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California LAO Projecting Growing California Budget Problems

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Sacramento, CA — Income tax revenues collected this fiscal year are down 25% from initial projections, giving California a projected $26 billion shortfall.

That’s according to a new report from the state’s non-partisan Legislative Analyst. The shortfall is anticipated to grow to $58 billion by the end of fiscal year 2024-25.

The state’s financial picture is becoming clearer after the extended tax deadline this year (due to winter storms).

The report notes that higher interest rates are a part of the issue. Stating, “For example, home sales are down by about half, largely because the monthly mortgage to purchase a typical California home has gone from $3,500 to $5,400. Some effects of the Federal Reserve’s actions have hit segments of the economy that have an outsized importance to California. In particular, investment in California startups and technology companies is especially sensitive to financial conditions and, as a result, has dropped significantly.”

In addition, the number of unemployed California workers has increased by 200,000 since the summer of 2022 (the unemployment rate grew from 3.8% – 4.8%).

The report notes that the two-year projections are very much “subject to change” based on positive or negative impacts on the horizon.

The California legislature will reconvene a new session on January 3 and lawmakers will look for solutions to close the anticipated shortfall.