Weak revenue collections in December and January are impacting California’s finances and increasing its estimated budget deficit to about $73 billion, according to a Feb. 20 report from the state’s nonpartisan Legislative Analyst’s Office.
Receipts failed to meet expectations across the board, as withholding, personal income, and corporate taxes fell short of projections by $24 billion, collectively, contributing to an additional $15 billion shortfall from the office’s earlier estimates of $58 billion, analysts wrote in the report.
The governor’s budget proposal released in January suggested the deficit is closer to $38 billion.
“The governor’s math is fuzzy, and he doesn’t want to admit that he’s created this problem,” Republican Assemblyman James Gallagher told The Epoch Times on Feb. 21.
The Department of Finance is sticking to its prior projections while expecting revenues in the coming months to potentially make up the difference.
“From now through April, more than $51 billion in income and corporate tax receipts are forecast to come in,” H.D. Palmer, deputy director of the state’s finance department, told The Epoch Times by email. “No one can say today with certainty how those numbers may change the budget estimate of a $38 billion shortfall.”
Acknowledging the discrepancy between the figures presented by analysts and the finance department, he said variances lie in both revenue projections and spending levels.
“In any given year, there will be differences between our estimates and the [Legislative Analyst’s Office], though this year’s differences are certainly larger than in recent years,” Mr. Palmer said.
“The reasons for that include the timing of when we take our ’snapshot' of the state’s fiscal conditions, the differences between our respective revenue forecasts, and the differences between our two offices on certain spending assumptions and projections.”
Some lawmakers are questioning the “apples to oranges” comparison of finances presented by the governor’s office.
“I put more stock in the words of a budget analyst than a budget writer,” state Sen. Roger Niello told The Epoch Times. “If the accuracy is in the [analysts’] analysis, every solution that is not pursued in the current budget year will impact future years.”
Given the severity of the budget gap, he said solutions need to be identified soon.
“It’s much better to have a little pain now as opposed to a lot later,” said Mr. Niello, a Republican.
With revenues broadly missing estimates, the analysts’ report said the deficit is expected to continue growing as tax receipts come due in April.
Some corporate tax revenues declined by about one-third in December and January compared with the previous year.
“All else equal, this means the budget problem is likely to be higher at the time of the May revision,” analysts wrote.
The report advised the Legislature to pull back or reduce one-time and temporary spending plans by about $6.4 billion in the current fiscal year and another $9.2 billion across the coming two fiscal years.
With differing opinions among legislators about the depth and cause of the budget dilemma, some lawmakers blame “reckless” spending in recent years for creating the situation.
While a Democratic Party supermajority has controlled the budget process, general fund spending has ballooned from $86 billion in 2011 to about $217 billion in 2021.
A lack of agreement on the nature of the problem is preventing solutions from arising, according to some lawmakers.
“Before you can tackle an issue, you have to acknowledge it,” Republican Assemblyman Bill Essayli said during a budget subcommittee hearing Feb. 21.
Others said the issue needs to be addressed with clarity and full transparency.
“Gov. Newsom is still trying to fool the public that the deficit is $38 billion,” Republican state Sen. Brian W. Jones said in a Feb. 20 press release. “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?”
