End of 2022
Surplus! What Surplus?
Six months ago, Governor Newsom bragged about a $97.5 Billion surplus that would finance expansions of social and educational services. Oops! Apparently, that is not going to happen.
Gabe Petek, the Legislature’s budget adviser issued a report on the state’s finances. He stated that state revenues are likely to fall $41 Billion short of what the Governor and some legislators expected. This shortfall leaves California with a $25 Billion projected deficit for 2023/24. If a recession happens, the gap could be much higher.
Mr. Petek cautioned against maintaining spending and using the state’s sizeable emergency reserves because the current economic slowdown that is being dictated by the Federal Reserve System to counter high inflation could easily turn into a recession.
Governor Newsom has vetoed dozens of bills for additional off budget spending. Since the budget has been enacted, state revenues have been running well below expectations with Lvirtually all of the shortages in the area of personal income. Personal income taxes generally account for three-quarters of California’s general fund revenues.
The majority of California taxes come from a relative few high-income taxpayers. The income of these taxpayers is very sensitive to fluctuations in the economy particularly stocks and other capital investments. Mr. Petek’s report is a reminder that California’s budget depends on a very narrow and very volatile tax base. Based on the fact that California’s economy is dependent on such a base, long term financial commitments need to be thoroughly studied and assessed.
Never follow the leader who is more in love with power than people.