In summary

While many wait to see how Gov. Gavin Newsom handles hundreds of bills on his desk, others await the looming deadline for tax returns to see whether the state will face another multibillion-dollar deficit.

This is a week of waiting and watching for legislators, lobbyists, journalists, bureaucrats and other denizens in and around the state Capitol.

Mostly, they are waiting to see how Gov. Gavin Newsom handles hundreds of bills still awaiting his signature or rejection in the few remaining days he has to act.

Newsom appears to be rejecting an unusually large percentage of the bills passed by the Legislature this year – nearly 20% according to lobbyist Chris Micheli, who tracks legislative data as a sideline.

Many of Newsom’s veto messages contain the same language, lamenting that after the state dealt with a $30 billion budget deficit, the Legislature sent him measures that “would add nearly $19 billion of unaccounted costs in the budget.”

“With our state facing continuing economic risk and revenue uncertainty, it is important to remain disciplined in considering bills with significant fiscal implications, such as this measure,” his boilerplate veto message concludes.

That cautionary message underscores the other thing that those in and around the Capitol are watching this week: how much tax revenue the state realizes in personal and corporate income taxes from the Oct. 16 filing deadline. It was moved back from the traditional April 15 cutoff for tax payments because of last winter’s heavy storms.

Jason Sisney, the state Assembly’s chief budget watcher, noted in a recent email that the 2023-24 state budget assumes the state will receive $52.3 billion in taxes in October, about 80% of them income taxes, which are by far the budget’s most important revenue source.

With the state’s economy showing signs of both growth and downturn, the budget’s assumption is an educated guess and the reality could be many billions of dollars higher or lower.

Whatever happens this month vis-à-vis revenues sets the stage for the next budget cycle, particularly the current expectation that the state faces another multibillion-dollar deficit in 2024-25.

After disposing of the remaining bills from the 2023 session, Newsom must make a series of decisions within about six weeks over framing the 2024-25 budget that he will present to the Legislature in January. Those decisions will, in large measure, hinge on the expectations of the state’s economy over the ensuing 18 months.

Last week, the Legislature’s budget analyst, Gabe Petek, issued a flurry of reports indicating that the state is experiencing an economic downturn, and perhaps even a mild recession. He cites uptick in unemployment and a downward trend in investment.

“Over the last year, there have been a number of signs that the state’s economy may be slowing,” Petek said. “State tax collections have weakened. Investment in young and growing technology firms has dried up. Housing market activity has dropped off. A number of regional banks have failed. And yet, the extent to which these factors are tied to a widespread slowdown of California’s economy has been unclear.

“The apparent start of a recession in California last fall helps explain why the state faced a revenue shortfall in its most recent budget,” Petek explained. “How much the economy will continue to dampen the state’s fiscal picture moving forward is unclear. However, the threat that the recent slowdown could persist will be a significant risk for the foreseeable future.”

The state will consult a collection of economists who specialize in the California economy before Newsom and his advisors settle on a forecast and then extrapolate from that how much the state can expect in revenues. That estimate, in turn, will reveal whether it can balance its next budget or must contend with another deficit.

The current semi-official expectation is there will be a $15 billion deficit for 2024-25. 

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Dan Walters has been a journalist for more than 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times...