JANUARY 2023

Budget, Budget – Everywhere a Budget!

The state of California has gone from a budget surplus to a deficit budget.  In response to this development Governor Newsom has proposed a leaner budget that would cut spending on climate change and transportation programs.  The projected budget shortfall is $22.5 Billion.

A few months back the Governor signed a record $308 Billion budget, buoyed by a more than $100 Billion surplus.  Mr. Newsom states that the whiplash of funding demonstrates the effects of California’s progressive tax system on state revenues which rely heavily on personal income taxes, particularly from the ultrawealthy.

Many states are enjoying large surpluses, partly due to a deluge of federal funds over the past three years to fight the coronavirus pandemic.  In California, while employment has come back over the past 14 months, personal income tax withholding is down, in part because salary bonuses and initial public offerings have declined according to the Legislative Analyst Office which forecast the deficit in November.  This has resulted in a $29.5 Billion decline in expected state revenues over three budget years.  A mild recession could leave California coffers $20 Billion to $40 Billion poorer.  A more severe downturn could lead to more than $60 Billion in revenue loss. 

State law requires that a balanced budget is enacted.  Governor Newsom stated that he wanted to do so without tapping tens of billions of dollars in budget reserves.

The Governor intends to cover the shortfall with a patchwork of funding delays, spending reductions to programs and spending shifts.  He also proposed trimming the state’s transportation and climate budgets. 

The Governor’s proposals are now in for negotiation between the Governor and the Democrat controlled Legislature.  Assembly Speaker Anthony Rendon signaled that he might want to push for a deal that would dip into state budget reserves, saying they could be important for protecting

“California’s progressive investments.”