Citing a ‘severe revenue decline’ in the state, analysts anticipate the deficit to accumulate to more than $155 billion over the next five years.
Because of a “severe revenue decline,” California is facing a $68 billion budget deficit that could accumulate to more than $155 billion over the next five years, according to the most updated projection released Dec. 7 by the nonpartisan Legislative Analyst’s Office.
A spokesperson for California Gov. Gavin Newsom suggested some of the state’s approximately $24 billion held in reserves could be used to address the growing deficit—an idea analysts agree will be necessary.
“The Governor has maintained strict fiscal responsibility since taking office, building up the state’s reserves to historic levels reaching the maximum allowed by the state constitution to be put in reserves and paying down debts—putting California in a strong position to deal with budget shortfalls,” Erin Mellon, communications director for Mr. Newsom’s office, told The Epoch Times by email Dec. 7.
Budget problems arose after income tax collections dropped 25 percent in the fiscal year 2022–2023—which ended June 30—compared to the year before, according to the report by the Legislative Analyst’s Office.
Moreover, tax receipts typically due in April were delayed until October this year due to federal and state exemptions granted after winter storms impacted the state, which made it difficult for state officials to determine the scale of the deficit earlier to define budget priorities accordingly.
“Federal delays in tax collection forced California to pass a budget based on projections instead of actual tax receipts,” Ms. Mellon said. “Now that we have a clearer picture of the state’s finances, we must now solve what would have been last year’s problem in this year’s budget.”
Noting the unusual dilemma presented by the timing and severity of the decline, analysts said the state has only faced such circumstances during the Great Recession and dotcom bust.
With a $68 billion shortfall for the fiscal year 2024–2025 projected, in addition to $30 billion operating deficits in following years, lawmakers will need to reduce spending, increase revenues, or both to fill the gap.
