December 6, 2024
California has no capacity for new spending, top state analyst says

The California Legislative Analyst’s Office on Wednesday released the first look at the state’s financial picture, indicating lawmakers and the governor face yet another challenging year as they prepare to put together the state’s spending plan next year. Despite surging state revenues so far bringing in $7 billion more than expected this year, Legislative Analyst Gabe Petek said California may face a $2 billion budget shortfall in the upcoming budget year for 2025-2026. Petek said the state has no capacity for new spending commitments.”There are some particular uncertainties with the number and things could shift in the coming months,” Petek told reporters, but noted California is already strapped with growing spending commitments plus the uncertainty that comes along with the state’s revenue relying heavily on its highest earners. The office acknowledged the state’s financial situation is “on shaky ground,” noting the boom in revenue is largely attributed to major tech companies like NVIDIA, Apple, Google and Meta performing well. Analysts said a stock market slump could have a significant impact on the state’s budget situation. Petek said the state’s abnormal growth in spending could also contribute to large budget deficits in the future, with shortfalls projected between $20 billion to $30 billion in the coming years. Petek noted California has several spending commitments related to the expansion of some state programs, plus another $8 billion in higher costs associated with propositions that passed in the election. Gov. Gavin Newsom has already floated a handful of new spending proposals including a boost to the state’s Hollywood tax credit, plus efforts to prepare for lawsuits against President-elect Donald Trump’s incoming administration and the need for a possible disaster relief fund. Petek confirmed that at the moment state lawmakers and the governor would need to either make cuts to other programs, tap into savings, or create a new tax to generate more money for those proposals. Petek could not say on Thursday how the Trump administration might impact California’s financial situation. He said the report released Thursday is based on current facts, evidence and data. “The way that our office works is based on facts, data, evidence that we have in hand or specific proposals,” Petek told reporters. “We’re quite aware, we’re following quite closely with the rhetoric. We know there’s potential to be in the bullseye, we aren’t trying to speculate here.” Gov. Newsom last year criticized Petek and his office for its outlook last year that predicted a much larger budget deficit than his administration did at the time. This year, Newsom’s Department of Finance spokesman H.D. Palmer said the administration and the LAO are on the same page about several aspects of the state’s financial situation. That includes the “roughly” balanced budget in the upcoming year, the spending commitments, and the uncertainty ahead. “We think the analyst’s report is a reasonable starting point for next year’s budget discussion,” Palmer told KCRA 3 in an interview. He noted the incoming Trump administration could have an impact on the state’s dollars. ” How are tariffs and other changes in federal policy going to affect our industries? How will it affect the tech industry, how is it going to affect the agriculture industry? All of those things as some person famously once said, are known unknowns,” Palmer said. “We need to show restraint with this year’s budget,” said Assembly Speaker Robert Rivas in a statement. “California must be prepared for any challenges, including ones from Washington. It’s not a moment for expanding programs, but for protecting and preserving services that truly benefit all Californians.””The most significant thing in my mind is oversight,” said State Senator Roger Niello, the Republican Vice Chairman of the Senate’s Budget Committee. “Particularly with the large deficits, we need now a robust assessment of existing programs, all existing programs, those that aren’t working — and I rather doubt we won’t find some that aren’t working– they have to be cut.” “We need to continue to buckle down on spending and be incredibly strategic on any future fiscal expansion,” said Democratic State Senate Pro Tem Mike McGuire in a statement. “Folks are doing their best to make ends meet, and it’s our responsibility to implement policies and secure investments that will make their lives more affordable.”“California is the highest-tax state in the country, yet we are still facing multi-billion dollar deficits well into the future,” said the Assembly’s Republican Minority Leader, James Gallagher. “Democrats got us into this mess and I have no confidence in their ability to fix things without inflicting real pain on Californians.”The update comes after lawmakers and the governor have spent back-to-back years closing budget deficits in the tens of billions of dollars. Last year, they made numerous cuts to several programs while tapping into the state’s reserves. The Legislative Analyst’s Office said there is about $11 billion available in the state’s savings accounts. See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter

The California Legislative Analyst’s Office on Wednesday released the first look at the state’s financial picture, indicating lawmakers and the governor face yet another challenging year as they prepare to put together the state’s spending plan next year.

Despite surging state revenues so far bringing in $7 billion more than expected this year, Legislative Analyst Gabe Petek said California may face a $2 billion budget shortfall in the upcoming budget year for 2025-2026. Petek said the state has no capacity for new spending commitments.

“There are some particular uncertainties with the number and things could shift in the coming months,” Petek told reporters, but noted California is already strapped with growing spending commitments plus the uncertainty that comes along with the state’s revenue relying heavily on its highest earners.

The office acknowledged the state’s financial situation is “on shaky ground,” noting the boom in revenue is largely attributed to major tech companies like NVIDIA, Apple, Google and Meta performing well. Analysts said a stock market slump could have a significant impact on the state’s budget situation.

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Petek said the state’s abnormal growth in spending could also contribute to large budget deficits in the future, with shortfalls projected between $20 billion to $30 billion in the coming years.

Petek noted California has several spending commitments related to the expansion of some state programs, plus another $8 billion in higher costs associated with propositions that passed in the election.

Gov. Gavin Newsom has already floated a handful of new spending proposals including a boost to the state’s Hollywood tax credit, plus efforts to prepare for lawsuits against President-elect Donald Trump’s incoming administration and the need for a possible disaster relief fund.

Petek confirmed that at the moment state lawmakers and the governor would need to either make cuts to other programs, tap into savings, or create a new tax to generate more money for those proposals.

Petek could not say on Thursday how the Trump administration might impact California’s financial situation. He said the report released Thursday is based on current facts, evidence and data.

“The way that our office works is based on facts, data, evidence that we have in hand or specific proposals,” Petek told reporters. “We’re quite aware, we’re following quite closely with the rhetoric. We know there’s potential to be in the bullseye, we aren’t trying to speculate here.”

Gov. Newsom last year criticized Petek and his office for its outlook last year that predicted a much larger budget deficit than his administration did at the time. This year, Newsom’s Department of Finance spokesman H.D. Palmer said the administration and the LAO are on the same page about several aspects of the state’s financial situation. That includes the “roughly” balanced budget in the upcoming year, the spending commitments, and the uncertainty ahead.

“We think the analyst’s report is a reasonable starting point for next year’s budget discussion,” Palmer told KCRA 3 in an interview. He noted the incoming Trump administration could have an impact on the state’s dollars.

” How are tariffs and other changes in federal policy going to affect our industries? How will it affect the tech industry, how is it going to affect the agriculture industry? All of those things as some person famously once said, are known unknowns,” Palmer said.

“We need to show restraint with this year’s budget,” said Assembly Speaker Robert Rivas in a statement. “California must be prepared for any challenges, including ones from Washington. It’s not a moment for expanding programs, but for protecting and preserving services that truly benefit all Californians.”

“The most significant thing in my mind is oversight,” said State Senator Roger Niello, the Republican Vice Chairman of the Senate’s Budget Committee. “Particularly with the large deficits, we need now a robust assessment of existing programs, all existing programs, those that aren’t working — and I rather doubt we won’t find some that aren’t working– they have to be cut.”

“We need to continue to buckle down on spending and be incredibly strategic on any future fiscal expansion,” said Democratic State Senate Pro Tem Mike McGuire in a statement. “Folks are doing their best to make ends meet, and it’s our responsibility to implement policies and secure investments that will make their lives more affordable.”

“California is the highest-tax state in the country, yet we are still facing multi-billion dollar deficits well into the future,” said the Assembly’s Republican Minority Leader, James Gallagher. “Democrats got us into this mess and I have no confidence in their ability to fix things without inflicting real pain on Californians.”

This content is imported from Twitter.
You may be able to find the same content in another format, or you may be able to find more information, at their web site.

The update comes after lawmakers and the governor have spent back-to-back years closing budget deficits in the tens of billions of dollars.

Last year, they made numerous cuts to several programs while tapping into the state’s reserves.

The Legislative Analyst’s Office said there is about $11 billion available in the state’s savings accounts.

See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter


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