The Legislative Analysts Office released a revised set of numbers following Gavin Newsom’s May Revised Budget that show California’s budget is in reality in complete fee fall with no end in sight. New California State officials questioned the Governor’s May Revised budget a budget revision that was impossible to maintain based upon New California State projections. Now the LAO’s Revise of the Revise is out and shows New California Officials were correct even though the deficits projected here are still billions short.
Officials contacted in Sacramento, CA by New California State where asked what the Governor might do to fix the major deficits projected by New California State the response was the Governor was looking to “spend his way out of the problem”.
“Operating Deficits Average $18Billion Annually Under LAO Estimates. Figure 1 shows our office’s projections of the state’s budget condition compared to the administration’s estimates. As the figure shows, both of our offices project the state will have operating deficits (budget problems) over the multiyear period. The operating deficits under our forecast are slightly larger—ranging from $14 billion to $20 billion—compared to those under the administration’s forecast—ranging from $14 billion to $17 billion. There are three reasons for these differences (some offsetting): (1) our revenue estimates are somewhat higher than the administration in the out?years, particularly in 2026?27; (2) our higher revenue estimates result in higher spending on schools and community colleges; and (3) as noted above, our estimate of spending on all other programs is higher than the administration’s projections over the period, reaching a difference of $10 billion by 2026?27″.
Key Takeaways From the Report:
“Very Unlikely the State Will Be Able to Afford the May Revision Spending Levels. Under our estimates, the state faces operating deficits throughout the multiyear window, meaning revenues would need to come in above our projections for the budget to be balanced. While the revenues required to balance the budget are optimistic, but plausible, in the budget window, they are improbable in the out?years. For example, to eliminate the operating deficit in 2024?25, revenues would need to be roughly $30 billion higher than our forecast. Our analysis suggests that level of revenue is very unlikely—there is less than a one?in?six chance the state can afford the May Revision spending level across the five?year period. This means that, if the Legislature adopts the Governor’s May Revision proposals, the state very likely will face more budget problems over the next few years”.
“Very Unlikely the State Will Be Able to Afford the May Revision Spending Levels. While both our and the administration’s forecasts suggest the state faces operating deficits, revenues could differ substantially from these estimates. Figure 2 displays the distribution of the most likely revenue outcomes over the multiyear (in light purple). As seen in the figure, while the revenues required to balance the budget (in green) are optimistic, but plausible, in the budget window, they are improbable in the out?years. For example, to eliminate the operating deficit in 2024?25, revenues would need to be roughly $30 billion higher than our forecast (in dark purple). Our analysis suggests that level of revenue is very unlikely—there is less than a one?in?six chance the state can afford the May Revision spending level across the five?year period. This means that, if the Legislature adopts the Governor’s May Revision proposals, the state very likely will face more budget problems over the next few years”.
