Ahead of Recession, California Faces a $25 Billion Budget Problem With Ongoing Deficits – Mish Talk

Consider California’s fiscal outlook for 2023-2024.

Management summary

• Economic conditions weigh on revenues. Faced with rising inflation, the Federal Reserve – tasked with maintaining stable price growth – has repeatedly made large rate hikes in 2022 with the aim of cooling the economy and thereby slowing inflation.
• State faces a $25 billion budget problem and persistent deficits. According to our projections, the legislature would face a $25 billion budget problem in 2023-2024. (A budget problem—also known as a deficit—occurs when funds for the upcoming fiscal year are insufficient to cover the costs of currently authorized services.) The budget problem is mainly due to lower revenue estimates, which are lower than the budget bill projections from 2021-22 through 2023-24 by $41 billion.
• Save reserves for a recession. The $25 billion budget problem in 2023-24 is roughly equivalent to the amount of general purpose reserves the legislature could have available to allocate to General Fund programs ($23 billion). While our lower revenue estimates take into account the risk of a recession, they do not reflect a recession scenario.