Blame “Bidenomics.” California’s economic downturn has been worse than expected.
Last May, I reported that instead of a surplus, California was facing a budget deficit of $30.5 billion.
As we wrap up another spectacular year of Left Coast failure, that deficit is now over twice that amount.
California’s budget deficit has swelled to a record $68 billion after months of unexpectedly low tax revenues, a shortfall that could prompt the state’s deepest spending cuts since the Great Recession.
The latest deficit figure — calculated by the nonpartisan Legislative Analyst’s Office and released Thursday — far exceeds the $14.3 billion estimate from June. The shortfall, which is the highest in dollar terms but not as a percentage of overall spending, threatens to upend the upcoming legislative year by forcing Gov. Gavin Newsom and lawmakers to make spending cuts on a scale few term-limited elected officials in Sacramento have faced.
While not minimizing the shortfall, state budget analysts said California has options to address the deficit — including the use of cash reserves, one-time cuts in spending and changes to the way it funds education — that it didn’t have in previous downturns.
The explanation of why the early projection of the deficit was so off can best be explained by “Bidenomics”—California’s economic downturn has been worse than expected.
A series of damaging storms last winter have made the problem worse. The storms were so bad that state officials decided to give people and businesses more time to pay their taxes this year. Californians did not have to pay their 2022 taxes until November of this year. That meant Newsom and the Legislature had to come up with a budget over the summer without knowing how much money the state had to spend.
It turns out that they badly misjudged how much taxes people and businesses would pay. The nonpartisan Legislative Analyst Office said tax collections were off by $26 billion, a major driver of the deficit. When combined with the economic slowdown California has been facing since last year, it leads to a predicted deficit of $68 billion, Legislative Analyst Gabriel Petek announced Thursday.
The end of the Covid-fiscal-sugar-high and rising interest rates are also contributing factors.
The analyst’s office said some of the decline in revenues is an expected falloff from abnormally strong revenue growth in prior years when federal COVID-19 stimulus funding artificially boosted income tax revenues, resulting in a record state surplus.
Analysts also blamed the Federal Reserve for raising interest rates, some of the effects of which “have an outsized importance to California,” the report stated. Investments in California startups and the tech industry dropped significantly, with 80% fewer companies going public in 2022 and 2023 compared with 2021, for example.
California entered an economic downturn in 2022, with the number of unemployed workers rising nearly 200,000 since the summer of last year, according to the report.
The Legislative Analyst’s Office said conditions exist for Newsom to declare a fiscal emergency to dip into budget reserves to cover some of the shortfall. Analysts laid out other maneuvers that could be used to reduce the deficit, including saving $16.7 billion by reducing education funding under Proposition 98 to the constitutional minimum.
Of course, the spread of crime and chaos have contributed to the exodus of businesses and taxpayers.
Top retailers like Nordstrom, H&M and Gap withdrew from San Francisco in recent months and while the owner of two major hotels, including the largest in San Francisco, announced it will also quit the city.
While in Oakland, restaurateurs revealed that spiraling crime had forced them to shut their doors as diners were being robbed and carjacked mid-meal.
Last, but not least, some blame resides with politicians who put virtue-signaling ahead of civic responsibilities.
— Leslie Eastman ☥ (@Mutnodjmet) October 8, 2021
Newsom is fortunate this report was not issued prior to his debate with Florida Gov. Ron DeSantis. Otherwise, it would have led to another incredibly awkward moment.DONATE
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