The 2023-2024 fiscal year deficit projection comes despite a projection in May that forecast a surplus of just under $100 billion for the current fiscal year.
The predicted shortfall comes from the nonpartisan Legislative Analyst’s Office. Their report indicates that California may be heading for its weakest yearly performance since the Great Recession.
The deficit is primarily being driven by a significant decline in income tax revenue and stock market drop-offs, though the analysts noted that the ongoing layoffs in the tech sector are also contributing to the deficit.
Gabriel Petek of the Legislative Analyst’s Office says the predicted budget deficit is a ‘notable budget problem,’ but not yet a ‘crisis’
Petek’s office has suggested pausing funding for certain climate programs until the state’s revenue streams, and therefore budget, have stabilized
The significant drop in income tax revenue signals that those in the state’s highest tax brackets are not making as much money as they once were.
The Democratic-controlled state has one of the highest tax rates in the country and has, for the last two years, collected more than anticipated in taxes. During the last year, the state collected $55 billion more than it was expecting to, leading in part to the $100 billion surplus.
Legislative analyst Gabriel Petek told reporters that, in his opinion, it is not yet time to panic, despite the forthcoming deficit.
‘It’s not insignificant, but it’s also manageable,’ he said. ‘We don’t think of this as a budget crisis, we just think of it as a notable budget problem.’
In its coffers, California has about $37 billion in savings, about $23 billion of which lawmakers have access too for next year’s budget. Petek’s office, however, is recommending saving that money for a more significant moment of recession.
He said, ‘based on historical experience, should a recession occur soon, revenues could be $30 billion to $50 billion below our revenue outlook in the budget window.’
If that scenario became a reality, then the state would need to draw down its rainy day fund.
At present, the office is not necessarily predicting a recession, but the threat of one is tangible. The longest high inflation rates persist, the more like a severe national recession becomes.
Petek’s office added that lawmakers could avoid being forced into spending cuts due to the deficit if they instead opted to pause or delay funding that was allocated to certain programs that have not yet gone into effect.
He gestured specifically to some climate programs as an example of funding that could be delayed until revenues and therefore the budget stabilize.
‘We’re not saying they shouldn’t still be done, but it’s a matter of timing,’ he said. ‘They could adjust the timing of the roll out of the funding to help manage the near-term budget pressure.’
Governor Gavin Newsom will present a budget proposal in January that will layout his priorities for the year
San Francisco’s Tenderloin are is rife with homeless, many of whom are drug addicts
The greater Los Angeles area also continues to contend with an increasingly large homeless population. Even amid a budget surplus, the state’s homeless crisis continued to escalate
Governor Gavin Newsom will present a proposed budget in January that will outline his priorities for the forthcoming year.
The budget surplus from the previous two years was primarily spent by the state of education initiatives, the ongoing homelessness crisis in California’s major cities, and healthcare for illegal immigrants in California.
The state also spent about $17 billion on an inflation relief package that offered middle and low-income taxpayers rebates of anywhere from $200 to $1,050.
At the time, Newsom had said his priority was assisting Californians who were feeling the pressure of inflation impact their daily lives.
‘People are feeling deep stress, deep anxiety,’ he said.