Gov. Gavin Newsom (D-CA) will give his updated budget proposal on Friday afternoon, leaving many lawmakers and lobbyists prepared for large spending cuts to offset a deficit estimated of $73 billion.
Newsom’s new budget proposal for California comes a month after he slashed one-time funding programs and delayed spending in programs in an effort to reduce the deficit by $17.3 billion.
By the end of April, state taxes collected from the state’s three biggest sources, personal income, corporations, and sales, were $6 billion less than previous estimates. As a result, California’s deficit has only grown larger. Unlike the U.S. government, California law requires the state to have a balanced budget. This is the second year in a row that California has had a deficit. Last year, estimates of tax revenue ended up being far off when the state allowed residents to delay tax filings until November instead of April due to a series of destructive storms. While still having to pass a budget in June, lawyers were not properly able to gauge how much money there would be.
“We still have a shortfall. We will manage it, and we’ll manage it, yes, without general tax increases,” Newsom said on Wednesday during an event held by the California Chamber of Commerce. “We’re not just going to try to solve for this year. I want to solve for next year. I think it’s too important. We have got to be more disciplined.”
The amount of California’s tax dollars collected is unpredictable since about half of the state’s income taxes came from just 1% of the population in 2021, making the state more affected by stock market swings.
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But income taxes are growing due to a 20% jump in the stock market since October, which has increased total income tax collections this year by 8%. However, corporate tax collections are down 15% from last year, making it the fourth-largest drop in the past 40 years. Overall economic growth has failed to see any growth as the unemployment rate continues to rise and investments in businesses shrink. This decline comes as more and more residents are fleeing the state.
State lawmakers have until June 15 to pass a balanced budget.
