Gov. Gavin Newsom will reveal his California budget proposal on Friday.
Stating its history, California is already facing a deficit for the second consecutive year. In one of the announcements made by the government Newsome in January sought a budget deficit of nearly $38 billion for California.
This deficit was mainly caused by a decrease in state revenue. However, the nonpartisan Legislative Analyst’s Office later stated that the deficit was around $58 billion, considering the reductions in public education spending.
State officials needed a significant increase in tax revenue, but it didn’t happen.
By the end of April, tax collections from major sources like personal income, corporate taxes, and sales taxes had fallen by over $6 billion compared to previous estimates, which shows that the deficit has grown even larger.
Newsom will need to propose additional solutions to address this shortfall. So far, the state has managed to avoid making severe cuts to essential programs and services.
Moreover, Newsom and lawmakers have cut one-time spending, postponed certain expenses, and borrowed from other funds to manage the shortfall.
On Wednesday, during an event held by the California Chamber of Commerce, Newsom expressed his thoughts that “We still have a shortfall. We will manage it, and we’ll manage it, yes, without general tax increases.”
Further, he added, “We’re not just going to try to solve for this year. I want to solve for next year. I think it’s too important. We have got to be more disciplined.”
Last year, California faced a unique challenge with its budget planning. Severe storms in January 2023 caused major disruptions, including delays in tax filing deadlines.
Typically, Californians file their taxes by April, but due to the storms, the deadline was extended to November for many people.
However, the lawmakers still had to pass a budget by June even though they didn’t have a clear picture of how much money the state would actually have because taxes hadn’t been filed yet.
Due to this, the lawmakers had to make budget decisions without knowing exactly how much revenue would be coming in.
However, the California Constitution requires the state to have a balanced budget, meaning its spending cannot exceed its revenue. If the revenue projections are inaccurate, this creates a shortfall in the budget.
Governor Newsom has already announced that the state’s revenues from 2022-23 to 2024-25 have fallen short by $42.9 billion compared to what was estimated.
To meet this deficit, Newsom and lawmakers have already agreed to make reductions and deferrals totaling about $17 billion.
Additionally, Newsom plans to use $13 billion from the state’s savings accounts to help balance the budget. However, this plan doesn’t seem to have much effect.
According to the Legislative Analyst’s Office (LAO), Corporate tax collections have decreased by 15% compared to last year, marking the fourth-largest drop in the past 40 years.
The officials added that, although income taxes are growing due to a 20% increase in the stock market since October, leading to an 8% increase in total income tax collections, is ain’t sustainable.
That’s because the broader state economy has not improved. Moreover, the unemployment rate has risen, and investments in California businesses have declined.
Lawmakers have to pass a balanced budget by 15 June, marking the new fiscal year from July 1.
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