California Tax Receipts Are Down Again as Budget Deficit Looms Large Over State’s Government

By: Alex Trent | Published: May 01, 2024

The California budget deficit for the upcoming year, which is estimated to be at least $38 billion, might be getting worse.

Gavin Newsom’s Department of Finance released a new bulletin that showed that state tax receipts had brought in disappointing revenue that was underneath expectations set by the department earlier in the year. This spells more trouble as state lawmakers are already struggling to come up with a balanced budget.

Below Forecast

According to the Department of Finance bulletin, California’s tax revenues as of March were $5.8 billion, or 4%, below the forecasted amount government officials were hoping for.

Two men sit at a table working on a piece of paper with two lap tops in front of them

Source: Scott Graham/Unsplash

Personal income tax receipts contributed to $3.4 billion of the revenue shortfall, with personal income tax payments being down $4.7 billion to forecast. Corporate tax receipts were $1.4 billion below forecast.


Income Growth

The California Department of Finance reported that personal income in California has managed to increase by 4.2 percent in 2023, which was a positive change after a 0.2 percent decline in 2022.

A row of $100 dollar bills pictured on top of one another.

Source: Engin Akyurt/Unsplash

However, California’s income growth was less than the 5.2% average growth experienced by the rest of the United States in 2023.

Headline Inflation

Economists and analysts use a number called headline inflation to measure the effects of inflation in the economy. It is a raw number reported in the Consumer Price Index which is released every month by the Bureau of Labor Statistics.

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Headline inflation in California decreased from 3.5 percent in December 2023 to 3.3 percent in February 2024 when looking at year-over-year numbers.

Government Deficit

The disappointing news in this finance bulletin comes as the state is grappling with a multi-billion dollar deficit. Earlier this year, Newsom estimated the total deficit amount to be $38, however, other estimates suggest that it could be much higher when it is also said and done.

A large white government building with green columns and a large dome roof

Source: Wikipedia Commons

The Los Angeles Analyst’s Office originally projected the figure to be closer to $58 billion, however, they would later expand this estimate to $73 billion in February.

From Surplus to Deficit

This historic deficit level has happened to the state in a short period of time. Just a short while back in 2022, Governor Newsom approved a $301 billion budget for California which included a $97 billion surplus. At the time this budget was triple what the state spent the previous year, but Newsom felt like the state could afford it.

Gavin Newsom is at a podium speaking into a microphone. He is wearing a baseball cap and gesturing with both hands. Two people can be seen in the background

Source: CAgovernor/X

However, following economic challenges and declining tax revenues, a historic deficit in the budget emerged.


Action on the Deficit

Lawmakers are hard at work trying to figure out a way to reduce the projected California budget deficit. Earlier this month Newsom and the state legislature reached a deal to shrink the deficit by $17 billion.

Gavin Newsom in front of a California flag speaking.

Source: Public Domain/Wikimedia Commons

However, much of this spending reduction was done through cuts that were easier to make, and some that just delayed or deferred spending to another time. Tackling the full volume of the deficit will be a much harder fight.


Gimmick Solutions

Earlier this month, Assembly vice chair of the budget committee Vince Fong said to Fox News that Newsom and Democrats are only interested in gimmick solutions.

Gavin Newsom speaks at Lake Tahoe.

Source: The United States Senate/Wikimedia

“This most recent deal that he’s touting is all reliant on budget gimmicks, cause shifts and deferrals, which, when you look at the numbers, it’s clearly not enough,” said Fong. “We have a sustainability problem. We have an overspending problem in California, and nothing the governor is working on tackles that.”


Population Decline

In the background of political fighting over the budget, California as a state is undergoing massive changes in response to recent events.

A busy street scene with vehicles and a vintage streetcar in the foreground. The street ascends steeply, lined with various buildings including a Holiday Inn, leading up to a hill densely packed with high-rise buildings. Pedestrians are visible on the sidewalks

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In 2020, California saw its first population decline on record. Many people began moving away from the state between 2020 and 2022, which saw an exodus of over half a million people that far exceeded the number of people moving in.


Reversing Trends

Recently, Politico reported that California had finally managed to grow its population for the first time since 2019.

The Golden Gate bridge in California.


However, it is still losing a net amount of people to other states. This population increase has been attributed to fewer COVID-19 deaths and an increase in legal immigration.


Low Birth Rates

In 2023, the birth rate in California fell to its lowest point in more than 100 years. According to the Public Policy Institute of California, the birth rate in the state fell from 2.15 in 2008 to 1.52. The replacement rate for birth rates is considered to be 2.1 children per woman, making California far below that number.

A woman holds a pack of pink and white pills

Source: rattanakun/Canva

 When looking at the future taxable base of the state, many of these changes California is going through don’t bode well for the future.


What the Future Holds

It’s unclear if the dispute between the deficit numbers from Newsom and the LAO and this newly reported tax revenue shortfall will play a role as budget negotiations continue to heat up as the summer deadline approaches.

A California pier seen in the daytime by palm trees.

Source: Mark Neal/Unsplash

The state legislature must pass a 2024-2025 budget proposal to be approved by June 15th as the fiscal year starts on July 1st.