If you thought California’s $30 billion-plus budget deficit for 2023-24 was bad, the projection for 2024-25 from the state’s Legislative Analyst’s Office paints an even bleaker picture.
In its fiscal report published Thursday, the nonpartisan office found that the state faces a $68 billion budget deficit. The second straight deficit follows two years of record budget surpluses, fueled by federal COVID relief, but also by California’s volatile income tax system that relies heavily on wealthy people.
The revenue decline is similar to the Great Recession, but there are some options that the Legislature and Gov. Gavin Newsom can consider to plug the budget hole. This includes dipping into rainy-day funds, cutting some one-time expenditures and reducing some spending on schools, the report’s authors suggest.
And while the analyst’s office also warned that the state reserves are unlikely to cover multiyear deficits” (projected at about $30 billion a year), some Democratic legislators still prefer using some savings to slashing key programs.
With a new legislative session starting on Jan. 3, Senate President Pro Tem Toni Atkins of San Diego — who will officially hand over her leadership position to Sen. Mike McGuire in February — described the report as “challenging news” and said that lawmakers need to be “cautious and mindful.”
Atkins: “Our record reserves and other budgeting tools will help us weather this shortfall, while at the same time protecting middle class taxpayers and the programs and resources that help Californians and families.”
Advocacy groups for the poor say the deficit shouldn’t slow down state investments. The League of California Cities also said the state should still spend on climate action, economic development, homelessness and public safety.
But Republicans were quick to argue that their warnings about the state’s overspending fell on the deaf ears. Sen. Roger Niello, a Republican from Roseville and the vice chairperson of the Senate budget committee, described Democrats who control the budget as a “tax-and-spend majority.”
Niello: “Republicans cautioned that this level of spending would lead to greater deficits, and it would be more prudent to show restraint. Unfortunately, the majority party ignored those warnings…”
And Assembly GOP leader James Gallagher of Chico called out Gov. Newsom specifically, describing him as a “checked-out” governor who prioritizes the “national spotlight” over running California.
Gallagher: “In the last five years, Newsom and legislative Democrats have increased spending by more than 60%. It’s flat-out unsustainable. In spite of this outrageous spending, Californians’ quality of life has collapsed. No wonder people are moving to Florida.”
One potential impact of the deficit is a paring down of the minimum wage increase for healthcare workers that starts in January and eventually reaches $25 an hour. Newsom signed the deal between unions and hospitals last month without a clear estimate of how much it would cost.
It turns out the wage increase could drive up the cost of providing care for government agencies by at least $4 billion in 2024-25. Now, Newsom wants unspecified “major reforms” to the law and is talking to Democratic leaders in the Legislature, the Los Angeles Times reported Thursday.
For more on California’s budget deficit, read Alexei’s story.
