me. “It’s very hard for people to put their arms around the entire system.”

So Newsom and the Legislature will probably cut school funding, trim some other spending, tap into savings, borrow internally and shamefully deploy fiscal gimmickry to “balance” the next budget.

And our tax system will continue to perform erratically.

George Skelton is a Los Angeles Times columnist. ©2023 Los Angeles Times.  Distributed by Tribune Content Agency.

Now, some state legislators are trying to get us back on the road.

They want the state to invest more money into nurturing the use of hydrogen vehicles, just as California is pouring funds into plug-in electric cars.

They argue that California — and the nation — shouldn’t be putting all its eggs in one basket: plug-in vehicles.

Millions of car owners don’t have their own garages — many even park on the street — so they can’t plug in their vehicles for recharging overnight.

Anyway, California doesn’t have enough grid capacity to recharge all the electric vehicles there will be once gas cars are phased out. And what about the motorist who lives where there’s a blackout caused by — name it — a summer heatwave or a winter atmospheric river or utility company ineptitude?

“Utilities won’t be able to generate enough power to charge all the battery vehicles,” says Terry Tamminen, who was Schwarzenegger’s environmental secretary. “Even if a third of all the cars had batteries, you’d crash the grid every night.”

We’re way below that. Last year, 19% of automobiles sold in California were zero emission vehicles, up from 12% in 2021. In all, 346,000 ZEVs were sold last year — 2,600 of them fueled by hydrogen.

There are roughly 12,000 hydrogen cars on the road in California, a tiny fraction of the more than 14 million total vehicles.

A hydrogen vehicle can be refilled at a service station in about the same time it takes to top off a gas tank.

That is, if you can find a station that sells hydrogen and the fuel dispenser works. That’s a frustrating problem for the relatively few people who drive hydrogen vehicles, and a dilemma the state should be paying more attention to.

“Sacramento [hydrogen] fueling stations have been down almost as much as they’ve been up,” says John White, a longtime environmental activist who drives a Toyota hydrogen car. “That’s not a good situation.”

“And there aren’t enough fueling stations,” White points out.

Only two in Sacramento — 62 in the state, including 22 in Los Angeles County and 12 in Orange County. There’s only one in San Diego County. Ten are in Santa Clara County, but just three in San Francisco.

The California Energy Commission spends $20 million annually trying to bolster the hydrogen vehicle industry. Over the years, the commission says it has invested $166 million in hydrogen infrastructure — including incentives for developing fueling stations — and plans to spend a total of $279 million by the end of 2024.

The hydrogen spending should be enough to bring the station total up to 200, the commission says.

But the ultimate goal of hydrogen advocates is 1,000 stations.

Sen. Bob Archuleta last year asked Gov. Gavin Newsom for $300 million over 10 years to help spur the use of hydrogen vehicles. He says 30 legislators joined him in the request. But the governor “said he had other priorities,” the senator says.

He’ll try again this year.

Hydrogen vehicles can travel 300 to 400 miles on a full tank.

And they emit only water vapor, no greenhouse gas emissions.

But there’s another problem with hydrogen cars: the exorbitant cost of filling up a tank — around the equivalent of $16 a gallon or higher.

“The cost of hydrogen has skyrocketed in the last two months,” says Sen. Josh Newman, D-Fullerton, who drives a hydrogen vehicle and loves it. “It handles great. Makes no noise. It’s comfortable and fast.

“But it’s challenging to own because it’s a challenge to keep it fueled.”

State government “is working on it, but not very robustly,” he says.

Schwarzenegger tried in 2004 but was run off the road by skeptics and the Great Recession.

Newsom should get the state back on track.

George Skelton is a Los Angeles Times columnist.

Working right means: Leaders cooperate and jointly use their clout. Lawmakers pushing rival bills team up. People compromise. Pushy special interests are shoved aside.

A textbook example occurred last week. The Senate leader and Assembly speaker agreed on two important housing bills. The measures had been in conflict politically, but not so much substantively. They complemented each other. And it was decided each should pass.

Both bills open commercial land for residential housing, in many cases replacing dilapidated shopping malls, vacant office buildings or run-down motels — or just ugly weed patches.

Local governments are often reluctant to rezone commercial land to residential because businesses generate more property taxes than homes. And they oppose legislation that weakens their local control.

Of course, local government restrictions have contributed to the state’s severe housing shortage. Demand exceeds supply, driving up home prices and rents.

Last week’s legislative agreement broke a years-long stalemate, caused largely by a battle between two labor factions: the State Building and Construction Trades Council — colloquially known as “the trades” — and the carpenters’ union.

The trades demanded that any housing projects be required to use “skilled and trained” labor — a euphemism for union members. The carpenters were fine with just “prevailing wages” — pay that’s generally at the top of the local heap.

Carpenters have claimed there aren’t nearly enough union members to make a union hiring mandate work.

“Let’s get real. There’s no way a union workforce can step in and meet the state’s housing production goals. It’s virtually a nonunion industry,” says Danny Curtin, director of the California Conference of Carpenters.

But the workforce badly needs to be unionized, counters trades president Andrew Meredith.

“Residential construction workers have been mistreated for generations by developers,” he says.

Democratic lawmakers haven’t wanted to alienate either labor group, especially the more powerful trades. Both are significant campaign contributors. So, certain housing legislation has been stalled for years.

But this time legislative leaders declared enough’s enough.

“They have quite an impact with members. They divide and conquer,” Senate leader Toni Atkins, D-San Diego, told me. “We said that’s not going to work.”

“We’re trying to respond to the [housing] crisis,” she added. “At some point we have to figure out solutions. Everyone involved from the carpenters to building trades finally had to come to the table, realizing we can’t get anything done if we don’t do it together.”

Atkins and Assembly Speaker Anthony Rendon, D-Lakewood, declared both bills should pass — and let everyone know they’d make sure it happens.

With that muscle behind them, both bills are a virtual cinch to pass before the Legislature adjourns its two-year session Wednesday. Gov. Gavin Newsom will eagerly sign both.

Developers will have an option: They can build under whichever new law they choose.

AB 2011 by Assemblywoman Buffy Wicks, D-Oakland, does not include a union hiring mandate. But it does require prevailing wages. It’s strongly backed by the carpenters.

SB 6 by Sen. Anna Caballero, D-Merced, requires both union hiring and prevailing wages. It’s pushed by the trades.

The purpose of Wicks’ bill is to produce affordable housing for low-income people. A certain percentage of units must be affordable — a requirement that doesn’t please developers.

Caballero’s measure is targeted at middle-class housing. It doesn’t require affordability. But local governments still could.

AB 2011 exempts projects from the developer-dreaded California Environmental Quality Act, or CEQA. T

Caballero’s bill does not contain a CEQA exemption for projects. But it offers regulatory streamlining.

Until last week, Wicks’ bill faced an uncertain fate on the Senate floor.

Now both measures will perform end-of-session parliamentary gymnastics and become law, opening more sites for housing. A big thing.

George Skelton is a Los Angeles Times columnist.

Patient acquiescence would defy human nature.

It is indisputable that we’re waiting a lot longer these days to find out who won or lost.

When I started reporting on elections an eon ago, smartphones didn’t exist and a desktop was a typewriter. Cyberspace was a blackboard where we updated the latest election night counts, called in by rotary phone from a reporter at the office of the local voter registrar or the California secretary of state.

It was an old-school system that worked. We usually knew the results on election night or by early morning. Maybe two days later at most.

Now we have all this semi-sophisticated, tap-tap gadgetry and are still waiting for the results of some races roughly two weeks after primary election voting ended June 7.

It has become the latest cliché: We no longer have an election day. It’s an election month. In fact, it’s a two-month process — the first month for voting, the second for counting.

What happened? Mainly we made it easier to vote, and that made it harder — and more pokey — to count.

That’s because the vast majority of votes now are cast by mail. They take more time to tally and safeguard against fraud.

Voters must sign their signatures on the back of the envelope containing the ballot. And it’s checked against the signature they filed with the voter registrar. Yes, all signatures are really checked and it’s time-consuming.

Decades ago, only a tiny fraction of voters mailed in an “absentee” ballot. They had to apply for it and provide a reason. “My grandma will be sick and I’ll be visiting.”

Later, voters were allowed to become permanent absentees. Then mail voting picked up.

Starting in the 2020 pandemic, every registered voter in California was mailed a ballot for the general election. Mail voting increased dramatically — and counting slowed.

This is the trend in recent general elections: In 2014, 59% of California votes were cast by mail. In 2018, it was up to 66%. And in 2020, 87%. In this primary, mail ballots will constitute more than 80% of the total.

It’s easier. You can vote sitting in the recliner watching a ballgame on TV. No stamp needed. And you’re allowed to vote for a month up until election day. The ballot must be postmarked by 8 p.m. when polls close. And it has seven days to reach the registrar.

So ballots were still being received a week after the election, and they piled up. Counties have been issuing periodic tallies, but they’re not required to report final results until July 8.

Some experts and pundits are saying we must learn to live with the snail’s pace.

“We’ve got to stop being so impatient,” says Darry Sragow, a former Democratic strategist who publishes the nonpartisan California Target Book, which chronicles congressional and legislative races.

“So what if we don’t have final results on election night? What harm comes to democracy? Insiders ought to cool their jets. We live in a world where everyone wants everything right away. It’s more important to encourage people to vote than to have everything final by election night. That’s an antiquated way of thinking.”

Well, maybe not on election night. But a lot faster than now.

Patience may be fine for a basically boring primary election when every partisan office won’t be filled until the November runoff anyway.

But what about November? There’s more urgency to learn the results then.

A new Legislature will convene on Dec. 5 and counties are allowed to keep counting for three days after that. If the sluggish tabulating repeats, we may not know who should occupy some seats.

In four years, there could be a hot race for governor when Gov. Gavin Newsom’s term expires, assuming he wins reelection in November. The governor-elect in 2026 will have a short time to organize an administration and craft a state budget before taking office the first week in January.

The final turnout of registered voters is expected to be in the 33% to 35% range. That’s low, but about average for a non-presidential primary.

Mailing all 21.9 million registered voters a ballot didn’t seem to increase turnout, as Democrats had theorized. But mail voting is super secure, despite Donald Trump’s demagoguery.

So the state should consider spending some of its ridiculous $97-billion budget surplus to help counties hire more vote counters.

Maybe that’s too simple.

George Skelton is a Los Angeles Times columnist.

Gov. Gavin Newsom is trying to help energy companies tap into a huge underground reserve of lithium that’s in high demand for the big rechargeable batteries needed to power carbon-free automobiles.

“We have what some have described as the Saudi Arabia of lithium,” Newsom told reporters in unveiling his $286-billion state budget proposal, referring to that country’s vast oil reserves.

Newsom proposed $22 billion in new spending on a wide range of climate change projects — actually, $37 billion over six years, including money allocated last year.

“California is leading the world in forging an oil-free future,” the governor said. “We will not sell [new] traditional gas-powered, internal combustion engines by 2035. This is dramatic. It’s profound.

“You can’t get serious about climate change unless you’re serious about tailpipe emissions.”

Newsom is proposing $350 million in tax credits that lithium entrepreneurs can apply for — plus regulatory streamlining to cut the lengthy, frequently agonizing process of obtaining government permits for their projects.

He’s asking for $100 million in tax credits annually for three years to help finance “pre-development” of any kind of clean energy. But this is clearly aimed at aiding the budding lithium industry. The money could be used for things such as engineering, equipment and infrastructure.

California’s largest and most troubled lake has been shrinking and becoming more saline for nearly three generations. Once thriving resorts have been abandoned and it’s no longer a popular vacation destination.

An estimated 97% of its once-abundant fish have died off, most rotting on the beaches. Waterfowl no longer find it a pleasant resting spot on their winter migration, largely because the edible fish have all but vanished.

Created in 1905 by a levee break that allowed Colorado River water to flow into the Imperial Valley, the shallow lake was about 15 miles by 35 miles. But it has been receding as farmers used water more efficiently and there was less irrigation runoff into the lake.

As the lakebed became exposed, desert winds sent clouds of toxic dust into nearby communities — some even reaching the Los Angeles basin. The place had a rotten egg smell.

People have been working on all that but making little progress.

Lithium could at least be an economic salvation, providing hundreds and potentially thousands of good jobs. And, if that happened, perhaps enough resources could be generated to mitigate the lake problems.

“The value of lithium has gone up and up,” says Dee Dee Myers, director of Newsom’s Office of Business and Economic Development. “We need more battery storage. It turns out that this part of California has one of the world’s largest reserves of lithium.”

And if the lithium can be tapped in great quantities, Newsom and energy companies are thinking, the Salton Sea area could become a prime site for a satellite industry: battery manufacturing.

Karen Douglas, a member of the California State Energy Commission, says it’s estimated that within two years, California could produce nearly a third of the global lithium demand.

Australia, Chile, China and Argentina are the major lithium producers now.

“Lithium is obtained from brine.

Extracting it is like drilling for oil. You drill from a derrick a mile or more into the earth and pump out water. The lithium is removed from the brine. Then, around the Salton Sea at least, the water would be injected back into the ground.

“It’s kind of a clean process,” Myers says.

“It’s 75% water and 25% gunk. Solid gunk,” says Jonathan M. Weisgall, vice president for government relations of Berkshire Hathaway Energy. “The challenge is to get the lithium out of the gunk in an environmentally responsible and economically viable manner without getting out the other stuff.”

Weisgall says Berkshire Hathaway is operating two demonstration plants at the Salton Sea and hopes to begin commercial operations in 2026.

“We’re crawling before we’re walking, and we’ll be walking before we’re running,” he says.

His company already has received two government matching grants totaling $26 million — one from the state, another from the feds — and has matched each with its own money.

“We would not be putting in this sort of resources if we did not think there was a high-level prospect of success,” Weisgall says.

This may not be another 20th century oil boom or 19th century gold rush for California. But it may be for people around the Salton Sea.

George Skelton is a Los Angeles Times columnist.

One reason is that voters are suspicious of Sacramento politicians. The public may not especially trust local officials either, but they’re closer and can be better watched and held accountable.

Another reason is that voters this year are very anxious about the economy as the pandemic takes a toll on businesses, jobs and retirement savings. They didn’t want to unleash a major new property tax hike that might further cripple the California economy.

This is a deep-blue state with strong Democratic leanings. But on the landmark property tax proposal, Proposition 15, many Democrats voted like Republicans.

Democratic leaders and strategists apparently underestimated national surveys that showed there was one issue on which President Trump usually outpolled Joe Biden. It was on the question of which candidate would be best at handling the economy.

“People were incredibly nervous about their personal economic situations,” Democratic consultant Gale Kaufman says. “It’s really difficult to get people to spend money when they’re nervous about their own economic lot. … They didn’t want to screw up their 401(k)s.”

Another steep hurdle for Proposition 15 was that it asked voters to dramatically change Proposition 13, the historic 1978 property tax cut that’s viewed by many as sacrosanct.

Residential property would not have been affected, but many voters feared a camel’s nose under their tent. They suspected the tax-and-spenders would be coming after their homeowner tax breaks next.

Under Proposition 15, commercial property would have been reassessed at market value every three years. Currently, that reassessment comes only when the property changes hands. And that’s almost never for big corporations using Proposition 13 loopholes.

Socking it to corporations is one thing. But a problem for Prop. 15 was that many small businesses lease their store sites and offices, and they would have been smacked. Under standard leases, the business owner is liable for the tax hikes.

The next time anti-13 forces launch an assault on the iconic law, they should focus narrowly on big corporations and be extra careful to exclude small businesses, even if the total tax take is smaller.

Proposition 15, sponsored by the California Teachers Association and the Service Employees International Union, would have raised up to $11.5 billion annually. The money would have been split 60% to local governments and 40% to K-12 schools and community colleges.

Business interests spent roughly $72 million to defeat the initiative. Voters rejected it by roughly 52% to 48%.

But voters signed off on lots of local tax increases and bond issues. And under California’s stringent supermajority rules, most local tax increases require a two-thirds vote because of Proposition 13. School bonds need 55%.

Among proposed local sales tax increases, 53 were approved and nine rejected, according to an early report by the California Taxpayers Association. Several other measures were too close to call.

Of parcel tax proposals, 23 won and 13 lost. Forty school bond measures were approved, requiring property tax hikes. Only four were rejected, based on CalTax’s early look.

So why did these local measures pass — but Proposition 15 fail? There was an early warning sign.

In the March primary, a hefty $15 billion school construction bond measure proposed by Gov. Gavin Newsom and the Legislature was rejected by voters. It was the first defeat of a state school bond measure since 1994, a very Republican year.

“In local school districts, voters know what’s going on,” says Robert Gutierrez, president and chief executive of the California Taxpayers Association. “They understand what the money may or may not be used for. There’s a local connection to the community.”

That’s not the case with voters and Sacramento.

Proposition 15 was not placed on the ballot by the Legislature and governor. It was labor’s doing. And the billions raised would not have flowed into the state treasury. The money would have gone to local governments and schools. But it was strongly supported by Democratic leaders and the governor. The state’s brand was on the measure.

“Local governments are more trusted,” says former Democratic consultant Darry Sragow, who publishes the California Target Book, which chronicles legislative and congressional races. “They feel that local officials are less likely to betray them.”

Voters sent Sacramento Democrats a message: Forget huge tax increases.

George Skelton is a Los Angeles Times columnist. ©2020 Los Angeles Times. Distributed by Tribune Content Agency.

“I’m shocked, shocked to find that gambling is going on in here,” the Claude Rains character exclaims just before the croupier hands him his winnings.

Several utility executives and political leaders seemed shocked, shocked to find that when electricity is shut off, traffic lights go dark and drivers smash their cars. Garage doors won’t open. Food rots in refrigerators. Phones die. Air conditioners don’t cool. Batteries can’t be recharged for power scooters relied on by disabled people. The aged become especially vulnerable.

Also, shock, a company — Pacific Gas & Electric — that for many years has repeatedly proved its incompetence fails miserably to communicate with customers about what to expect.

Gosh, who would have thought?

PG&E execs, the governor, lawmakers and regulators had months to plan for a big power shutdown that everyone knew was coming at some point in an effort to prevent electrical lines from again igniting devastating wildfires.

But they didn’t plan enough. PG&E was trusted and didn’t always keep its word. And when the blackouts became a debacle, our leaders seemed stunned, although some were slow to get there.

As the power outages began, Gov. Gavin Newsom told reporters that the situation was better than the alternative of deadly wildfires. No one would dispute that. But the question was whether deadly wildfires were enough of a present, realistic threat to justify shutting off electricity to 738,000 customers in 35 Northern and Central California counties.

Newsom asserted that “everybody is prepared” for the blackouts and that because of climate change, “this is the new normal.”

In fairness to the governor, his head had been buried in hundreds of legislative bills for several days and he was up against a deadline for acting on them. He also, however, was spending time traveling the state trumpeting housing legislation he had signed.

But by the next day, the blackouts were no longer abstract notions and Newsom was outraged. He changed his tune.

“This can’t be the new normal,” he told reporters at the state’s emergency operations center in Sacramento. “What has occurred in the last 48 hours is unacceptable. We’re seeing a scale and scope of something that no state in the 21st century should experience.”

Yes, you’d think that a big private utility in a state with the world’s fifth-largest economy could deliver electricity when the wind blows 30 mph. And in many darkened places, there was only a 5-mph hint of a slight breeze.

Unlike San Diego Gas & Electric Co. — the role-model utility that politicians and experts point to — PG&E doesn’t have the technical capability to limit its blackouts to small vulnerable areas. It must shut off power for many miles. Its equipment is that outdated.

And so is its customer service. Anxious people were unable to reach the utility on its website or by phone.

During the blackouts, PG&E arranged for a special conference call briefing for legislators. But there was so much static on the line that no one could really hear, one lawmaker told me.

After each PG&E failure — chiefly disastrous wildfires caused by equipment that sets untrimmed vegetation ablaze — utility execs acknowledge they made mistakes and promise to correct them. Then they fail again.

In a harsh letter to PG&E Chief Executive Bill Johnson on Monday, Newsom blamed decades of “prioritizing profit over public safety, mismanagement, inadequate investment in fire safety and fire prevention and neglect of critical infrastructure.”

Give Newsom, former Gov. Jerry Brown and the Legislature credit: Over the last two years, they’ve enacted loads of bills and spent barrels of money aimed at beefing up wildfire fighting and prevention. They’ve also enacted dozens of bills to help utilities — especially PG&E — cope financially with their liabilities to victims. And they’ve stiffened regulations.

Now they and the California Public Utilities Commission need to focus on limiting blackouts and forcing PG&E to treat customers better.

And be skeptical of the utility’s promises. As President Reagan did with the Soviets, “trust but verify.”