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    Is California Headed For An Economic Downturn?

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    By Emily Hoeven, CalMatters

    Shipments of cargo leave the Port of Oakland on July 25, 2022. Photo by Martin do Nascimento, CalMatters

    Some cautionary economic signals are gaining strength in California just a month after Gov. Gavin Newsom and state lawmakers adopted a record-breaking $308 billion budget.

    The Golden State is more likely than not to collect less from personal income, sales and corporation taxes than the $210 billion assumed in the 2022-23 budget, according to a Monday report from the nonpartisan Legislative Analyst’s Office, which advises lawmakers on fiscal issues.

    The report notes, however, that “significant uncertainty” remains, and the state could ultimately end up collecting anywhere from $25 billion less than anticipated to as much as $15 billion more — likely ending up about $5 billion below projections.

    A recent report from the state Department of Finance offers a similarly mixed outlook: For the first time since the pandemic struck in early 2020, California’s tax revenues in June fell short of projections rather than exceeding them. Cash receipts came in about $2.4 billion less than expected, largely due to lower proceeds from the personal income tax.

    • H.D. Palmer, a finance department spokesperson, told me Monday that although more data is needed to make “long-term extrapolations,” the June numbers suggest that Californians paying their taxes quarterly — who tend to make most of their money from capital gains and stock options — are seeing “a lot of clouds on the horizon” due to rising inflation and interest rates, persistent supply chain issues and global market instability caused by Russia’s war on Ukraine.
    • Palmer said the two reports underscore “the importance of the actions that we’ve taken” to use California’s budget surplus “sensibly” by expanding reserves and paying down debt, rather than “embarking on a major expansion of state programs … that may very well not be sustainable.”
    • He added: “It’s something to be mindful of as we consider this final month of the legislative session in terms of … any major potential new financial commitments. … Certainly the administration has one eye on this as we’re looking at the legislation that’s moving.”

    Indeed, Newsom cited California’s progressive tax structure in announcing his opposition to Proposition 30, a November ballot measure that would raise taxes on residents earning more than $2 million to fund a variety of climate programs.

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