California Faces Record Deficit of $73 Billion as Governor Newsom Proposes Cuts and Balanced Budget Amid Economic Uncertainty

Governor Gavin Newsom (D-CA) is set to present his updated budget proposal on Friday, as lawmakers and lobbyists prepare for significant spending cuts to address a deficit of $73 billion. This follows Newsom’s previous decision to reduce one-time funding programs and postpone expenditures by $17.3 billion in April. Unlike the federal government, California law necessitates a balanced budget, and this is the second consecutive year that the state has experienced a deficit. In April, state tax revenues from major sources such as personal income, corporation, and sales fell by $6 billion compared to initial projections. Due to devastating storms in January 2023, California extended the deadline for filing tax returns until November in the previous year, resulting in uncertainty regarding tax collection while still requiring a budget to be passed in June. “We still have a shortage. We’ll manage it, and we’ll manage it without increasing general taxes,” Newsom stated at a gathering hosted by the California Chamber of Commerce on May 10th. “We’re not simply going to attempt to resolve this year’s issues. I believe it’s far too crucial.” California’s tax revenue is erratic because roughly half of its income taxes come from only 1% of the population each year, making the state more susceptible to stock market fluctuations. While income taxes have risen by 8% this year due to a 20% increase in the stock market since October, corporate tax receipts have decreased by 15%, the fourth-largest decrease in the past 40 years. Despite overall economic development failing to show any growth, unemployment rates continue to climb, investment in businesses declines, and people leave the state at an increasing rate. By June 15th, state legislators must approve a balanced budget.