California's governor pushes new taxes, fees despite whopping $21.5 billion surplus

Key Points
  • A budget panel of the California Senate rejects Gov. Gavin Newsom's water tax plan to fund a safe drinking water program in disadvantaged communities.
  • The Democratic governor highlighted the water tax in his May budget revision last week and is proposing other fees, including a health-care tax or "individual mandate" penalty.
  • It comes as California enjoys a projected surplus of roughly $21.5 billion — larger than the budget sizes of at least 20 other states.
  • "We're talking about close to $2.4 billion in new taxes," Republican state Sen. Patricia Bates says.
California Gov. Gavin Newsom discusses his revised state budget that includes a proposed $21.5 billion surplus during a news conference Thursday, May 9, 2019, in Sacramento, Calif.
Rich Pedroncelli | AP

LOS ANGELES — Gov. Gavin Newsom is pushing new taxes and fees even as California enjoys a huge surplus, but lawmakers, including his fellow Democrats, appear to have little appetite for new taxes.

On Wednesday, a budget subcommittee of the state Senate axed the governor's plan to slap a water tax on Californians to fund a safe drinking water program in disadvantaged communities. Newsom endorsed the tax in January and highlighted it last week in his May budget revision.

Newsom's record $213.5 billion revised budget seeks other fees or taxes, including a health-care tax. It comes as California enjoys a projected surplus of roughly $21.5 billion — larger than the budget sizes of at least 20 other states.

"We're talking about close to $2.4 billion in new taxes," said Republican state Sen. Patricia Bates, who represents portions of Orange and San Diego counties. "Everything in California is costing more and incomes are less."

The budget proposes a health tax or "individual mandate" penalty starting in 2020 for Californians not having health insurance to fund expanded subsidies for Covered California, the state's insurance exchange. Penalty revenue is expected to top $1 billion over three years.

"Without the mandate, everybody's premiums go up," Newsom said this week in pitching the plan.

At the same time, the governor's budget proposes to more than double the existing earned income tax credit for low-income Californians by investing $1 billion projected to be generated by closing certain tax loopholes for mainly business income. The loopholes get closed by bringing the state into conformity with several 2017 federal tax law changes impacting business taxes.

"The legislature is getting the choice to basically take some of the revenues that were given away in tax breaks and provide those to low-income communities," said Chris Hoene, executive director of the California Budget & Policy Center, a nonpartisan public policy research group. 

Newsom also reiterated support last week for extending the family leave for parents of newborns to six months, up from the current six weeks program that is funded by mandatory employee payroll deductions. In 2004, California became the first state to provide partial income during a family leave to care for a sick family member or bond with a new child.

The governor expressed support in January for a phone tax to modernize the state's 911 emergency system. Enacting new taxes or fees requires a two-thirds vote in each chamber of the state legislature, where Democrats have a super majority, to override a gubernatorial veto or pass budgets.

In this April 6, 2016, file photo tape covers the spout and a sign warns students not to use this water fountain at a school in Loma Rica, Calif. Many public water systems in California serving schools, parks, prisons and neighborhoods have found lead at levels unsafe for drinking.
AP Photo | Rich Pedroncelli

As for the water tax, the Assembly still hasn't decided on the measure, but support appears to be cooling. A similar drinking water tax plan touted last year by Democratic Gov. Jerry Brown failed.

Newsom has said more than 1 million Californians lack clean water access, and he highlighted the issue during his state of the state address in February.

"The Governor has made his proposal in the budget, and he is encouraged by the conversations with the legislature," Newsom's spokesman Nathan Click said in an email Wednesday. "His objective remains providing a permanent and sustained funding source for safe drinking water."

In rejecting the water tax, though, the Senate panel Wednesday recommended using existing revenues for a fund to assist disadvantaged communities in obtaining access to safe and affordable drinking. Besides taxing water bills, Newsom has pushed for dairy and fertilizer fees for water cleanup.

"There is no reason for higher taxes, and the things they're talking about like the water tax are very much like the previous increase in the gas tax," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, the largest taxpayers' association in California. "Who is being squeezed by all this is the middle class."

The hesitation by California lawmakers to pass new taxes may stem from what happened last June when voters in Orange County recalled a Democratic lawmaker from his state Senate seat. Sen. Josh Newman, whose seat was taken by a Republican, had been linked to a controversial 2017 transportation package, which included a 40% increase in the state's excise gas tax.

"There's wariness about the lessons from the gas tax, and I think that applies in the case of the water fees," said Hoene. "Water fees are the kind of thing that everybody would pay, which is very much like the gas tax."