California’s Budget Now Affordable, Multibillion-Dollar Deficit Resolvable: Legislative Analyst’s Office

The California State Capitol building in Sacramento, Calif., on April 18, 2022. John Fredricks/The Epoch Times

In the 2023–24 fiscal year spending plan review (pdf) released Aug. 16 analyzing the state budget, the Legislative Analyst’s Office revised earlier estimates and found that the plan will resolve the state’s projected deficit.

“The enacted budget addresses the entire $27 billion budget problem such that no further solutions are required to balance the 2023-24 budget at this time,” Ann Hollingshead, principal fiscal and policy analyst for the Legislative Analyst’s Office and author of the report, told The Epoch Times by email Aug. 21.

The latest analysis reverses the group’s estimates in May that the state could not afford this year’s fiscal year budget—which started in July and runs through June 30, 2024—with analysts calculating a $31 billion deficit at the time.

“Although we cited a slightly higher number in our initial comments on the governor’s [revised budget proposal from May], after further review, the budget problem we estimated at that time should have been slightly lower,” the authors wrote in the newly released report.

No further explanation of the revision was provided in the analysis.

But according to Ms. Hollingshead, the office’s previous analysis contained a mistake.

“We found an error in our May estimate of the budget problem that was related to some double counting of solutions,” Ms. Hollingshead said in the email.

The state’s current deficit follows two years of “significant surpluses,” according to the report. Deficits must be remedied, as mandated by the State Constitution, by reducing spending or increasing revenue.

Additionally, reserves can be used to cover expenditures, and some costs can be delayed or shifted. For this year’s budget, approximately $10.3 billion in cost have been shifted between various funds or across fiscal years, according to the report.

California Gov. Gavin Newsom announces the May budget revision in Sacramento on May 12, 2023. Newsom said the state's budget deficit has grown to nearly $32 billion, about $10 billion more than predicted in January when the governor offered his first budget proposal. Hector Amezcua/The Sacramento Bee via AP

A budget deficit surfaced this year due to revenues failing to meet forecasts, with declining personal income tax received and a drop in investment in California businesses contributing to the dilemma, according to the report.

Spending is also playing a role, as well, with $4.5 billion of the deficit due to new discretionary spending, according to analysts.

For this budget, the Legislature reduced spending by cutting $5.6 billion in some policies and programs that had been previously approved.

The largest cuts include a $750 million payment on the state’s unemployment insurance loan, of which it has saddled businesses with nearly $19 billion in debt payable in increased taxes per employee that increase annually until the loan is repaid; $549 million to assist low-income families with utility bills; and $280 million for water recycling projects.

Additionally, $6.7 billion in projected costs for various programs were postponed.

Those include $1 billion for zero-emission school buses and charging infrastructure; $750 million for higher education housing, and $500 million for broadband in rural communities.

Cars and pedestrians travel in western Los Angeles on Nov. 10, 2021. John Fredricks/The Epoch Times

In terms of revenue increases, the budget includes the renewal and increase of the so-called managed care organization tax—which is imposed on health insurance companies and is expected to raise more than $19 billion by 2026, according to analysts’ estimates.

While acknowledging the budget deficit can be resolved for the 2023 fiscal year, the authors noted that $12.5 billion in temporary spending will need to be reconsidered by lawmakers, as will $9.4 billion in 2024–25 and $4.1 billion in 2025–26.

The temporary expenditures were authorized by prior budgets during times of large surpluses, and given the current economic climate, the report advises officials to re-evaluate them.

“To the extent budget problems persist—as we anticipate is likely—the Legislature would have to revisit these and other spending augmentations in the future,” the authors wrote.

Though spending cuts are recommended, the plan resolves the budget deficit this year without dipping into the state’s reserves—amounting to $27 billion in general purpose funds and approximately $11 billion put aside for schools.

Uncertainty exists for future budgets, with the impact of inflation and diminishing tax revenues difficult to predict, according to the report.