Faced with a multi-billion-dollar deficit, California Governor Gavin Newsom revealed a surprising update on the state’s financial situation. According to Newsom, California’s deficit is actually $30 billion lower than previously reported. On January 10, he unveiled his fiscal year 2024-2025 budget proposal, which aims to balance the state’s finances by utilizing reserves, reducing spending, and deferring certain costs.
The nonpartisan Legislative Analyst’s Office had estimated a $68 billion budget deficit for the year in a report released in December. However, Newsom’s calculations showed a total closer to $38 billion. To close this gap, he plans to dip into rainy day funds and safety net reserves, utilizing $13.1 billion. Additionally, he intends to implement $12 billion in spending reductions and $7.2 billion in spending deferrals.
The $30 billion discrepancy, according to Newsom, stems from different revenue projections, funding sources, and reductions in workforce spending. His proposal focuses on streamlining government operations to achieve these savings. However, State Senator Roger Niello expressed concerns regarding the accuracy of the governor’s lower deficit number in comparison to the nonpartisan estimate.
Despite the deficit, California will operate on a $292 billion budget for the upcoming fiscal year, down from $308 billion in the previous year. Newsom emphasized themes of correction and normalization following a disruptive period caused by unprecedented circumstances. Last year, tax filing deadlines were delayed due to winter storms, resulting in significant uncertainty and adjustments in budget planning.
Critics argue that earlier reductions were necessary to prevent the current financial distress. Assemblyman James Gallagher stated that cuts should target non-essential areas and focus on essential core services that benefit taxpayers. Meanwhile, concerns were also raised about adjustments to education funding and the use of accounting tricks to manipulate numbers. Gallagher urged the government to secure financial stability without resorting to accounting gimmicks or education cuts.
The budget concerns escalated when the Legislative Analyst’s Office reported a severe revenue decline leading to a fiscal budget emergency. The report highlighted a shortfall of $47 billion in anticipated personal income and corporate tax revenues, although the governor’s team reported a smaller miss of $43 billion. Some lawmakers attribute the deficit to years of one-sided policy decisions, causing some residents to leave the state.
In response, Newsom downplayed the notion that the outmigration of businesses and residents significantly impacted the state’s finances. Although census bureau data shows a net outmigration of over 100,000 residents, the governor cited a 0.1 percent population loss but emphasized an increase in international immigration and births. However, economists warn that the state may be losing its tax base as individuals with higher degrees and higher incomes leave for other states.
Newsom acknowledged that his administration began addressing the budget dilemma last year by vetoing 156 items, with 50 of them emphasizing fiscal prudence. He proposed approximately $2.9 billion in cuts to climate measures and $1.2 billion reduction in housing funding. Funding for the University of California and California State University systems is also deferred under his proposal.
The budget plan will now go through a process of evaluation and revision by the Legislature before being finalized. A May revision is expected after tax receipts are due in April, allowing for adjustments based on the state’s financial situation. As California grapples with this substantial deficit, the government faces the task of striking a balance between essential services and fiscal responsibility.
