California has finally filed its audited financial statement for the 2021-2022 fiscal year, but it is 350 days past the filing deadline. In this filing, the state acknowledges that it suffered a loss of $29 billion due to unemployment fraud during the COVID-19 pandemic. This amount needs to be repaid to the federal government. Additionally, the state’s liabilities have exceeded its unrestricted resources by $256 billion in 2022.
After taking into account limited resources like purpose-specific state trust funds and bonds, the state found itself with a staggering $55 billion deficit.
2022 brought about tremendous economic prosperity for California, with significant stock market gains and unprecedented job growth in the lucrative tech industry during the post-pandemic recovery. Despite this, the state still implemented a budget for FY 2021-2022 that involved $234 billion in general fund spending, surpassing the $220 billion in revenue generated.
Policy Analyst Marc Joffe, from the libertarian Cato Institute, expressed concerns about California’s economic situation and its ability to repay debt. He questioned what would happen in a worse financial scenario, where the state would need to dip into its rainy day fund. Joffe’s remarks were made during an interview with The Center Square.
California is currently facing a $73 billion deficit for the 2024-2025 fiscal year. In response, the Democratic legislature has come up with a proposal to cut this year’s budget by $2.1 billion. Additionally, they have proposed to spend $12 billion, which is half of the state’s rainy day fund. The state’s job growth for 2023 has been reduced from 325,000 to just 50,000, which will likely result in lower revenues than anticipated. Moreover, the expansion of benefits, including the extension of taxpayer-funded MediCal to all illegal immigrants, and the shift of illegal immigration from heavily-enforced Texas to California, could potentially lead to higher state expenditures than initially projected.
State Controller Malia Cohen emphasized the significance of having an updated report on state finances for the 2022-2023 fiscal year during ongoing budget negotiations. She expressed concern over the fact that California’s financial statements for the fiscal year ended June 30, 2022, will be published well beyond the regulatory deadline of nine months after the fiscal year end. This delay marks the fifth consecutive year that California has experienced such a delay in publishing its financial statements.
The release date for the 2022-2023 AFCR is uncertain, indicating that it may not be available for quite some time. Joffe emphasizes that the absence of this comprehensive and verified financial report hinders voters and state leaders from accurately assessing the state’s financial situation.
According to Joffe, the audited financial statement provides a comprehensive overview of the state’s financial situation. It goes beyond just examining revenues and expenditures and also takes into account the assets and liabilities.
Lower revenues and higher expenditures may result in California facing a deficit much larger than $73 billion for the year. Constitutional obligations demand that the state maintain a balanced budget annually, and borrowing to cover deficits is prohibited. As a result, the governor and legislature will likely need to make substantial cuts from the proposed $209 billion budget.
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