Monday, February 26

California’s nonpartisan legislative analyst says state faces record $68 billion budget deficit

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SACRAMENTO, Calif. (AP) — California is facing a $68 billion budget deficit, the nonpartisan Legislative Analyst’s Office said Thursday.

Most of the deficit comes from lower than expected tax revenues this year, the office said.

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California delayed its tax filing deadline to November this year because a series of damaging storms. That forced Democratic Gov. Gavin Newsom to come up with a spending plan without knowing how much money the state would have.

The Legislative Analyst’s Office says revenues for the 2022-23 budget year ended up $26 billion below previous estimates. The office says the state could cut spending on education and take money from the state’s savings account to help balance the budget.

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The state’s budget topped $300 billion last year.

The projected $68 billion deficit is a record in terms of a dollar figure. But the state has seen deficits that represent a larger share of the budget in the past.

It’s the second year in a row tax collections in the nation’s most populous state likely won’t be enough to cover expenses _ potentially leading to some hard choices for Newsom and his allies in the Legislature.

The problem is inflation and how the U.S. government is trying to control it. The Federal Reserve has been increasing a key interest rate that makes it more expensive for people and businesses to borrow money. That means fewer people are buying homes and fewer businesses are hiring workers.

In California, that means the number of unemployed workers has risen by nearly 200,000 since last year, enough to increase the state’s unemployment rate to 4.8% from 3.8%. The national unemployment rate is 3.9%

Layoffs have hit the tech sector particularly hard, which has an outsized impact on California given the industry’s concentration in Silicon Valley. IT has been the backbone of the state’s economic growth and revenue, said Sung Won Sohn, an economics professor at Loyola Marymount University.

“They expanded greatly during the pandemic and now they are finding that they have too many people and they need to cut back expenses,” Sohn said.

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