“Although the Governor’s budget revenue estimates are reasonable, they are likely a bit too high,” legislative analyst Gabriel Petek stated in the 2023–24 Multiyear Assessment report issued on Feb. 15.
The office estimates that revenues will be about $10 billion lower than Gov. Gavin Newsom’s budget proposal, which could raise the total expected deficit to about $29.5 billion.
Newsom described the budget picture as “very volatile” when announcing the spending plan on Jan. 10, adding that he plans to revise it in May, when “there’s more clarity.”
Rising inflation spurred by federal pandemic stimulus money, large Federal Reserve interest rate increases, and a cooling economy all have played a part in the decreased income.
Revenue from personal income taxes and corporate taxes also declined, the office said.
“If you look at all of the personal income tax returns that were filed in California in the year 2020, just 1 percent of the total number of income tax returns … were responsible for more than 49 percent of all of the personal income tax that was paid in that year,” Palmer said.
Many larger corporations, especially in the tech industry, have also reduced their labor forces and pared spending, according to the Legislative Analyst’s Office.
The gloomy financial picture comes just a year after the state’s coffers overflowed with an extra $98 billion from the federal pandemic stimulus and surplus funds.
The extra cash allowed the governor to boost spending on education, homelessness, health care for immigrants, and other programs. It also triggered a law that required the state to return about $17 billion to residents in rebates.
California also will face operating shortfalls of $9 billion in 2024–25 and 2025–26, and $4 billion in 2026–27, according to the legislative analyst.
“Because of the state’s constitutional spending requirements, revenues would need to be higher by more than these amounts for the state to be able to afford the spending level currently proposed,” Petek wrote in the latest analysis.
He also proposed cuts in some housing programs, health care workforce investments, transportation, and other spending.
Instead, the state could spend its rainy-day funds, reduce more one-time and temporary spending, shift more costs to other areas, or increase revenues on a temporary basis, the analyst’s office suggested.
Even with revenues dropping, state spending remains at historic levels.
Since 2020, California’s surges in revenue have been record-breaking and are still above average, the analyst’s office reported.
Even after adjusting for inflation, anticipated revenues for 2023–24 remain about 20 percent higher than before the pandemic, the office said.
Once state legislators sign off on the final budget for 2023–24, it will take effect July 1.
Newsom’s office didn’t respond by press time to a request by The Epoch Times for comment about the deficit.
