Those extended tax deadlines are having a big unintended consequence for the state of California’s budget, as miscalculations over how much tax revenue was coming have led to a much larger deficit than than the state thought it was running, now an all-time high of $68 billion.
California Governor Gavin Newsom has spent the majority of his administration with the distinct pleasure of presiding over gaudy budget surpluses. But that all changed in January of this year, when the state discovered it was suddenly running a $22.5 billion deficit. By May, it had grown to a $31.5 billion deficit, leading some economists to wonder if the state was heading into a recession.
Well, that recession did not materialize, and hopefully won’t. But the California lawmakers still got terrible financial news this week, as NBC Bay Area reports the state’s Legislative Analyst Office just determined the state is currently running an all-time record $68 billion deficit.
A large part of that record number can be attributed to how we delayed the state and federal tax filing deadline for much of the state this year because of last winter’s storms. But that delayed tax deadline passed on October 15, so most of that money should have rolled in by now. Though apparently state budget analysts misjudged how much tax revenue would be coming in by the tune of $26 billion, leading to a much larger deficit than has been assumed.
The rash of layoffs in the tech industry has also played a role, leaving fewer high-income employees to tax. Those layoffs are a big reason why California actually has a higher unemployment rate (4.8%) than the national unemployment rate (3.9%). Higher interest rates have contributed to a slumping home sales market, which is also hurting state revenue.
All these things said, though, the state is not in as awful shape as that staggering $68 billion deficit would suggest. As NBC Bay Area points out, California still has another $37 billion in “various savings accounts” that could be tapped to lower the deficit. Additionally, Newsom’s current budget has about $11 billion in “planned one-time spending” that could be canceled.
“The state remains in a good cash position,” Legislative Analyst Gabriel Petek said when announcing the record deficit. “I would stop short of calling it a crisis.”
And while $68 billion is the state’s largest-ever deficit by dollar amount, there have been previous deficits that were larger as a percentage of the state’s overall spending. California’s overall budget is well over $300 billion, larger than any other state in the U.S.
Related: Newsom’s Proposed Budget Slashes $2 Billion From Public Transportation, Legislators Up In Arms [SFist]
Image: The flags fly in front of Sacramento’s Capital Building (Getty Images)