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Recession and Inflation Drain California’s $100 Billion Surplus

Recession and Inflation Drain California’s $100 Billion Surplus

$25 billion deficit is not likely to dissipate soon, as more California companies moving headquarters out-of-state than ever before.

https://sanfrancisco.cbslocal.com/2017/01/27/california-could-cut-off-feds-in-response-to-trump-threats/

This current fiscal year, California boasted of a $100 billion surplus budget.

However, the combination of recession and inflation have drained the money, and the state is now facing a $25 billion deficit.

California will likely face a $25 billion budget deficit next year driven by high inflation and the threat of a recession, despite lofty projections in May that forecast a surplus of nearly $100 billion for the current fiscal year.

The Legislative Analyst’s Office, which provides state lawmakers with fiscal and policy advice, said the 2023-24 budget problem is due to low revenue estimates. Revenues are $41 billion below expectations, according to a forecast published by the LAO.

The estimated deficit is lower because some of those revenue losses were offset by lower spending in other parts of the budget.

Democratic political leaders are whistling past the graveyard, while policy advisors are sounding the alarm.

Warning signs have been flashing for months. Tax revenues have fallen short of projections every month this fiscal year, and layoffs at marquee tech companies like Lyft, Meta and Twitter have heightened economic pessimism throughout the state. Several economists said the contractions in tech, while unlikely to have an outsize effect on California’s economy, could signal an impending slowdown.

Democratic lawmakers and aides on Wednesday sought to downplay the problem highlighted by the Legislative Analyst’s Office, pointing to the state’s deep pool of reserves and vowing to shield programs from cuts.

“We are confident that we can protect our progress and craft a state budget without ongoing cuts to schools and other core programs or taxing middle class families,” Senate President pro Tempore Toni G. Atkins (D-San Diego) said in a statement. Assembly budget adviser Jason Sisney tweeted that the 3.6 percent deficit over three years is “quite manageable in historical terms.”

But the projected budget deficit is worrisome to advocates like David Weiskopf, senior policy adviser for environmental issues at NextGen Policy. Historically, climate spending has been first to go when there’s an economic downturn, Weiskopf said. And much of the $54 billion the state put up to fund climate projects, such as electric-vehicle charging stations, was one-time money.

More sensible politicians might be reflecting on what they could have done differently.

The announcement is being taken as a warning that the currently undeclared recession is actually a real thing.

Democratic-controlled California taxes rich people more than other states, meaning most of its drop in revenue is because the uber-wealthy aren’t making as much money as they used to. That’s why California is often one of the first states to have budget problems when the economy starts to falter.

…“While we’re in fact better prepared, that doesn’t mean that the decisions to close the coming budget gap won’t be difficult — particularly if the economic conditions that have slowed the economy continue, or get worse,” California Department of Finance spokesman H.D. Palmer said.

These developing fiscal woes are not likely to disappear soon. A new report from the Hoover Institute shows that more California company headquarters are relocating out-of-state than ever before.

In all, 153 California corporations relocated in 2021, which was double the number from a year earlier. The top five states the companies relocated to are Texas, Tennessee, Nevada, Florida and Arizona.

Toney Sebra, a California native, is now part of the state exodus.

“So we opted for Utah, for a number of reasons, you know, very business-friendly state,” Sebra said. “We were tired of the business climate. We were tired of the political climate and all these things wrapped up in a decision we opted to get the heck out.”

…The report predicts that without policy changes, California will continue to lose more businesses large and small, and some that could be the giants of tomorrow.

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Comments

Wow, a $125 Billion “miss” in budget forecasting.

To put that in perspective, California’s entire state budget for this year was just north of $300 Billion.

Just a 40% miss…. no big deal, crank up the tax rates a bit more. Everybody’s gotta pay their “fair share” don’t cha know?

    Massinsanity in reply to Paul. | November 20, 2022 at 7:56 pm

    California, more than any other state, is heavily dependent on capital gains taxes to supports its ridiculous level of spending.

    YTD, there have almost no IPOs, very few SPACs, a precipitous drop in the prices of mature tech stocks and a massive drop in high growth, younger tech company stock prices leaving the stock options of a great number of employees deeply underwater and close to worthless.

    All this means very limited stock sales and a huge drop in capital gains taxes for CA (and the Federal government).

    The period of 2010-2021 delivered a bull market of epic proportions back stopped by a Fed printing money hand over fist and a federal government running massive deficits. CA thought the gravy train of capital gains would last forever but when things turn its not like cap gains tax receipts drop by a few percentage points, they can drop to close to 0 in a flash.

    Suck it CA.

It would be funny if California had busloads of illegals coming in from all directions.

    henrybowman in reply to JohnSmith100. | November 20, 2022 at 7:18 pm

    Pretty sure they do, and only one direction is quite sufficient.

      JohnSmith100 in reply to henrybowman. | November 20, 2022 at 10:23 pm

      I was talking about moving illegals moved by Biden to other states being moved in mass to California, after all, they like them, let them foot the bill for them.

        henrybowman in reply to JohnSmith100. | November 20, 2022 at 11:29 pm

        I get it, but why waste the money when you couldn’t possibly move enough illegals for them to even notice, compared to the ones they are already welcoming as they pour over their own Mexican border.

Conservative Beaner | November 20, 2022 at 6:13 pm

Me thinks Magaret Thathcer’s quote of “The problem witgh socialsim is that you eventually run out out of others peoples money” has come to fruition.

Of course there is all of the digital printed money.

    There are people out there voting that are still dumb enough to not realize that every time their overlords print money they steal the value of their wealth right out of their own pockets.

      Dolce Far Niente in reply to healthguyfsu. | November 21, 2022 at 10:49 am

      However, the bulk of people voting D have no wealth and no desire or skills to create wealth, and as long as their monthly government stipend keeps up, they will continue to vote Federal.

Progressive prices and Green deals.

Just like our stock market based retirement funds. But unlike Californica, we can’t just up the taxes or have Uncle Senile print more money.

$100 billion surplus!
That’s more than TWICE what Elon paid for Twitter!
Why didn’t Newsom use all that money to solve world hunger?
Twice??

What happened to California’s unfunded pension obligations?

Yet, they are paying transsexuals 1200 a month, for being trans, I think SF, not sure

A pilot program

I wonder what a transsexual illegal alien can bank?

Asking for a friend

Feast or famine with tech. Same with Hollywood. Driving up costs for other businesses and regular people who are less concerned with virtue signals and more with just keeping afloat doesn’t seem like a practical long term strategy.

From Victor Davis Hanson…. California is dependent on a few thousand tax payers for the major tax income for the state. Now with recession, inflation and tax payer mobility to leave the state…. the good times of socialism have come to an end although the unfunded pensions and mandates were always knocking at the door. But..they…can’t…help…themselves! Addictions can be fatal.

    CommoChief in reply to alaskabob. | November 21, 2022 at 2:36 pm

    VDH has written several great books. Mexifornia and Fields without Dreams both offer a look at contemporary CA and offers well reasoned arguments about how CA arrived there. His perspective as a 4th generation farmer and his anecdotal descriptions are worth reading.

They got exactly what they voted for, they should be ecstatic.

    Dimsdale in reply to Ironclaw. | November 21, 2022 at 7:27 am

    It is the Socialist Utopia!!

    At least until the few paying the taxes cut out. We just have to make sure the rest of the country doesn’t foot the bill.

AntiPostmodernist | November 20, 2022 at 7:52 pm

Yup – keep spending…. Knock out Gavin N for 2024.

This will not help Gov. Newsom’s political aspirations, especially against Gov. DeSantis.

Subotai Bahadur | November 20, 2022 at 8:49 pm

It is going to be worse than y’all think.

Much of California’s commerce involves agriculture. Much of that production is not going to happen starting this coming year. Modern agriculture requires petrochemical products, Like it or not. In the first hour of the national regime’s time in office, Biden signed executive orders that took us from energy [especially petrochemical] independence to shortages. By the way, what they did cannot be reversed in a period of less than years, and even if they could the entities involved would be wise to take it slowly because of the regime-risk that it happens again by political whim. They cannot grow as much, and the shortage of diesel fuel means that the crops cannot be readily harvested or moved to processing and then to market. Toss in the upcoming railroad strikes, and yes it is going to get hungry out.

Add in a shortage of electrical energy. The hydroelectric sources are at a multi-decade low [which also affect agriculture], which impedes all sorts of business. Getting imports and exports on and off of container ships is an interesting proposition. While the backlogs are not as bad as during the worst of the COVID restrictions; the shakiness of the supply chains from China combined with problems here have shippers looking [and acting] to move to other state’s ports, including use of the Panama Canal to get to Gulf ports.

Then there is the matter of the general business climate. My knowledge of that from a distance is related actually to the container ship problem. My oldest daughter and her late husband owned a company that specialized in emergency fixing of breakdowns of those big cranes that load and unload container ships [it can cost $10,000 an hour for a ship to be dockside. If the cranes break down, shippers will pay a lot for repairs]. They made real good money keeping those cranes operating [and performing the state and Federal inspections and certifications on them]. Some years ago they moved their whole setup to another coastal state because they were tired of having to fight the state bureaucrats at every turn. But one thing they also emphasized was that the ports were second or third class, with obsolete methods and equipment that moves cargo at half the pace of other major ports. This cannot be changed because the dockworkers’ unions forbid it because it might cost them jobs. California is going to fall further behind as a point of shipping, and thus lose both commerce and tax revenue.

If you are a free American, it is time to get out of California, or at least prepare so you can on short notice.

Subotai Bahadur

    You bring up a good point about the ports and change of shipping routes to Eastcoast ports. It’s why the Panama Canal was widened not long ago and a massive infrastructure upgrade taken like dredging in ports from Jacksonville to New Jersey. It is also why there are plans for a new, modern port on the west coast of Mexico and rail lines into the US to move the freight. The west coast ports are sealing their own doom with the climate nonsense including emissions from the trucks that move the containers, work rules and so on. They can be as progressive in California as they want and slap themselves on the backs for it but if everyone leaves refusing to play it won’t amount to much

      CommoChief in reply to diver64. | November 21, 2022 at 10:46 am

      Don’t forget the port of Mobile AL. Deepwater port, several $billion in upgrades made in anticipation of increased traffic due to Panama Canal upgrades. Located on I 10 E/W and I 65 N/S road traffic. Several rail connections. Airports as well.

      Plus the presence of the Tennessee/Tombigbee inter coastal waterway allows barge traffic into the Midwest. It serves as a profitable alternative to Miss river traffic and in previous droughts was navigable when the depth on the Miss dropped too low for traffic.

      Several Southern States have 1st rate port facilities that can handle expanded traffic. As shipping companies use these alternatives to West Coast ports due to backlog much of the new traffic will stay there.

No problem. They’ll just raise the taxes. They’re very good at doing that.
An extra dime at the gas pump, 3 more cents in the states sales tax, and maybe some new carbon offset tax on gasoline powered engines including lawn and garden stuff. Why in no time at all they’ll have enough to give themselves a raise for avoiding bankruptcy.

I will bet you a DQ Hot Fudge Sundae with whipped cream and a cherry on top that Newsome will soon announce an extraordinary state excise tax on the illegitimate profits oil companies are making on $7 and $8 per gallon gasoline prices in California. Or, threaten to break them up harkening back to the days of the US Government vs Standard Oil and John D Rockefeller.

Newsome needs a new source of income.

    henrybowman in reply to Ghostrider. | November 21, 2022 at 2:10 pm

    Meh. Just close all the petro outlets in the state. Then there will be more for us in America. California has already marked them for destruction anyway, why stick around through the oppression phase?

      Ironclaw in reply to henrybowman. | November 22, 2022 at 12:06 am

      Essentially, petroleum products on the west coast are trapped there. No pipelines across the Rockies and trucking it would be insanely expensive.

The Golden State is not so golden these days. Maybe CA can sell some assets.

Biden will bail them out. If Newsom is elected, he will bail California out. In other words, California need only worry if a Republican is elected.

Otto Kringelein | November 21, 2022 at 9:31 am

Recession and Inflation Drain California’s $100 Billion Surplus

==========

Oh please, California never had a “$100 billion surplus”. That was just fantasy on paper. They’ve got $611 billion in pension debt (as of July 2022) and the pension is only 72% funded which means that they only have 72¢ on the dollar to cover the payouts they’re promised workers.

The whole myth of the “$100 billion surplus” is just that. A myth. California is well and truly bankrupt. They just won’t admit it.

How will they ever finish the high speed train?

Fat_Freddys_Cat | November 21, 2022 at 1:28 pm

They had better not come begging for a bailout, after all of their bragging about how they’re “the world’s fifth largest economy”.

Are they capable of realizing that inflaciton and recession eventually run you out of resources?

One wonders.