From CalMatters economy reporter Levi Sumagaysay
California faces a $26 billion revenue shortfall in 2022-23 and a $58 billion shortfall through the 2024-25 fiscal year, the state’s Legislative Analyst’s Office said Friday in an updated forecast.
Total income tax collections fell 25% in 2022-23, the office said, citing data after receipt of tax filings, delayed several months by a deadline extension from both the state and the feds for taxpayers affected by last winter’s storms.
“This decline is similar to those seen during the Great Recession and dot-com bust,”
the report authors wrote.
They attributed the drop to a slowdown in investment in California companies because of higher borrowing costs due to the Federal Reserve’s repeated interest hikes. One of the big effects of that is the number of California companies that went public in 2022 and 2023 declined more than 80% from 2021. The office also pointed to stock market woes in 2022 as a factor. Those factors, combined with home sales that the analysts said have fallen by half in the past couple of years — also due to higher interest rates — have cooled the state’s economy.
All of that has pushed the state’s unemployment rate up to 4.8%, with the number of unemployed workers climbing nearly 200,000 since the summer of 2022, the office noted.
Though the Legislative Analyst’s Office has yet to release its analysis of the projected shortfall’s impact on the state budget — that will come this week — politicians were quick to react.
State Republicans slammed Democrats, who control state spending.
Sen. Roger Niello of Fair Oaks, budget committee vice chairperson, in a statement:
“Hopefully, the majority 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.”
Assembly Speaker Robert Rivas, a Democrat from Salinas, said in a statement that
“California is more prepared than ever to navigate this latest challenge,” and that he is committed to a 2024 budget that “protects classroom funding and prioritizes support for core health care, safety net and public safety programs.”
A spokesperson for Gov. Newsom did not immediately return a request for comment.
Reminder: This year, the Legislature and governor had to cover a $30 billion-plus budget deficit, after two years of record surpluses fueled in part by federal COVID aid.
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