Next California Gov. Gavin Newsom inherits a surplus, a booming economy — and plenty of risks

November 7, 2018

Next California Gov. Gavin Newsom inherits a surplus, a booming economy — and plenty of risks

By Jeff Daniels
CNBC News
November 7, 2018

Over the years, Gavin Newsom has figured prominently in championing gun control and pioneering same-sex marriage when it wasn’t popular. He’s now about to chart a new course for California with an ambitious agenda at a time when the nation’s most populous state is experiencing a booming economy and budget surplus.

Newsom, the state’s Democratic lieutenant governor since 2011, was projected to win election as governor of California, trouncing his GOP challenger John Cox. The Republican, a San Diego businessman endorsed by President Donald Trump, failed to connect with voters despite pushing an anti-tax message and criticizing the state’s sanctuary law policies protecting undocumented immigrants.

The 51-year-old Newsom is considered a policy wonk by those who know him, as well as someone with a record of taking bold risks, or trying new approaches when he believes it’s right. Prior to statewide office, Newsom was mayor of San Francisco from 2004 to 2011.

‘Limitless energy’

On gun control, he led the fight two years ago for Proposition 63, a statewide ballot measure to ban large-capacity ammunition magazines and to require background checks for people buying or selling ammunition. As mayor, he also signed into law in 2005 a voter-approved measure to outlaw the sale of guns and ammo in San Francisco, Proposition H.

“He has political courage and he’s got limitless energy,” said former Newsom mayoral aide Nathan Ballard, a Democratic strategist who remains a close friend of the governor-elect. “We’re going to see a rejuvenated capital with a lot of new ideas coming from Gavin Newsom, who is his own policy director.”

Newsom will soon have the powers of the governorship to tackle formidable challenges. He inherits a state with the fifth largest economy in the world but an embarrassingly high child poverty rate, higher than it was before the Great Recession.

The high cost of housing in California means more than 1 in 5 children live in poverty, according to the California Budget & Policy Center, an independent policy research center based in Sacramento.

Newsom also has made homelessness a priority while in elected office. California has about 12 percent of the U.S. population but accounts for about 25 percent of the nation’s homeless population.

As a supervisor in San Francisco and later mayor, Newsom pushed for an initiative called “Care Not Cash” designed to curb homelessness by slashing welfare payments to the city’s homeless and instead favoring housing and other social services. Newsom promised during the race for governor he would name a Cabinet-level secretary to oversee an interagency council on homelessness.

‘Audacious’ goals

At the same time, Newsom also spoke during the campaign about “audacious” goals he has for California, including “guaranteed health care for all,” a “Marshall Plan” for affordable housing, and “a master plan for aging with dignity.” He has also discussed universal preschool efforts to end childhood poverty.

“I think he’s going to be a very active and aggressive governor with a lot of things on the menu that he wants to bite off,” said Steven Maviglio, a Sacramento-based Democratic strategist and onetime spokesman for former California Gov. Gray Davis.

If history is any guide, political insiders say, Newsom will find himself pulled in many directions at once by special interests lining up outside his door. Another test will come in how he deals with the Democratic-led state legislature to pursue his ambitious and potentially costly plans.

As mayor of San Francisco, Newsom signed into law a universal health care program that covered everyone, including noncitizens. Newsom wants to see a single-payer health care system in California, which is opposed by hospital and doctor groups.

A legislative analysis last year estimated a single-payer system in the state would cost $400 billion annually.

“He’s a handsome, tall guy, who I think people underestimate,” said state Sen. Robert Hertzberg, D-Van Nuys, and a former speaker of the California State Assembly. “They think he’s a pretty boy, and the fact of the matter is, he’s a nose-to-the-grindstone kind of guy. He reads a lot, studies a lot, and does homework a lot.”

Resistance to Trump

The governorship will give Newsom the national spotlight and potential launching pad for higher office and at a time when California is seen as leading the Democratic resistance to policies of the Trump administration on such issues as immigration, health care and the environment. California’s Democratic Gov. Jerry Brown also went after Trump on issues, particularly the environment, although he often left it up to the state’s attorney general, Democrat Xavier Becerra.

“You can make a career out of going after Trump and not deliver for the people who are paying for your salary,” said former Los Angeles County Supervisor Zev Yaroslavsky, a Democrat who served nearly four decades as an elected official at the county and city level in LA.

Back in September, Trump referred to Newsom as a “clown” who “wants open borders.” Newsom responded by tweeting a clown emoji and adding, “Interesting description coming from the guy who is literally locking up kids like Pennywise.”

“He’s going to have to take care of business in California and pick and choose his fights with Trump,” said Yaroslavsky, who is now director of the LA Initiative at UCLA’s Luskin School of Public Affairs. “In my opinion, you can’t be, and shouldn’t be, a knee-jerk opponent of Trump on every single issue because people start to treat you as the usual suspect — and they don’t take you seriously anymore. I think he knows it.”

Newsom is married to Jennifer Siebel Newsom, a documentary filmmaker and actress who also has appeared in movies and TV series, including “Mad Men.” The Newsoms have four young children.

A fourth-generation San Franciscan, the governor-elect entered politics when he was appointed to city’s parking and traffic commission in 1996 by then-Mayor Willie Brown. A year later at age 29, the son of a retired state appeals court judge was appointed to the San Francisco Board of Supervisors and then got elected in his own right. He self-financed his campaign for mayor of San Francisco in 2003, winning the job and becoming the youngest man to hold the office in more than a century.

Gay marriage

Newsom made his mark early on as mayor, ordering the city-county clerk in February 2004 to issue same-sex marriage licenses. He pushed for the action after attending President George W. Bush’s State of the Union speech to Congress, where he heard the president speak about “the sanctity of marriage” and then overheard a couple in the Capitol building making an offensive remark about gay marriage.

“Remember, it was just weeks into his first term as mayor when he authorized the county clerk to begin marrying same-sex couples,” said Ballard, the former Newsom City Hall aide. “He likes to move quickly. As governor, it’s going to be an exciting first 100 days.”

Meantime, Newsom counts several billionaires as top contributors of his campaigns over the years as well as his hospitality business. They include Gordon Getty, heir to multi-billion-dollar fortune of oil magnate J. Paul Getty. The oil heir, who went to high school with Newsom’s father, Willliam, was an early investor in PlumpJack — a wine store in San Francisco the young Newsom helped start in his 20s and that today includes hotels, wineries, wine shops and restaurants in Northern California.

“Gavin Newsom has been in business … and has an understanding of how that works,” said Allan Zaremberg, president and CEO of the California Chamber of Commerce. “So that I think is a positive — having somebody … do a payroll and understand how you comply with complex employment law in California.”

This year marked Newsom’s second try at becoming governor and followed an aborted long-shot bid in 2009 when he was still mayor. After Newsom exited the race, Brown — then the state attorney general — emerged as the leading candidate for the Democrats and went on to win the 2010 election and get re-elected four years later.

When Brown returned for his third term as governor in 2011, California was reeling from a deficit of about $27 billion and had the worst credit rating among the 50 states. The Golden State had just been through the Great Recession, which caused its volatile tax collections to plummet since the top 1 percent of income tax earners in California generate almost half of the personal income taxes in the state.

Back from brink

Brown bought the state back from the brink by making cuts to various programs and slashing salaries, along with getting voters to approve a measure to raise taxes on the wealthy. It also helped that the soaring economy and jump in capital gains tax revenues from the surging stock market flowed into the state’s coffers.

Still, S&P Global Ratings cautioned in a report last month that “despite eight years of an improving budget position, California remains vulnerable to significant fiscal stress in a recession.” It said the state’s “volatile revenue structure is California’s primary fiscal risk factor.”

The S&P report points out “there is little evidence to suggest a recession is imminent.” It points out the state continues to add new jobs and tax revenues through September were running ahead of budget forecasts by more than $1 billion.

California is considered the economic engine of the U.S. economy, with the state’s current economic output of $2.75 trillion an estimated 14.1 percent of overall U.S. GDP. The blue state’s job growth has outpaced the nation since early 2012 on a year-over-year basis.

But California’s export volumes have started to slow as the trade war begins to take a toll on the state’s exports of agricultural goods and raw materials. And Los Angeles-based independent research firm Beacon Economics last month forecast that job growth would slow in all five of the state’s top metropolitan areas in 2019, including Los Angeles and the San Francisco Bay region.

Newsom is scheduled to take the reins of state government Jan. 7, coming into office with California enjoying a budget surplus of several billion dollars and about $14 billion reserved for the so-called rainy day fund for the next economic downturn.

“Previous governors that we can remember here, except for [Democrat] Gray Davis when he took over, have inherited a huge budget deficit,” Zaremberg recalled. “And so here we have a situation where Gavin Newsom is not inheriting a deficit. It’s not like you have to turn things around. You just have to make sure that you don’t screw things up.”

Categories: News