California Legislature Passes Budget to Address $46.8 Billion Deficit

On Wednesday, June 26, 2024, California lawmakers approved a new budget. This budget includes spending cuts and temporary tax increases on some businesses. The aim is to address the state’s estimated $46.8 billion deficit. This marks the second consecutive year of budget adjustments due to a significant decrease in revenue.

From Surplus to Deficit

Just two years ago, California enjoyed record-breaking surpluses exceeding $100 billion. This windfall resulted from federal COVID-19 aid and a progressive tax system that generated substantial revenue from wealthy residents.

However, inflation, a slowing economy, rising unemployment, and a downturn in the tech industry have contributed to a sharp decline in revenue. Last year’s deficit reached $32 billion, and this year’s has ballooned to $46.8 billion, with projections of further deficits in the future.

Budget Cuts and Tax Increases

To balance the budget, Governor Gavin Newsom proposed a nearly 10% cut across most state departments. This includes eliminating thousands of vacant positions. Additionally, some progressive policies have been paused or delayed, including expansions to child care assistance and minimum wage increases for healthcare workers.

However, significant investments have been protected. These include providing government-funded health insurance to all low-income adults, regardless of immigration status, and making school lunches free for all students.

To generate additional revenue, the budget includes a temporary tax increase on businesses with at least $1 million in revenue. This tax is expected to bring in over $5 billion next year.

Republican Concerns

Republicans, who were excluded from budget negotiations, have voiced concerns about the tax increase on businesses and cuts to social safety net programs. They argue that the budget does not adequately address the needs of the most vulnerable.

Looking Ahead

Newsom and lawmakers have agreed to explore constitutional changes to allow California to set aside more money for future shortfalls. The budget also allocates $136 billion for public education, protecting schools from significant cuts.

While the budget faces criticism, it reflects a compromise between Newsom and legislative leaders. It includes concessions from both sides, such as a loan to Pacific Gas & Electric and the preservation of certain social services programs.

With the budget’s passage, California aims to stabilize its finances and address the current economic challenges. However, the long-term sustainability of the state’s budget remains a concern, especially with the potential for future deficits.