



While California Governor Gavin Newsom was busy touting Democrats economic prowess in a nationally televised debate with Florida Governor Ron DeSantis, a state watchdog agency delivered some very dark news for the state’s economy.
A sobering analysis by the California Legislative Analyst’s Office (LAO) revealed California is facing a daunting financial reality with a projected $26 billion revenue shortfall for the fiscal year 2022-2023.
And, the fiscal strain isn’t fleeting. The LAO forecasts a cumulative shortfall of $58 billion over the next three years, painting a grim picture of the state’s economic health.
The root of this predicament, according to State Republicans, lies in the Democratic leadership’s fiscal policies. They accuse Governor Newsom and his party of recklessly expanding the state’s budget, which has almost doubled in the past six years.
State Sen. Roger Niello, R–Fair Oaks, didn’t mince words, declaring, “Despite all warnings that it was unsustainable, the Majority party has increased state spending by $116 billion over the last six years, nearly doubling the general fund budget in that short time.”
“Hopefully, the majority will see it is time for a more realistic budget strategy, instead of throwing money at a laundry list of projects that sounds nice on the national television debate stage,” Niello continued.
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The LAO’s projections are dire and come with a stark warning. If spending continues unchecked, the state is looking at a shortfall of $19.1 billion in 2023-2024, and $13.3 billion in 2024-2025.
These figures point to a broader economic cooldown, attributed to higher borrowing costs and reduced investments, factors that have led to the state’s recent recession as per the Sahmn Recession Indicator.
This indicator, lauded for its accuracy in predicting the last six U.S. recessions, signals no false positives and marks a significant downturn in California’s economic trajectory.
California, like many blue states, is also grappling with several ongoing crisis including rampant crime, homelessness, and illicit drugs. It also is the highest taxed state in the country. Businesses and people are leaving the state at a higher rate than they are entering.
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Moreover, the LAO warns of even steeper revenue declines, potentially reaching $34.1 billion in 2023-2024 and $43.3 billion in 2024-2025 in a worst-case scenario.
This could elevate the three-year shortfall to a staggering $103.4 billion. Such a scenario would not only put the state in precarious financial standing but also necessitate severe cuts to essential government services, including education.
In light of these projections, California finds itself at a crossroads. The current fiscal path, as highlighted by the Republicans and evidenced by the LAO’s analysis, points to a need for strategic adjustments in state spending.
This situation poses a critical test for Governor Newsom’s administration and the Democratic majority, challenging them to balance ambitious projects with fiscal responsibility in the face of a recession and mounting deficits, the likelihood of which is very low.
With speculation raging about Newsom making a possible run for President in 2024, California’s abysmal economic condition could put a damper on the governor.
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