California Faces Steep Budget Deficit

California is facing the nation’s highest state deficit next fiscal year amid steeply declining revenues and the highest spending in the nation. The situation was deemed so severe that California Gov. Gavin Newsom (D) declared a fiscal emergency and tapped the state’s rainy day fund.

Initial projections showed that the state’s budget deficit was expected to increase to nearly $70 billion. The information from the California Legislative Analyst’s Office predicted that the state “will face a serious deficit.”

The projection was also $14 billion higher than a state prediction from June 2023.

The legislative office wrote that the state had the option to cut education funding and cut out instances of one-time spending.

Even with corrective action, the office also predicted that the state will carry a deficit of about $30 billion annually over the next several years.

The report did reference more than $20 billion the state held in reserve.

“These deficits likely necessitate ongoing spending reductions, revenue increases or both,” the report read. “As a result, preserving a substantial portion—potentially up to half—of reserves would provide a helpful cushion in light of the anticipated shortfalls that lie ahead.”

According to the governor’s budget plan, he will cut funding from climate change initiatives and from state housing efforts.

The governor said that the state was facing “a story of correction, a story of normalization after a period of tremendous amount of distortion.”

Newsom also claimed that the budget for the upcoming fiscal year was $38 billion, not the original $64 billion projection.

Overall, the governor plans to take more than $13 billion from reserves to help bridge the gap. He also planned for cut education spending for the state’s colleges and borrow from special state funds.

California has faced significant budget issues during Newsom’s tenure. Several years ago the state received billions in federal aid due to the coronavirus pandemic. The state claimed an almost $100 billion surplus, which was soon reversed.

Despite the deficit, California currently has among the highest tax rates in the country.