SACRAMENTO, Calif. (AP) — The good times for the California government may soon be over.
The most populous state in the country has so much cash these days that legislators are spending it at their disposal. Free health care for low-income immigrantspay all fees 4 year old child going to kindergarten sent more than $21 billion in stimulus packages check to taxpayer For the past two years.
This endless flow of money began to dry up as state tax collections fell short of expectations for the fourth month in a row. According to the latest estimates from the nonpartisan Office of Legislative Analysts, there’s an 80% chance that California will be short by about $8 billion when its fiscal year ends next summer.
There’s still plenty of time to rebound, but the downward trend in revenue is already having an impact. Last month, Democratic Gov. Gavin Newsom blocked tax cuts for manufacturers, halted the expansion of a full-time kindergarten program and ended unemployment benefits for immigrants living in the country without legal permits.
“These shortfalls are not only coming, they are enough and we have to make some adjustments,” Newsom said. “We are currently working with Congress to do just that. ”
Despite the shortages, California is unlikely to be headed for another cash crisis like the one that engulfed the state during the Great Recession more than a decade ago. At the end of September 2008, during the Great Recession, he had less than $8 billion in California’s budget to spend. This year, California has more than $130 billion available, including $37.2 billion in various savings accounts.
Chris Horne, executive director of the California Center for Budget and Policy, said: “I think the state is in a much better position for this recession than it has been in its history.
What’s happening in California could be a sign of nasty things coming to other states. It looks like the state’s tax revenue so far has exceeded expectations. However, revenue growth has slowed significantly, with states expecting an average of 1.4% growth this year, compared with a 16.5% increase in 2021.
California’s problem is not employment, as many people work and pay taxes in California. California’s unemployment rate hit a record low in September, and employment is nearly back to pre-pandemic levels.
Instead, the problem is the falling stock market. So the rich don’t make that much money. This is a problem in California, where a progressive tax system causes the top 1% of income earners to pay nearly half of the state’s income tax.
The biggest factor is the government’s attempt to curb inflation-driven rises in goods and services. The Federal Reserve has done this by raising key interest rates. This had a cascading effect on the rest of the economy. As a result, the S&P 500, an index of 500 publicly traded companies in major US industries, has fallen more than 18% from its peak in January.
A falling stock market means there is less incentive for technology start-ups to start selling stocks to the public. The “public offering” of technology companies has become a reliable source of funding for the California government. Because this makes a lot of people get rich very quickly and all their money is taxable.
Last year, 206 California-based companies went public, bringing enormous tax revenue to the state. Fewer than 50 of his California-based companies will go public this year, according to estimates by the California Department of Treasury, the Newsome administration’s budget agency.
UCLA Faculty Director Jerry Nickelsburg said: Anderson forecast to predict economic trends.
In California, most income taxes are collected in April. This is the deadline for people to file their state tax returns. But the state receives money every month from “withholding tax.” This is what the company withholds from workers’ salaries each month and remits to the government. This income has decreased significantly since June.
“What this suggests to forecasters is layoffs and cuts in some of the high-wage tech sectors of the state economy,” said Treasury Department spokesperson H.D. Palmer. . of the stock market. ”
It could also hint at instability between Newsom and the Democratic-controlled California legislature. This year, Newsom scolded lawmakers for passing legislation at the end of Congress. All of these bills added up would have authorized $22 billion in new spending for him that hasn’t been accounted for in the state budget.
Newsom called the proposed spending “amazing.” He vetoed these bills in his September, blocking most of them.
“We have made it clear that the economy is facing headwinds,” Mr. Newsom said.
Congressional Speaker Anthony Rendon, a Democrat in Los Angeles, said lawmakers will make proposals that benefit their districts and the people of California.
“What is remarkable is that the Senate and House have been able to unite on the budget over the last few years,” Rendon said. “We have worked with the Administration to make California’s budget stronger, more resilient, and better. We now have more reserves and more cash on hand than ever before. Compared to their achievements, our differences are small.”
Democratic Senate Speaker pro tempore Toni Atkins said it’s too early to know what will happen to next year’s budget. But, she said, “we are better prepared than ever to protect our progress and withstand declining incomes without curtailing harmful programs or increasing taxes on the middle class.”