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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