As this is our final California column for 2023, let’s look back on three developments in the Golden State over the past calendar year.
The (National) Rise and (Local) Fall of Gavin Newsom. The governor was returned to office last year with over 59% of California’s statewide vote, presides over a state in which his political party enjoys a nearly two-to-one edge in voter registration, and is talked up as the ideal replacement for President Biden should the latter reverse course and decide not to seek reelection in 2024.
Yet as 2023 neared its end, governor Gavin Newsom found himself “underwater” in this poll, with a job-approval rating six points lower than voters’ disapproval, 43% positive vs. 49% negative (in February, the same poll showed Newsom with a +13 approval rating, 54% positive vs. 41% negative).
Lest you think this is a common occurrence among prominent blue-state governors in these complicated times, guess again. In New York, governor Kathy Hochul is slightly “above water” in this Marist New York State Poll. An October poll by the Illinois Policy Institute shows governor J. B. Pritzker likewise barely above water (60% of voters say he shouldn’t run for president if the opportunity presents itself). In Michigan, a mid-October survey by Emerson College Polling has governor Gretchen Whitmer well above water (48% approval vs. 36% disapproval).
So what accounts for Newsom’s approval resting at an all-time low?
One explanation could be the governor “driving distracted” throughout 2023, seemingly more engaged in national politics than the affairs of his own state.
In late March, Newsom launched a “Campaign for Democracy,” using leftover funds from his 2022 gubernatorial campaign to lash out against “authoritarian leaders” governing America’s more conservative “red” states. A few days later, California’s governor spent a “spring break” of sorts in Alabama, Arkansas, Florida, and Mississippi, posting social-media videos suggesting that civil rights progress was being reversed across America’s Deep South.
What came after that (including too many emails and social-media posts to recount here)?
In July, Newsom lambasted Texas governor Greg Abbott for the Lone Star State’s crime and murder rates (“I’m not so convinced about the merits of his leadership,” Newsom opined). In late September, Newsom attended a Republican presidential debate in Southern California to play the role of Biden administration surrogate. In late October, Newsom took his political wanderlust internationally, with visits to Israel and China—in the process, looking very presidential in multiple media availabilities with those nations’ leaders.
Finally, in late November, came the culmination of Newsom’s long-running feud with Florida governor Ron DeSantis: the two foes taking part in a nationally televised “Great Red vs. Blue State Debate” that wasn’t so much 90 minutes’ worth of elevated policy talk as it was a steady stream of contemptuous barbs, with both debaters playing fast and loose with data points (for example, Newsom fudging the math regarding California’s outbound migration).
This alone doesn’t account for Newsom’s weak poll showing, but it’s a factor: the same Berkeley IGS survey showing Newsom’s approval to be “underwater” also shows 43% of voters opposing the governor “taking on a more prominent role in national politics.”
But the other factor affecting Newsom’s approval: as 2023 came to an end, some unmistakable tarnish on the Golden State’s financial, economic, and social well-being.
Consider what’s contained inside this December report on California’s fiscal outlook by the state’s Legislative Analyst’s Office. The shocking news: the Golden State is looking at a record $68 billion deficit when lawmakers convene next year to craft a new state budget that’s due by July 1 (in 2022, California enjoyed a record $97.5 billion surplus).
But dig deeper into the LAO’s report and these disturbing factoids appear:
- The number of unemployed workers in California has risen nearly 200,000 since 2022, with the state’s unemployment climbing from 3.8% to 4.8% (nationally, it was 3.7% in November);
- California home sales are down by about half over the past year, as the monthly mortgage payment for a “typical” home has soared from $3,500 to $5,400;
- In the land of start-ups and futurist ventures, the number of California companies that went public in 2022 and 2023 is down over 80% from 2021 (initial public offerings also manna from heaven for revenue-hungry lawmakers in Sacramento).
Such challenges (and note we’re not including chronic homelessness or an opioid crisis—capitalism to blame for both, according to a San Francisco supervisor) would seem a full-time challenge for a California governor.
So where was Gavin Newsom last week? In New York City, for a guest appearance on NBC’s Late Night with Seth Meyers, during which the conservation turned to . . . the DeSantis debate and national politics.
The Eyeball Test. If there were such a thing as seminal moment in California in 2023, it may have been November’s Asia-Pacific Economic Cooperation (APEC) summit in San Francisco—not for anything uttered or decided at the summit but rather for what the event said about the sad state of San Francisco’s urban decay.
Given that it was the city’s largest international gathering since 1945’s United Nations conference, a massive cleanup of the fabled “city by the bay” was launched, resembling—as the New York Times described it—“teenagers frantically cleaning up after a house party with their parents on the way home.“
The cleanup was a success in that the world saw a cleaner version of San Francisco’s former self: freshly painted crosswalks, graffiti removed, trash picked up, open-air drug markets closed, homeless encampments relocated, with several miles of “anti-scalable” modular fencing to keep protestors and other social undesirables at bay (the Daily Mail was so kind as to publish before-and-after photos showing squalor giving way to cleanliness).
However, the same cleanup also raised questions of hypocrisy and why it took the arrival of an international contingent to address San Francisco’s sullied living conditions. Not helping matters was this Newsom soundbite: “I’m very excited, I know a lot of folks are saying they are cleaning up this place because of those fancy leaders are coming into town. And that’s true, because it'’s true.”
The problem for the governor and others looking to defend California’s status quo: the Golden State, in 2023, with its urban blight, failed the “eyeball test”—i.e., voters seeing something different from what elected officials assert.
Try as he did in the DeSantis debate to dizzy the viewing audience with facts and figures, Newsom had no effective counter to the “poop map” displayed by DeSantis detailing locations of human excrement reported on the streets of San Francisco. Just as paparazzi shots of Arnold Schwarzenegger bicycling through the trash-filled streets of Venice while en route to his morning workouts is a world away from a more pristine California to which the future governor would immigrate to in 1968.
California has another “eyeball” test in the near future: the condition of Los Angeles come July 2028 and the arrival of that year’s Summer Olympics (Los Angeles hosting as it did in 1984 and 1932).
That gives city and county officials four-plus years to figure out how to address the local homeless population (roughly the size of a football crowd) and a complicated public-safety picture (violent crime is down in Los Angeles, with an uptick in thefts and burglaries).
Or, the summer of 2028 in Los Angeles sees a repeat of the autumn in 2023 in San Francisco: a frantic last-minute cleanup that won’t last much beyond the city’s showcase event (a month after APEC left town, San Francisco saw the return of homeless encampments).
The Artful (Tax) Dodger? Speaking of California’s largest city, the news that Shohei Ohtani signed a 10-year contract with the Los Angeles Dodgers came as no surprise to baseball insiders, though the record $700 million asking price was jarring.
What Ohtani’s signing showcases: an imaginative Dodgers operator who understands one player’s strength as an international brand—and is pretty clever at juggling its books. Ohtani reportedly agreed to defer all but $2 million of his annual salary—$68 million of $70 million—until the contract expires, with the deferred money to be paid out without interest from 2034 to 2043.
Then again, maybe it’s Ohtani demonstrating financial acumen, as he may have found a way to circumvent California’s income tax (a top marginal rate of 14.4% beginning in January) should he decide to move to another state when his baseball contract expires.
According to the website Sportico, which follows sports business: “After Ohtani . . . finishes his 10-year deal in 2034, he will collect his deferred payment over the next decade. If he resides in California, he’ll have to pay California taxes on those deferred payments.”
But if Ohtani moved elsewhere—say, to one of the nine US states without an income tax—once his playing days are over (the same money-saving reason why Tigers Woods took up Florida residency nearly three decades ago)? Sportico continues:
Under Title 4, Section 114 of the Internal Revenue Code, a state can’t impose an income tax on retirement income of a person who doesn’t reside in that state. The code defines retirement income as inclusive of plans contemplated in another section, 3121(v)(2)(C), which includes “nonqualified deferred compensation plans” when certain conditions are met. Those conditions include payments that are not less frequently than annually, occur during a period of not less than 10 years and are “substantially equal.”
What this means is that if Ohtani resides in a state without an income tax, he and his CPA could argue he is not subject to any state income tax—including from California—on grounds his deferred payments ought to count as retirement income.
What Ohtani might be looking at: a showdown with the revenue-collecting California Franchise Tax Board, which is of the opinion that nonresidents can be taxed for California-sourced income (here’s more on nonresident taxation).
In baseball terms, Shohei Ohtani’s addition to the Dodgers translates to the rich getting richer. But for a California already struggling with a “great wealth migration” as higher-income earners move elsewhere, it could end up as one more example of lost revenue—in a state with a bellicose attitude when it comes to the pursuit of residential wealth.
Which maybe even a distracted governor can’t help but notice as he deals with a gaping hole in his budget and readies for a new year and yet another run at the same societal ills that didn’t go away in 2023.
See you in 2024.
