California’s budget deficit may be billions of dollars larger than the already big number predicted by Democrat Gov. Gavin Newsom, raising concerns about the Golden State’s fiscal future.
Last month, Newsom announced that California faces a projected budget deficit of $22.5 billion for the coming fiscal year. The figure represented a striking downturn from last year, when the state enjoyed a surplus of about $100 billion due to federal COVID relief and surging capital gains.
While the predicted year-to-year drop-off seemed large, it may not have been large enough.
CALIFORNIA FACES BUDGET DEFICIT DESPITE NEARLY $100 BILLION SURPLUS LAST FISCAL YEAR
The California Legislative Analyst’s Office (LAO), a government agency that analyzes the budget for the state legislature, estimates in a report published last week that Newsom’s forecast undershot the mark by about $7 billion, thanks to about $10 billion less in tax revenues than expected.
“In particular, using recent revenue collections and economic data, we estimate there is a two‑in‑three chance that state revenues will be lower than the governor’s budget estimates for 2022‑23 and 2023‑24,” writes Gabe Patek, the legislature’s budget analyst. “Our best estimate is that revenues for these two years will be roughly $10 billion lower — implying a larger budget problem by about $7 billion.”
Tax revenues are already much lower this year than the prior one. In January, California’s monthly tax revenue was about $14 billion lower than during the same month last year. Meanwhile, tax revenue in the current fiscal year, which started July, is about $23 billion lower than in the previous year, according to the Wall Street Journal.
CALIFORNIA FACING $24B BUDGET SHORTFALL AMID ECONOMIC UNCERTAINTY
That’s despite California already having the highest top income tax rate of any state at 13.3%. Indeed, the top 0.5% of taxpayers pay 40% of California’s state income tax, according to recent figures.
H.D. Palmer of the…
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