Under the leadership of Governor Gavin Newsom, California is facing an unprecedented fiscal crisis with a record $68 billion budget deficit. The alarming situation, as reported by the nonpartisan Legislative Analyst Office, marks a dramatic shift from the state’s previous financial surpluses and casts a shadow over Newsom’s administration and potential national political aspirations.
The deficit, the largest in California’s history in dollar terms, is attributed to a significant shortfall in tax collections, amounting to $26 billion, and an overall economic slowdown. The financial turmoil is further exacerbated by the impacts of severe winter storms that have battered the state, leading to additional economic strains.
Republican state Sen. Roger Niello has been vocal in his criticism, stating, “Republicans cautioned that this level of spending would lead to greater deficits, and it would be more prudent to show restraint. Unfortunately, the majority party ignored those warnings.”
Despite the daunting deficit, California is not without resources. The state boasts over $37 billion in various savings accounts, which could play a crucial role in mitigating the financial crisis. Legislative Analyst Gabriel Petek has suggested utilizing a portion of these reserves, coupled with the cancellation of around $11 billion in planned one-time spending, to address the budget shortfall.
“The state remains in a good cash position. I would stop short of calling it a crisis.”
The situation is further complicated by the recent severe weather events that have hit California. A late-season Pacific storm brought damaging winds, rain, and snow, causing widespread power outages and infrastructure damage. This series of atmospheric rivers, following a prolonged drought period, has added to the state’s challenges, including flooding, roof collapses, and difficulties in managing avalanches according to the Associated Press.
Newsom and the state Legislature now must come up with a plan to cover this deficit. Newsom will present his plan in January and then negotiate with state lawmakers through June. The next budget year begins July 1.
Newsom’s first term in office was buoyed by record-smashing surpluses of more than $100 billion in some years. The money allowed him and his Democratic allies in the state Legislature to greatly expand government, including paying for guaranteed health insurance for all low-income adults regardless of their immigration status and free lunches for all public school students.
Now in his second term, growing budget deficits could threaten some of Newsom’s accomplishments at a time when he is building his national profile that could lead to a run for president beyond 2024. The Legislative Analyst Office says their projections, from 2022-2023 through 2027-2028, show a cumulative deficit of $155 billion.
Still, even in the face of deficits, Newsom and the state Legislature last year gave a lucrative tax break to the state’s film and television industry while also agreeing to gradually raise the minimum wage for health care workers to $25 per hour. That wage increase will cost the state about $20 billion this year in increased labor costs and Medicaid payments to hospitals.
Newsom’s administration, once buoyed by record-breaking surpluses, now faces the daunting task of navigating through turbulent financial waters. As the state braces for the impact of this historic deficit, eyes are on Newsom’s next move, locally and nationally.