California faces $25 billion budget shortfall, state legislative analysts say

A new report from the California Legislative Analyst Office on Wednesday warned that the state will face a $25 billion budget deficit next year and said that with the threat of a recession, revenue estimates represent performance the weakest California has seen since the Great Recession. | MORE | Find the full report here The estimate is part of LAO’s 2023-24 budget outlook, which is typically released around this time of year to help guide state lawmakers as they begin crafting budget proposals for the upcoming exercise. The bureau noted that less spending will help offset revenue losses as the state is expected to suffer. In response to the report, Assembly Speaker Anthony Rendon said Democratic state lawmakers and Gov. Gavin Newsom had built fiscal resilience. California has $37.2 billion in reserves, which state leaders say is a record amount for the state. “We can and will protect the progress of budgets over the past few years,” Rendon said. “In particular, the Assembly will protect historic funding gains for California schools, as districts must continue to invest in staff retention and recruitment to help children thrive and recover from the pandemic.” “In the past, such harsh forecasts would have meant painful program cuts and tax increases for the middle class — things that actually do more economic damage. That doesn’t have to be the case this year,” State Senate Pro Tempore Toni Atkins said in a statement. “Through our responsible approach, we are confident that we can protect our progress and craft a state budget without continued cuts to schools and other basic programs or taxing middle-class families. The bottom line is simple: we’re ready to keep the gains we’ve made and continue where we left off once our economy and incomes rebound.” The governor had yet to respond to the report Wednesday morning. “As the ruling party continues to spend and expand government programs without accountability, I have repeatedly warned that the California budget is on an unsustainable path,” said Congressman Vince Fong (R-Bakersfield), vice chairman of the Assembly’s Budget Committee.”Today’s report is another wake-up call to these warnings. We need to refocus on fiscal responsibility. The nonpartisan LAO update comes as California continues to feel the brunt of an economic downturn with state personal income tax revenues billions below what was forecast for this time of year.September marked the fourth consecutive month in which California’s revenues were below forecast, with revenue for that month falling about $2.8 billion below forecast. . and September combined.The October revenue update was yet to be released as of Wednesday.The California Department of Finance said revenue was down for several reasons, starting with the highest earnings in state, which generally includes those who earn more than $500,000 a year. The state’s progressive tax structure is heavily dependent on them. State officials pointed to several factors that have contributed buoyed by economic issues impacting those top earners, including inflation, an underperforming stock market, tech layoffs and hiring freezes, the war in Ukraine, and the Federal Reserve raising interest rates. “The longer inflation persists and the more the Federal Reserve raises interest rates in response, the greater the risk to the economy,” the Office of Legislative Analysts wrote in its latest report. “The chances that the Federal Reserve can control inflation without causing a recession are slim.” The update comes after the state has had consecutive years of huge budget surpluses, including this year’s historic budget surplus of nearly $100 billion. Anticipating a potential change in the state’s fiscal situation, coupled with state spending laws, the Newsom administration and lawmakers agreed to use 93% of the money for one-time expenses and deposited a portion in the state fund for rainy days. This is a developing story.

A new report from the California Legislative Analyst Office on Wednesday warned that the state would face a $25 billion budget deficit next year and said that with the threat of a recession, revenue estimates represent the weakest performance California has seen since the Great Recession.

| MORE | Find the full report here

The estimate is part of LAO’s 2023-2024 fiscal outlook, which is typically released at this time of year to help guide state lawmakers as they begin crafting budget proposals for the coming fiscal year. . The bureau noted that less spending will help offset revenue losses as the state is expected to suffer.

In response to the report, Assembly Speaker Anthony Rendon said Democratic state lawmakers and Gov. Gavin Newsom had built fiscal resilience. California has $37.2 billion in reserves, which state leaders say is a record amount for the state.

“We can and will protect the progress of budgets over the past few years,” Rendon said. “In particular, the Assembly will protect historic funding gains for California schools, as districts must continue to invest in staff retention and recruitment to help children thrive and recover from the pandemic.”

“In the past, such harsh forecasts would have meant painful program cuts and tax increases for the middle class – things that actually cause After economic damage. That doesn’t have to be the case this year,” Pro Tempore State Senator Toni Atkins said in a statement. “With our responsible approach, we are confident that we can protect our progress and build a state budget without continued cuts to schools. and other basic programs or tax middle class families. The bottom line is simple: we’re ready to hold on to the gains we’ve made and pick up where we left off once our economy and incomes rebound. »

The governor had yet to respond to the report Wednesday morning.

“As the ruling party continues to spend and expand government programs without accountability, I have repeatedly warned that the California budget is on an unsustainable path,” said Congressman Vince Fong (R- Bakersfield), Deputy Chairman of the House Budget Committee. “Today’s report is another wake-up call to these warnings. We need to refocus on fiscal responsibility.”

The nonpartisan LAO update comes as California continues to feel the brunt of an economic downturn with state personal income tax revenues billions lower than expected for this time of year.

September marked the fourth straight month in which California’s revenue fell short of forecast, with revenue for that month about $2.8 billion lower than forecast. State leaders said the state at that time was $7 billion in total down from what was forecast for June, July, August and September combined. The October revenue update had yet to be released on Wednesday.

The California Department of Finance said incomes were down for several reasons, starting with the highest earners in the state, which typically include those earning more than $500,000 a year. The state’s progressive tax structure is highly dependent on this.

State officials pointed to several factors that contributed to the economic problems affecting these top earners, including inflation, an underperforming stock market, tech layoffs and hiring freezes, the war in Ukraine, and the Federal Reserve interest rate hike.

“The longer inflation persists and the more the Federal Reserve raises interest rates in response, the greater the risk to the economy,” the Office of Legislative Analysts wrote in its latest report. “The chances that the Federal Reserve can control inflation without causing a recession are slim.”

The update comes after the state has had consecutive years of huge budget surpluses, including this year’s historic budget surplus of nearly $100 billion. Anticipating a potential change in the state’s fiscal situation, coupled with state spending laws, the Newsom administration and lawmakers agreed to use 93% of the money for one-time expenses and deposited a portion in the state fund for rainy days.

This is a developing story.

Leave a Comment

Your email address will not be published. Required fields are marked *