California is likely to face a $25 billion budget deficit next year due to high inflation and the threat of a recession, despite lofty projections in May that called for a nearly $100 billion surplus for the current fiscal year.
The Legislative Analyst’s Office, which provides state lawmakers with tax and policy advice, said the problem with the 2023-24 budget stems from low revenue estimates. Revenue is $41 billion below expectations, according to a forecast released by LAO.
The estimated shortfall is smaller because some of those revenue losses were offset by lower spending elsewhere in the budget.
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Legislative analyst Gabriel Petek shows a copy of his office’s analysis of the state’s fiscal outlook for 2023-24, which was released Wednesday. California is likely to run a $25 billion budget deficit next year, ending a run of record surpluses.
(AP)
In May, Governor Gavin Newsom announced that the state would enter the 2022-23 fiscal year with a surplus of $97.5 billion. The surplus came as the state collected $55 billion more in taxes than expected.
At the time, Newsom said one of his priorities was giving Californians relief from inflation, Fox Los Angeles reported.
“People feel deep stress, deep anxiety,” he said.
The Democratic-controlled state taxes wealthy people more than other states, meaning a significant drop in income is related to the super-rich not making as much money as they used to.
The budget shortfall is not expected to affect some of the state’s major government services, such as free kindergarten for 4-year-olds and free health care for low-income illegal immigrants.
“It’s not negligible, but it’s also manageable,” legislative analyst Gabriel Petek said of the deficit. “We don’t think of this as a budget crisis.”
Democratic Assembly Speaker Anthony Rendon said lawmakers “can and will protect the budget progress of the past several years.”

California Governor Gavin Newsom speaks during a news conference after meeting with students from James Denman High School on October 1, 2021 in San Francisco.
(Justin Sullivan/Getty Images)
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“In particular, the Assembly will protect California’s historic school funding gains as districts must continue to invest in retaining and recruiting staff to help kids move forward and recover from the pandemic,” Rendon said.
Associated Press contributed to this report.