If California’s standard of living seems a little strained, that’s because the state is going through a rough patch.
State officials claim California is facing a $68 billion budget deficit. This leaves Governor Gavin Newsom with some hard choices as he strives to build his national profile.
California has been struggling since 2022. This is due to the rising prices of most goods and services and how the U.S. government has been trying to mitigate it.
This means that people and businesses will shun borrowing, i.e., fewer people will buy homes, and fewer businesses will hire workers. This ultimately leads to fewer tax collections for the state.
The matter is made worse by how state officials gave people more time to pay their taxes because of storms from last winter. Residents of the state were free from taxes until November of this year.
As such, Newsom and the Legislature have had to create a budget without knowing how much the state will spend. Their estimates were off the mark by about $26 billion, which has become a significant driver of the state’s deficit.
Add that to the economic slowdown California has been enduring since 2022, and what you have is a predicted deficit of $68 billion. It is the biggest deficit by dollars in state history, even though previous deficits have been larger as a percentage of state spending.
It is now up to Newsom and the state Legislature to devise a plan to cover this deficit. The governor will present his plan in January. But negotiations with state lawmakers will last through June. The next budget year starts July 1.
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The growing budget deficit is a great challenge for Newsom’s administration. The timing is terrible, too, as they come at a time when he is building his national profile.
Republicans have been pointing fingers, claiming they warned that this level of spending would lead to more significant deficits. However, the majority party ignored those warnings, which is why it is now in this difficulty.
Experts believe it will be challenging to cover the deficit even if the government takes the advice of the Republicans.
Legislative Analyst Gabriel Petek says: “The state remains in a good cash position. I would stop short of calling it a crisis.”
In the meantime, officials are doing what they can. Assembly Speaker Robert Rivas promises to craft a budget that “protects classroom funding and prioritizes support for core programs.”
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As for Newsom, he will propose a budget that “protects vital services and public safety.”
The economic downturn has a greater impact in California than in other states. This is because of its size and the fact that it depends heavily on taxes paid by the wealthy.
The national unemployment rate is now 3.9%, with layoffs hitting the tech sector like a bag of bricks. Home sales in California have also been halved. Newsom now has all eyes watching to see how he weathers the storm, as it will significantly impact the national profile he’s building.
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