California Budget Deficit Swells to $73 Billion as Incoming Tax Revenue Falls, Watchdog Reports

Gov. Gavin Newsom (Justin Sullivan/Getty Images)
February 21, 2024

California’s budget watchdog warned Tuesday that the state’s deficit has swelled to $73 billion this year, just a month after Gov. Gavin Newsom (D.) painted a rosier picture of the state’s financial outlook.

Incoming tax revenue is so low that the state’s budget analyst believes they will ultimately fall $24 billion below Newsom’s budget proposal, according to the latest forecast from California’s Legislative Analyst's Office. The analysis urged leaders to cut one-time and temporary spending and rescind unspent funds from programs ranging from homelessness to education, labor, transportation, and criminal justice, so that they have more options to use other cost-saving measures should the economy or deficit worsen.

This snapshot comes just one month after Newsom, in rolling out his budget proposal for the upcoming fiscal year, projected a $38 billion shortfall. The governor has striven in recent months to paint California as a national model as he raises his profile ahead of a potential presidential run and campaigns alongside President Joe Biden.

Just two years ago, California had a nearly $100 billion budget surplus. Newsom heralded the extra state income as a sign that "California is a model for the nation on how we can confront our greatest existential threats and make historic investments in our future."

Tuesday’s report noted that the state’s true financial position won’t be clear until tax returns have been filed and tallied. Each year, the governor unveils a revised budget that more accurately reflects California’s finances.

In a statement, a spokesman for the governor stressed the uncertain nature of forecasts but stuck by Newsom’s $38 billion number from January.

"From now through April, more than $51 billion in income and corporate tax receipts are forecast to come in," the spokesman said. "No one can say today with certainty how those numbers may change the budget estimate of a $38 billion shortfall."