California is the state that brings in one of the highest GDP’s in the country, and simultaneously spends the most on various programs. California’s public safety net programs are some of the most comprehensive in the country, and California has the taxes to go along with them.
California’s High Expenses
Despite the fact that California is touted as one of the most expensive states in the country to live in, with some of the highest taxes, a report from the state’s nonpartisan Legislative Analyst’s Office (LAO) has some grim numbers for the Golden State and Gavin Newsom.
A report that was released on Tuesday cautions both citizens and the government of the state that a $24 billion “erosion in revenues” corresponds to a $15 billion increase in the state’s budget problem. This means that the state is going to be slowly hemorrhaging money that they are no longer bringing in.
A New Budget Office Report
High expenses have been a problem for California for a while now, and the state has already found itself in a deep budget deficit. Last month, the budget deficit was projected to hit $58 billion this year, but the new LAO report has even grimmer tidings.
According to the new report, California’s budget deficit could balloon as high as $73 billion this year. “The actual increase in the state’s budget problem will depend on a number of factors,” the report said. This is an understandable caveat to add, given that budgets are reassessed yearly and quarterly for various parts of the state.
Explaining Prop 98
One of the allocations that was specifically pointed out as a variable factor in the future budget concerns of California was Proposition 98 spending requirements for schools and community colleges.
Prop 98 is a budgeting allocation that was first passed in 1988. It establishes a minimum amount of money that will be dedicated to school and community college funding in the state, and is variable based on the revenue of the state. In the last several years, California has seen Prop 98 funding steadily decreasing, and that pattern is projected to continue should nothing be done about tax revenue levels in the state.
The Project Budget Shortfall
H.D. Pamer, the deputy director of the California Department of Finance and Governor Newsom’s budget spokesperson, responded to the report in a statement to Fox News Digital. He explained that the LAO report differed from the projected budget shortfall of the California government by billions.
“From now through April, more than $51 billion in income and corporate tax receipts are forecast to come in. No one can say today with certainty how those numbers may change the budget estimate of a $38 billion shortfall,” he said, drawing comparisons between the LAO projection and the state projection.
The Legislature Needs to Act
He did not make excuses for the projected shortfall, though. His statement finished, “A responsible step would be for the legislature to act now on the early action budget measures needed…to help close this gap.”
Making up more than $8 billion in projected revenue shortfall is no small ask, especially in a state that has taxes that are already higher than many other states in the country. Raising taxes could be a potentially devastating decision for both the California government and Gavin Newsom himself.
Potentially Damaging for Newsom
The budget news is potentially very damaging for Gavin Newsom’s government. It comes in the wake of rising rents and a cost of living crisis in the state of California, as well as an increase in homelessness due to inadequate wages across various sectors.
The cost of living crisis and general discontent in the state has led to the first decrease in population that California has seen in its history. In 2020, pandemic lockdowns led to a good deal of discontent from citizens, and people started to look to other states to move their families and enjoy a less regulated lifestyle.
The California Exodus
Between January 2020 and July 2022, the state lost well over half a million permanent residents. The number of residents leaving surpassed the number of people moving into the state by almost 700,000. In a state whose population nearly numbers 40 million, this is a relatively small number, but not insignificant.
Census data showed that the most popular state for Californians to move to when fleeing the Golden state was Texas, followed by Arizona, Florida, and Washington. With the exception of Washington, these other states are notable for having lower taxes and regulations for individuals and businesses alike, making the move sensible for many Californians.
Politically Fraught
The news of the California budget shortfall could make political matters much more fraught for Newsom and average Californians. The ultimate outcome will rely on how quickly the California government can pivot, and whether the budget shortfall is truly as significant as the LAO office believes that it will be.
To address the report and Californian’s concerns, Newsom has released potential plans for ways to close the budget shortfall in the coming fiscal year. He has proposed dipping into the state’s reserves as well as cutting funding for select programs in order to preserve the liquidity of the state, though no policy has come out of the statement yet.
Final Numbers To Be Determined
Tax season is well underway for California and every other state in the country, and until the state has better numbers for their yearly revenue, the projected budget shortfall will remain. Once solid numbers are on paper, though, Newsom and the legislature will be able to make better decisions regarding the budget and programs that the state funds.
It’s probable that the state will have to make significant changes regarding their budget allocations in order to reduce the debt that the state is potentially facing. Hard numbers will tell the real story, though, and until the budget reports are finalized, everything else is just speculation.
