While Governor Gavin Newsom may be eyeing the White House, the state he is charged with running is facing a bigtime budget crisis.
California is reeling from a “severe revenue decline” and a record $68 billion budget deficit as residents and businesses continue fleeing the Democrat-run state for Redder pastures.
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— BPR (@BIZPACReview) November 13, 2023
Now the liberals in charge will likely be forced to cut spending on things like schools and community colleges, according to a report released on Thursday from California’s non-partisan Legislative Analyst’s Office (LAO).
The state’s budget deficit is up more than $54 billion from just $14.3 billion in June, the report shows.
“The deficit isn’t the largest to ever face the state as a percentage of overall spending,” Fox News Digital reports, “but it is the largest in terms of real dollars.”
The LAO’s report pointed to a change in California’s tax filing deadline and “an effort to cool an overheated U.S. economy” by the Federal Reserve “over the last two years” as reasons for the state’s economic “downturn” in 2022.
As an example, LAO states, “home sales are down by about half, largely because the monthly mortgage to purchase a typical California home has gone from $3,500 to $5,400.”
“The number of unemployed workers in California has risen nearly 200,000 since the summer of 2022,” according to the report. “This has resulted in a jump in the state’s unemployment rate from 3.8 percent to 4.8 percent. Similarly, inflation‑adjusted incomes posted five straight quarters of year‑over‑year declines from the first quarter of 2022 to the first quarter 2023.”
“According to IRS data reported by CNBC in May, California lost $29 billion in tax revenue in 2021 after suffering a loss of $18 billion in 2020,” Fox News reports.
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— BPR (@BIZPACReview) November 14, 2023
The LAO’s suggested remedy to the crisis includes dipping into the state’s $24 billion cash reserves.
The state “has nearly $24 billion in reserves to address the budget problem,” LAO writes. “In addition, there are options to reduce spending on schools and community colleges that could address nearly $17 billion of the budget problem. Further adjustments to other areas of the budget, such as reductions to one‑time spending, could address at least an additional $10 billion or so. These options and some others, like cost shifts, would allow the Legislature to solve most of the deficit largely without impacting the state’s core ongoing service level.”
While the use of the reserves is “merited,” LAO cautioned the Legislature about taking advantage of them, as they may be needed in California’s near future.
“Given the state faces a serious budget problem, using general purpose reserves this year is merited. That said, we suggest the Legislature exercise some caution when deploying tools like reserves and cost shifts,” it wrote.
“The state’s reserves are unlikely to be sufficient to cover the state’s multiyear deficits—which average $30 billion per year under our estimates,” it explained. “These deficits likely necessitate ongoing spending reductions, revenue increases, or both. As a result, preserving a substantial portion—potentially up to half—of reserves would provide a helpful cushion in light of the anticipated shortfalls that lie ahead.”
“California saw its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic,” according to Fox News Digital. “From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.”
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— BPR (@BIZPACReview) November 13, 2023
Still, Newsom’s communications director, Erin Mellon, insists the governor is doing a great job, telling Fox News Digital in a statement that he “has maintained strict fiscal responsibility since taking office.” Among his achievements are building the state’s reserves to the maximum allowed under its constitution and paying down debt, she said.
“Federal delays in tax collection forced California to pass a budget based on projections instead of actual tax receipts,” she said. “Now that we have a clearer picture of the state’s finances, we must now solve what would have been last year’s problem in this year’s budget.”
And at the start of 2024, Newsom will present a budget that addresses California’s needs, according to Mellon.
“In January,” she said, “the Governor will introduce a balanced budget proposal that addresses our challenges, protects vital services and public safety, and brings increased focus on how the state’s investments are being implemented, while ensuring accountability and judicious use of taxpayer money.”
Writers and editors can be contacted at [email protected] with feedback, tips, or corrections.
Melissa Fine is the former executive editor of Casino Player, Strictly Slots, and Poker
Digest magazines. She is a UCLA graduate, news junkie, and dedicated Stargate SG-
1 fan. Melissa currently lives with her dog and two cats in a tiny town in the Sierra
Nevada foothills.
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