A recent report by the Legislative Analyst Office paints a bleak picture for California’s fiscal future. The state faces an unprecedented $68 billion budget deficit in the upcoming 2024-25 fiscal year.
This alarming deficit is primarily the result of a severe revenue decline in the previous year, 2022-23.
In this article, we will delve into the key findings of the report and explore the challenges and options that the California Legislature must consider to address this looming fiscal crisis.
Unprecedented Prior-Year Revenue Shortfall
One of the unique aspects of this deficit is the extraordinary revenue shortfall experienced in the prior year, 2022-23. Typically, budget processes do not involve significant changes in prior-year revenues, as taxes are usually filed and associated revenues collected.
However, due to the state conforming to federal tax filing extensions, the Legislature is only now gaining a complete picture of the 2022-23 tax collections.
Shockingly, it is estimated that the revenue for that year will be $26 billion below the budget act estimates. This unexpected shortfall presents a considerable challenge for the Legislature in addressing the budget problem.