California’s budget deficit is worse than anticipated — and much worse than Newsom projected

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The tug-of-war between California Gov. Gavin Newsom and the nonpartisan Legislative Analyst’s Office over the state’s projected budget deficit took a new turn Tuesday, when the LAO announced a revised shortfall of $73 billion — $15 billion more than previously forecast, and significantly more than the $38 billion gap that Newsom has estimated.

The LAO reported that recent revenue collection data “reflect even further weakness” for the state’s financial outcome.

“All else equal, this means the budget problem is likely to be higher” when the governor gives his revised projection of the state’s finances in May, the LAO said in a Tuesday update.

The LAO said that the actual budget shortfall will depend on a variety of factors, such as mandatory Proposition 98 spending on schools and community colleges.

“Roughly, a $24 billion erosion in revenues corresponds to a $15 billion increase in the budget problem. This would expand the $58 billion estimated deficit to $73 billion under our updated revenue forecast,” the LAO report read.

That means lawmakers are going to have to find “new budget solutions” to ensure a balanced budget for the 2024-25 fiscal year. The LAO said solutions could include increasing revenue, reducing either — or both — one-time and ongoing spending, and exploring the possibility of cost shifts or dipping into reserves.

The LAO listed several areas of one-time and temporary spending where cuts can be made, totaling nearly $16 billion. Categories of cuts include business and labor, criminal justice, education, health and human services, housing and homelessness, resources and environment and transportation.

Senate Republicans on Tuesday afternoon released a statement expressing concern about how Newsom and the Democratic supermajority-controlled Legislature are handling the budget.

“Democratic legislators and the governor’s continued fiscal irresponsibility is troubling, as evidenced by their unchecked spending and the alarming growth of the state’s budget problem,” said Sen. Roger Niello, R-Fair Oaks, in a statement.

Niello vice-chairs the Senate Budget and Fiscal Review Committee. He called for “a course correction” and a “renewed commitment” to a responsible budget.

Senate Minority Leader Brian Jones, R-Santee, blasted Newsom for “trying to fool the public that the deficit is $38 billion.”

“How are we supposed to balance the budget when our governor can’t even admit the true size of the deficit his administration racked up?” Jones said in a statement.

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