California’s budget deficit could hit record next year

If you thought California’s $30 billion-plus budget deficit for 2023-24 was bad, the projection for 2024-25 from the state’s Legislative Analyst’s Office paints an even bleaker picture.

In its fiscal report published Thursday, the nonpartisan office found that the state faces a $68 billion budget deficit, explains CalMatters’ Capitol reporter Alexei Koseff. The second straight deficit follows two years of record budget surpluses, fueled by federal COVID relief, but also by California’s volatile income tax system that relies heavily on wealthy people. 

The revenue decline is similar to the Great Recession, but there are some options that the Legislature and Gov. Gavin Newsom can consider to plug the budget hole. This includes dipping into rainy-day funds, cutting some one-time expenditures and reducing some spending on schools, the report’s authors suggest.

And while the analyst’s office also warned that the state reserves are unlikely to cover multiyear deficits” (projected at about $30 billion a year), some Democratic legislators still prefer using some savings to slashing key programs. 

With a new legislative session starting on Jan. 3, Senate President Pro Tem Toni Atkins of San Diego — who will officially hand over her leadership position to Sen. Mike McGuire in February — described the report as “challenging news” and said that lawmakers need to be “cautious and mindful.”

• Atkins: “Our record reserves and other budgeting tools will help us weather this shortfall, while at the same time protecting middle class taxpayers and the programs and resources that help Californians and families.”

Advocacy groups for the poor say the deficit shouldn’t slow down state investments. The League of California Cities also said the state should still spend on climate action, economic development, homelessness and public safety.

But Republicans were quick to argue that their warnings about the state’s overspending fell on the deaf ears. Sen. Roger Niello, a Republican from Roseville and the vice chairperson of the Senate budget committee, described Democrats who control the budget as a “tax-and-spend majority.”

• Niello: “Republicans cautioned that this level of spending would lead to greater deficits, and it would be more prudent to show restraint. Unfortunately, the majority party ignored those warnings…”

And Assembly GOP leader James Gallagher of Chico called out Gov. Newsom specifically, describing him as a “checked-out” governor who prioritizes the “national spotlight” over running California.

• Gallagher: “In the last five years, Newsom and legislative Democrats have increased spending by more than 60%. It’s flat-out unsustainable. In spite of this outrageous spending, Californians’ quality of life has collapsed. No wonder people are moving to Florida.”

One potential impact of the deficit is a paring down of the minimum wage increase for healthcare workers that starts in January and eventually reaches $25 an hour. Newsom signed the deal between unions and hospitals last month without a clear estimate of how much it would cost. 

It turns out the wage increase could drive up the cost of providing care for government agencies by at least $4 billion in 2024-25. Now, Newsom wants unspecified “major reforms” to the law and is talking to Democratic leaders in the Legislature, the Los Angeles Times reported Thursday.

For more on California’s budget deficit, read Alexei’s story. 

From CalMatters Capitol reporter Sameea Kamal: 

As the humanitarian crisis worsens in Gaza, Gov. Gavin Newsom announced Thursday that California has delivered aid to the area through a nonprofit.

Newsom committed to deliver relief to both Israel and Gaza after the Oct. 7 attack on Israel by the militant group Hamas. About 1,200 people were killed, and 138 people remain as hostages of the initial 240 people kidnapped. Israel’s military response has killed more than 17,100 people in Gaza. The United Nations estimates that 85% of residents are displaced. 

Newsom said that Direct Relief coordinated the aid, which arrived earlier this week during the temporary truce between Israel and Hamas. He was careful to note the shipment was “nearly identical” to what was sent to Israel in October: “a 50-bed field hospital, support equipment, wound and IV kits, defibrillators, wheelchairs, personal protective equipment, and other emergency-response items.” 

• Newsom, in a statement: “These humanitarian supplies represent our California values: when people are in need, the Golden State is there with a helping hand. California’s heart is with all innocent civilians harmed in this conflict.”

After he visited Israel and met with Jewish community leaders in California, Newsom’s office told CalMatters in November that he would meet with Arab, Middle Eastern, Muslim, and South Asian leaders, though his office hasn’t publicized a date for that yet. 

The Gaza war has hit close to home for some Californians, including members of the Jewish community whose relatives were taken hostage by Hamas, and Palestinian Californians who have lost many family members.  

Coalitions throughout California have spent weeks pleading with state and federal officials to call for a full or permanent ceasefire through letter campaigns and protests, but state leaders have hesitated to do so. Ceasefire resolutions have also prompted impassioned debates at numerous city councils around the state.

Nearly 200 officials have signed a letter urging the Biden administration to call for a ceasefire, including Assemblymembers Alex Lee and Liz Ortega, and former State Controller Betty Yee. 

A poll by the Public Policy Institute of California published this week shows a split on how Californians believe the U.S. should respond: 37% of respondents said the country has a responsibility to “do something” about the war, while 28% said the U.S. should side with Israel, versus 9% with Palestinians. But 61% said the U.S. should not take either side. 

Well, scratch one name off the list of possible candidates to replace former House Speaker Kevin McCarthy in Congress.

Assemblymember Vince Fong, a Bakersfield Republican and McCarthy’s former district director, announced Thursday that he won’t run, despite “an outpouring of encouragement” since McCarthy’s resignation announcement on Wednesday. 

• Fong, in a statement: “After giving it careful and thoughtful consideration, my family and I have decided that now is not my time, and I will not be running for Congress in 2024.”

Instead, he plans to seek a fifth term in the state Assembly “to bring common sense back” to the state government: “Our state is in crisis, and our community needs a strong and effective voice in Sacramento now more than ever.”

The 20th Congressional District is considered a safe Republican seat. Other Republicans potentially in the mix include state Sen. Shannon Grove and Fresno County Supervisor Nathan Magsig. 

So far, others haven’t made their plans known. The filing deadline for this seat is Dec. 13. There could also be a special election to decide who serves the rest of McCarthy’s term after he steps aside in the next several weeks.