California Gov. Gavin Newsom is facing mounting pressure to act as the state's budget deficit soars to $68 billion following months of falling tax revenue.
The region is known as the most populous state in the United States and has an economy that is the fifth largest worldwide. The state has been struggling for quite some time since last year due to the rising prices of goods for the majority of goods and services as well as how the U.S. government has been handling the issue.
California's $68 Billion Budget Deficit
It has become more expensive for businesses and residents of California to borrow money, which means that fewer people are purchasing homes and fewer businesses are hiring employees. This situation is leading to fewer tax collections for the region's local government.
Last winter, a series of damaging storms only made the problem worse. The weather phenomenon was so bad that state officials had to give people and businesses more time to pay their taxes this year, as per Yahoo News.
Residents also did not have to pay their 2022 taxes until November of this year, which meant that the Newsom government as well as the Legislature had to come up with a budget over the summer without knowing how much money would actually be available to spend.
This has led the state government to badly misjudge how much taxes the people of the region as well as businesses would pay. The nonpartisan Legislative Analyst Office said that tax collections were by a whopping $26 billion, which has become a major driver of the budget deficit.
On Thursday, Legislative Analyst Gabriel Petek said that when added to the economic slowdown that the state has been suffering with since last year, this means that the total budget deficit has grown to $68 billion.
This number represents the largest deficit in dollars in the history of California. However, previous deficits have been larger as a percentage of state spending. Currently, the state's budget tops $300 billion, which is also the largest by far of any state.
Addressing the Financial Issue
The budget deficit has gone beyond the $14.3 billion estimate that was made in June. It threatens to upend the upcoming legislative year by forcing Newsom and other state lawmakers to make spending cuts on a scale that few term-limited elected officials in Sacramento have faced, according to Politico.
State budget analysts, without underestimating the gravity of the situation, said that California still has options to address the issue. These include the use of cash reserves, one-time cuts in spending, and changes to the way that the state funds education.
The Legislative Office forecasts a $4 billion drop in the funding that the state must send to schools and community colleges under Proposition 98. Analysts across the board also issued predictions that spending will be lowered by $4 billion.
Newsom is slated to release his first budget proposal of the year in January, which would prompt negotiations on how the state could address its financial hurdle. Last year, the governor made the largest cuts of his tenure after years of experiencing surpluses, said KTLA.
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