California faces $68 billion budget deficit after $26 billion revenue shortfall

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(The Center Square) – As a result of revenue declines, the California government now faces a $68 billion budget deficit for the 2024-2025 fiscal year if current spending and policies remain unchanged. State Republicans noted the state’s $100 billion surplus from COVID-era federal funding became a $68 billion deficit in just two years, and that fiscal discipline will be required to bring the state back to financial health.

“In a mere decade, our state’s budget has more than doubled in size, an exponential surge, while the financial capabilities of Californians certainly haven’t undergone such a monumental increase as many struggle to afford to even stay in the state,” said state senate Minority Leader Brian Dahle, R–San Diego, in a public statement. “Hopefully, the supermajority will see it is time for a more realistic budget strategy, instead of throwing money at a laundry list of projects that sounds nice on the national television debate stage.”

Citing an “unprecedented prior-year revenue shortfall” $26 billion, the nonpartisan Legislative Analyst’s Office says the state’s budget deficits will average $30 billion per year through the 2027-2028 fiscal year, reaching $155 billion. State reserves are only $24 billion.

The LAO reports that it is possible for the state to meet the state’s deficit for this year by spending the entire budget stabilization reserve, reducing general fund spending — especially school spending — to the minimum allowable amount based on state revenues — could save $16.7 billion through the 2024-2024 fiscal year, and cut $8 billion in one-time spending for 2024-2025. However, the LAO says these measures alone are not enough to meet the state’s basic fiscal needs, and that “given the extent of the deficit, the state might also have to reduce other spending — including cuts into its core service level — in order to balance the budget.”

The LAO also warned against using the state’s entire reserve fund to help plug just one year of spending given that the state’s deficits reflect a structural, not a one-time problem. The LAO noted these “deficits likely necessitate ongoing spending reductions, revenue increases, or both.”

According to Wallethub, California has the 12th highest overall tax burden in the nation — while property taxes remain relatively low, its sales tax rate is significantly higher than the national average, coming in at 8th highest in the nation.

In their statement on the state’s deficit, California Republicans highlighted the state’s $1 billion in spending on the state high-speed rail network in 2023, $4 billion in a 2023 public transit bailout package, and $20 billion in homelessness spending over five years. Eliminating these programs entirely would still fail to meet even a fraction of just one year of the state’s budget deficit, suggesting new spending cuts unpopular with Republicans and Democrats alike may be necessary to meet the state’s fiscal reality.

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