LAO Feels Newsom’s Budget Projections Are Too Optimistic
Sacramento, CA — When Governor Gavin Newsom last month unveiled his $297-million budget proposal for the next fiscal year, it took into account an anticipated $22.5-billion shortfall.
The decline in state revenues was attributed to things like a slowing economy, a reduction in capital gains, and one-time federal Covid funds drying up.
The State of California’s Legislative Analyst’s Office, however, has just released a report projecting that the deficit will likely be about $7-billion more (totaling just under $30-billion).
In addition, future deficits are anticipated. The report states, “Under the administration’s projections, the state faces operating deficits of $9 billion in 2024‑25, $9 billion in 2025‑26, and $4 billion in 2026‑27. Because of the state’s constitutional spending requirements, revenues would need to be higher by more than these amounts for the state to be able to afford the spending level currently proposed. For example, to eliminate the operating deficit in 2024‑25, revenues would need to be roughly $20 billion higher than the Governor’s budget projection. Our analysis suggests this level of revenue is quite unlikely—there is only a one‑in‑five chance the state can afford that spending level.”
Some options to cover the coming fiscal year deficit, laid out in the report, include suspending deposits into the rainy day fund, reducing one-time spending initiatives, shifting more costs than currently proposed by the Governor, and/or temporary fee/tax increases. The LAO is discouraging dipping into reserve funds at this time, in the event that the money is needed for a future recession.
The new fiscal year budget must be passed and signed by the Governor ahead of it taking effect on July 1st.
