Tax and spend California faces $25 billion shortfall in 2022

Gavin Newsom
California Gov. Gavin Newsom, left, flanked by Attorney General Xavier Becerra, right, answers a question concerning a lawsuit the state will likely file against President Donald Trump over his emergency declaration to fund a wall on the U.S.-Mexico border Friday, Feb. 15, 2019, in Sacramento, Calif. (Rich Pedroncelli/AP)

Tax and spend California faces $25 billion shortfall in 2022

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After years of record-breaking surplus, California is now facing a $25 billion shortfall next fiscal year thanks to dwindling tax revenue, according to a state report.

“Reflecting the threat of a recession, our revenue estimates represent the weakest performance the state has experienced since the Great Recession,” the Legislative Analyst’s Office wrote in a report released Wednesday. “The budget problem is mainly attributable to lower revenue estimates, which are lower than budget act projections from 2021‑22 through 2023‑24 by $41 billion.”

CALIFORNIA BUDGET SURPLUS OVER $75B

For years Gov. Gavin Newsom has boasted about billions in surplus while creating pricey programs for green energy and eradication of the homeless and crime. Last year he invited the world’s homeless to California, saying they would be cared for by taxpayers.

Yet the high cost of living coupled with a yearlong COVID-19 shutdown was too much to handle for 101,000 households who fled the state in 2021, according to a Forbes study.

California was the state with the biggest exodus in the nation, causing it to lose a House seat for the first time in history. Now analysts are seeing the results of all these households and businesses that aren’t paying taxes — the biggest black eye being Tesla and Hewlett Packard, both setting up shop in Texas.

“Last year, it was really fun to be in Sacramento,” state financial forecaster Christopher Thornberg told Politico. “Everyone was trying to figure out how much money they could spend. This year, not so much.”

State Senate Leader Toni Atkins said California Democrats have been responsible budgeting a priority over the past decade to “strengthen the middle class, assist struggling Californians, and fight climate change.”

She said the legislature is prepared to weather the storm.

“Thanks to our responsible approach, we are confident that we can protect our progress and craft a state budget without ongoing cuts to schools and other core programs or taxing middle-class families,” she said.

Analysts have warned against using the state’s $23 billion in reserves to balance the budget. Enough money exists to fund schools because of a ballot measure allocating those funds but the remainder is 60% of the general fund and the legislature needs to “reevaluate expenditures.”

In addition, the analysts did not create their forecast taking into account a full-blown recession. If this occurs, the deficit could double — jumping between $30 billion to $50 billion.

“The actual costs to maintain the state’s service level are higher than what our outlook reflects. Consequently, our estimate of a $25 billion budget problem understates the actual budget problem in inflation‑adjusted terms,” the report said.

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Newsom has vetoed many pricey bills this year and most recently asked counties for an accounting of how they spend homeless eradication grants before more money is doled out. The state has promised to spend $15 billion over the next three years, with Newsom putting $1 billion on pause right now.

“The state is in its best-ever position to manage a downturn, by having built strong reserves and focusing on one-time commitments,” a Newsom spokesperson told Politico.

© 2022 Washington Examiner

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