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HomePoliticsNational PoliticsCalifornia’s budget deficit swells to record $68B

California’s budget deficit swells to record $68B

California’s budget deficit has surged to an unprecedented $68 billion following months of  low tax revenues, marking a shortfall that may necessitate the state’s most substantial spending cuts since the Great Recession. The latest deficit figure, revealed by the nonpartisan Legislative Analyst’s Office on Thursday, significantly surpasses the $14.3 billion estimate from June. This fiscal challenge poses a considerable threat to the upcoming legislative year, compelling Governor Gavin Newsom and lawmakers to implement spending reductions on a scale rarely encountered by term-limited elected officials in Sacramento.

Despite the gravity of the deficit, state budget analysts assert that California possesses avenues to address the financial gap. These options include utilizing cash reserves, implementing one-time spending cuts, and revising education funding methods—resources not as readily available in previous economic downturns.

Legislative Analyst Gabriel Petek, while acknowledging the seriousness of the situation, assured reporters that the state maintains a robust cash position, a contrast to the circumstances at the onset of the Great Recession. He refrained from characterizing it as a crisis, emphasizing that the state doesn’t face the same liquidity challenges as before.

The LAO predicts a $4 billion reduction in the funding required for schools and community colleges under Proposition 98, bringing education into the realm of potential targets for reductions alongside climate initiatives and healthcare.

Analysts propose mitigating the situation through one-time cuts, reductions in school funding, or tapping into the approximately $30 billion in reserves. The debate over reserve fund usage is expected to intensify next year due to the substantial size of the shortfall.

Projections also indicate annual $30 billion deficits in the coming years. The LAO recommends leaving up to half of the state’s reserves intact to help alleviate future shortfalls.

Delays in tax filing deadlines across most of California, shifted from April to last month, left analysts in the dark about revenue availability. After reviewing cash receipts, they forecasted a $58 billion shortfall in revenue compared to previous expectations, contributing to the substantial deficit.

Newsom’s Department of Finance had earlier warned of ongoing revenue downturns due to stock market declines, interest rate hikes, and inflation. In response to the LAO projections, the department’s spokesman, H.D. Palmer, acknowledged the significant challenge facing both the Governor and the Legislature with the 2024 budget. The administration is set to present its plan to close the budget gap when the Governor submits his proposal to the Legislature next month.

By: Montana Newsroom staff

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