While Gov. Gavin Newsom may be eyeing the White House, the state he's tasked with running faces a major budget crisis.
California is reeling from a “severe decline in revenue” and a record $68 billion budget deficit as residents and businesses continue to flee the Democratic-run state for the Redder pastures.
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Now the Liberals in charge will likely be forced to cut spending on things like schools and community colleges, according to a report released Thursday by the nonpartisan California Legislative Analyst's Office (LAO).
The state's budget deficit has increased by more than $54 billion from $14.3 billion in June, the report shows.
“The deficit is not the largest the state has ever had as a percentage of total spending,” Fox News Digital reports, “but it's the biggest in terms of real dollars.”
The LAO report pointed to a change in California's tax filing deadline and “an effort to cool an overheated U.S. economy” by the Federal Reserve “over the past two years” as reasons for the ” economic collapse” of the state by 2022.
As an example, LAO states, “home sales have dropped by about half, largely because the monthly mortgage to buy a typical California home has gone from $3,500 to $5,400.”
“The number of unemployed workers in California has increased by nearly 200,000 since the summer of 2022,” according to the report. “This has resulted in a jump in the state's unemployment rate from 3.8 percent to 4.8 percent. Likewise, inflation-adjusted earnings have posted five consecutive quarters of year-over-year declines since the first quarter of 2022 until the first quarter of 2023”.
“According to IRS data reported by CNBC in May, California lost $29 billion in tax revenue in 2021 after suffering an $18 billion loss in 2020,” reports Fox News.
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LAO's suggested remedy for the crisis includes dipping into the state's $24 billion cash reserves.
The state “has nearly $24 billion in reserves to address the budget problem,” LAO writes. “Additionally, there are options to reduce spending on schools and community colleges that could address nearly $17 billion of the budget problem. Additional adjustments to other areas of the budget, such as reductions in one-time spending, could address at least an additional $10 billion. These options and some others, such as cost shifts, would allow the Legislature to address most of the shortfall largely without affecting the state's basic ongoing level of service.”
Although the use of the reserves is “merited,” LAO cautioned the Legislature to take advantage of them, as they may be needed in the near future in California.
“Since the State is facing a serious budget problem, this year it deserves to use general purpose reserves. That said, we suggest that the Legislature exercise some caution when deploying tools such as reserves and changes in costs,” he wrote.
“The state's reserves are unlikely to be sufficient to cover the state's multi-year deficits, which average $30 billion per year according to our estimates,” he explained. “These deficits will likely require continued spending reductions, revenue increases, or both. As a result, preserving a substantial portion, potentially as much as half, of reserves would provide a useful cushion in light of projected shortfalls ahead”.
“California saw its first population decline of 2020 as the state imposed rigid lockdowns during the COVID-19 pandemic,” according to Fox News Digital. “From January 2020 to July 2022, the state lost more than half a million people, and the number of residents who left outnumbered those who moved in by nearly 700,000.”
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Still, Newsom's communications director, Erin Mellon, insists the governor is doing a great job, telling Fox News Digital in a statement that he has “maintained strict fiscal responsibility since taking office.” Among his achievements are building the state's reserves to the maximum allowed by its constitution and paying off the debt, he said.
“Federal tax collection delays forced California to pass a budget based on projections rather than actual tax receipts,” he said. “Now that we have a clearer picture of the state's finances, we now need to address what would have been last year's problem in this year's budget.”
And in early 2024, Newsom will present a budget that addresses California's needs, according to Mellon.
“In January,” he said, “the governor will present a balanced budget proposal that addresses our challenges, protects vital services and public safety, and focuses more on how the state's investments are being implemented, while ensures accountability and the rational use of taxpayers' money.”
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