How Will Newsom, Legislators Deal With Growing Revenue Shortfalls?

When Gov. Gavin Newsom proposed a 2023-24 budget in January, he acknowledged that the revenue estimates made six months earlier were way too optimistic and that the state had evolved from a nearly $100 billion surplus to a $22.5 billion deficit.

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Never mind. Nine months into the current fiscal year, it’s evident that revenue, principally from personal income taxes, will fall well short of that downward revision. The deficit could hit $30 billion as he and legislative leaders begin to focus on a final version for adoption in June.

Through February, the administration reported, revenues were running nearly $5 billion below expectations and they fell short by nearly $1 billion more in March.

The numbers bolster contentions by the Legislature’s budget analyst, Gabe Petek, that the state’s fiscal situation was unhealthier than Newsom was admitting. In his initial response to the January budget, Petek said, “Our estimates suggest that there is a good chance that revenues will be lower than the administration’s projections for the budget window, particularly in 2022-23 and 2023-24.”

The next stop for the annual budget process will come in May, when Newsom must unveil revised revenue estimates and appropriations. The worsening revenue data set the stage for what could be contentious negotiations with a June 15 constitutional deadline for passing a budget.

The essential problem is that when Newsom was forecasting an immense surplus and bragging that “no other state in American history has ever experienced a surplus as large as this,” he and the Legislature spent much of it on rebates to taxpayers and expansions of programs, especially those benefiting the poor.

Although Newsom insisted at the time that much of that spending was one-time in nature and therefore wouldn’t make unsustainable long-term commitments, it nevertheless raised expectations of permanency. Thus, when Newsom offered a new budget in January, he clawed back many of those allocations, particularly those that hadn’t yet been spent, sparking complaints from would-be recipients.

As revenues continue to fall short, expectations will have to shrink further, the competition for money among budget stakeholders will become more intense and the pressure on Newsom and legislators will increase.

They may be tempted to do something that Newsom says he doesn’t want to do and that Petek says would be foolhardy: tap into the state’s “rainy day” reserves to relieve stakeholder pressure.

The reserves are meant to be used during a severe economic downturn, but California’s fiscal problem is occurring during a relatively prosperous post-pandemic recovery. The shortfall in revenues is occurring because of the state’s narrowly based revenue system, one that is largely dependent on earnings of high-income taxpayers, particular in the shaky technology sector.

The stock market has reacted negatively to the Federal Reserve System’s interest rate increases, which are meant to combat inflation. Declines in the market manifest themselves in lower taxable earnings by investors who are such a large factor in the revenue stream. The system is so narrowly based that lower incomes for just a handful of wealthy Californians can have a big effect on revenues.

Dipping into reserves to cover the revenue shortfall would weaken their ability to cushion a recession if and when that occurs, which is why Petek strongly discourages New

Click here to read the full article in CalMatters


  1. California socialists haven’t run out of other peoples’ money.

    It’s only that other peoples’ money has run out of California.

  2. Not only are high income earners leaving California, they are taking their businesses to other states where rational and reasonable economic and social policies prevail. Our once beautiful state has become an criminal eyesore with the stink of overwhelming poverty, ever expanding homelessness, with risks to our health, liberty, and the safety of our families. The consistent declines over the past decades of the California public school system and the low quality of teaching talents injecting our children with a socialistic propagandist curriculum ill suited for any kind of future success in the real world mandate ever increasingly expensive private schooling. A Classical education enabling students to come to distillations of reason long ago left the California school system and our political ‘leaders’ are too left to see what needs to be changed. The sun no longer shines in California.

  3. It is the immutable progression of Marxist socialism. Social programs to buy votes. Increase taxes to maintain the cash flow. Government hides the failing economy. Lack of incentive causes loss of production and innovation. Lack of business causes producers to fail or move. The tax base drys up. The downward spiral ends with the government and the military running everything (poorly), paying themselves first and the peons get the left overs. Millions die in the process.
    Argentina has recently been through the cycle. Socialist China used capitalism to dominate the world. Like America they will soon revert to pure socialism and repeat this inevitable downward cycle. But not before they subjugate a large portion of the world. Us included.
    Ignore history and it will be repeated, especially the evil part.
    If America is convinced to support the traitorous lie that socialism is superior to a meritocracy…We are done.

  4. Fraud filled elections and the CORRUPT TEACHERS UNION IS TO BLAME…They pay for fascists nazi demoshits elections to keep them in power so the fascists give them SWEET DEALS IN RETIREMENT AND THEIR FASCISTS PUSH TO MAKE California AUTHORITIVE POLICIES…NEWSOM SUCKS

  5. Trip wire says

    Hard to believe that the 5th largest economy in the world could have such a deficit!

  6. How will he deal with it? The same way ANY communist does, he will rape the subjects until they have no more, then put them to death for not complying! Why isn’t there ANYONE with BALLS in the capital, that isn’t afraid of doing their job and arrest this piece of shit for the CRIMINAL acts he commits’ every day? I’m sorry I guess that was a redundant question. Start with the shit head governor and fire everyone in his command! There seems to be only one resort at this point, or we’ll lose our state and possibly our country forever!

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