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California budget deficit grows to $73 billion due to declining tax revenue


(The Center Square) – According to state analysts, California budget deficit grew $15 billion to a $73 billion for the 2024-2025 fiscal year due to declining tax revenues. The non-partisan, state-funded Legislative Analyst’s Office, which announced the new deficit figures, identified approximately $15.6 billion in one-time or temporary spending through the 2025-2026 fiscal year that could be used to offset the the state deficit.

“The state already faces a significant deficit this year,” wrote the LAO. “However, recent revenue collections data reflect even further weakness relative to those estimates. Specifically, our forecast is about $24 billion below the Governor’s budget across 2022‑23 to 2024‑25. All else equal, this means the budget problem is likely to be higher at the time of the May Revision.”

Under the state constitution, the governor’s office must submit a draft budget to the legislature by January 10. After input from stakeholders ranging from consultants to lobbyists and the California Department of Finance, the governor’s office produces a revised draft budget by May 14, which the legislature then may amend and pass by June 15.

California Republicans were quick to seize upon the increased budget shortfall projections to point out significant increases in overall state spending.

“Democratic legislators and the governor’s continued fiscal irresponsibility is troubling, as evidenced by their unchecked spending and the alarming growth of the state’s budget problem,” said State Sen. Roger Niello, R-Fair Oaks, in a statement. “It’s time for a course correction and a renewed commitment to responsible budgeting that puts the needs of our residents first.”

The LAO’s decreased revenue projections focus on personal income, corporate, and sales tax revenues likely being well below the governor’s projections for the next several years. The LAO recommends the state pull back one-time and temporary spending to plug the $15 billion gap produced just by the most recent revenue projection declines.

“First, when this one-time and temporary spending was adopted, it was understood that doing so would provide a cushion for future budget problems,” wrote the LAO. “Second, the more the Legislature reduces one-time and temporary spending this year, the more other tools it can preserve for future budget problems.”

The LAO proposed cutting $15.5 billion in identified one-time and temporary spending over the next three years, especially in school construction, broadband infrastructure, homelessness, clean energy, and transit and rail.

Should the legislature not pull back these one-time and temporary spending programs, the LAO says the state will have no other options to “avoid cuts to ongoing services,” citing significant cuts to health and human services during the Great Recession when the state had run out of other fiscal options.