California Governor Gavin Newsom and leaders of the state legislature have come to an agreement to address the $73 billion budget deficit. They are aiming to reduce the deficit, which currently stands at $12-18 billion dollars. However, it is important to note that this is just the beginning of what will likely be a series of significant cuts.
California Governor Gavin Newsom praised the efforts of the Assembly and Senate in addressing the projected budget shortfall. In a statement, Newsom emphasized the state’s commitment to a balanced approach, highlighting the utilization of historic reserves and fiscal responsibility to ensure a budget that meets the needs of California. Despite the uncertainties brought by the federal tax deadline delay, Newsom expressed confidence in the state’s ability to overcome these challenges and maintain financial stability.
Newsom, Senate President pro Tempore Mike McGuire, D-North Coast, and Assembly Speaker Robert Rivas, D-Salinas have issued statements indicating that the budget agreement appears to be influenced by the State Senate’s “Shrink the Shortfall” proposal. This proposal aims to address the current year’s shortfall by cutting it down by a significant amount ranging from $8.6 billion to $23.6 billion.
The “Shrink the Shortfall” plan aimed to reduce spending by $2.1 billion, tap into $12.2 billion from the state’s rainy day fund, reallocate $3.2 billion in spending, postpone $2.5 billion in spending, defer $2.1 billion in spending, and either borrow money or raise taxes by $3.6 billion.
In a statement, McGuire emphasized the severity of the deficit, which has increased by billions since January. He stressed the need for swift action to address this shortfall, expressing gratitude to Budget Chair Wiener and all Senators for their dedicated efforts in tackling this difficult challenge. The Senate is prepared to take the necessary votes to promptly reduce the deficit.
The state constitution mandates a balanced budget and prohibits the accumulation of debt to cover deficits. As a result of these obligations, the state is compelled to make substantial cuts in spending and/or increase taxes in order to address the $73 billion budget deficit for the current year.
Rivas emphasized the importance of our process, highlighting the tough choices that lie ahead for the state in the upcoming months.
The state is confronted with significant fiscal challenges due to the increasing unemployment rate and the revision of last year’s added jobs from 325,000 to just 50,000. Moreover, the majority of the added jobs were in government and healthcare sectors, while high-paying professional service industries like tech, finance, and consulting experienced substantial job losses.
According to the recently published financial statement for the fiscal year 2021-2022, California, despite experiencing significant prosperity, has found itself with a deficit of $55 billion. It is important to note that this figure does not account for any potential increase in liabilities or decrease in revenue and assets that may have occurred since then, particularly due to the implementation of new programs and the ongoing trend of individuals leaving the workforce. Consequently, the state’s current financial situation may be even more precarious than initially anticipated.
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