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(CALIFORNIA GLOBE) – A Legislative Analyst’s Office report released on Wednesday found that California revenue is $41 billion below expectations, likely resulting in a massive $25 billion shortfall in the upcoming 2023-2024 state budget. The LAO recommends lawmakers start cutting the budget when they begin the January session.
Minus a severely affected budget by the COVID-19 pandemic a few years ago that had a $54 billion deficit, California claimed budget surpluses in recent years. This includes last years’ massive $97.5 billion surplus, which was partially caused by previous cuts made, as well as an expanded tax base returning following the pandemic.
However, multiple factors slowly crept in during the last few hectic years. The California Department of Finance pointed out that revenue for those making $500,000 or above has gone down, with many either leaving the state or now making below that amount due to financial issues. In their report, the LAO said state personal income taxes were down below projections by billions, along with inflation and recession fears fueling losses even more. In addition, experts noted that Tech layoffs and hiring freezes, numerous large companies moving out of the state, the war in Ukraine, inflation, and changing Federal Reserve interest rates and also been grinding the projected deficit even further down.
“The longer inflation persists and the higher the Federal Reserve increases interest rates in response, the greater the risk to the economy,” said the LAO in the report. “The chances that the Federal Reserve can tame inflation without inducing a recession are narrow.”
