State revenues could dramatically drop if the AI boom busts, according to the nonpartisan legislative analyst.
California legislators are facing a fifth straight budget where spending would outstrip its revenues, amid warnings of multibillion-dollar deficits stretching well into the future unless they either reduce outlays or increase income.
Legislative Analyst Gabe Petek, in his overview of Gov. Gavin Newsom’s proposed $349 billion 2026-27 budget, says the deficits totaled $125 billion over the last four years and “have persisted even as the state’s economy and revenues have grown, underscoring that the problem is structural rather than cyclical. Taken together, these trends raise serious concerns about the state’s fiscal sustainability.”California watchdog says Newsom budget plan sidesteps ‘alarming’ deficits aheadNewsom’s budget shows big revenue gain, but we’ve been down that path before The proposed budget projects $227 billion in general fund revenues and $248 billion in general fund spending. Newsom has promised that when the budget — his last as governor — is revised in May, it will close not only its deficit but address the ongoing deficits. Petek and Newsom’s Department of Finance project them in the range of $20 billion to $35 billion a year. How Newsom would do that while opposing major tax increases is still to be revealed. Meanwhile initial hearings in both legislative houses featured speculation from members on how the budget could be balanced, including sharp spending cuts and tax increases.Sen. Jerry McNerney, a Stockton Democrat who chairs the Senate Revenue and Taxation Committee, noted that the state’s major revenue source of personal income taxes can vary widely from year to year, making them difficult to reliably project. “I think it’s time for a statewide discussion about how to even out this volatility, even though those are difficult conversations — it’s been noted, it’s been tried before,” McNerney said. The proposed budget estimates that personal income taxes will supply 68% of general fund revenues, and high-income taxpayers will pay the bulk of those taxes. Wealthy Californians derive much of their income from capital gains, which can vary widely year to year depending on how their investments fare. The volatility factor has its greatest effect on the budget during periods of economic uncertainty, when investment earnings swing widely. During past recessions, California has experienced as much as 20% revenue declines. California’s budgets became dependent on a relatively few high-income taxpayers over the last four decades, as income taxes surpassed sales taxes to become the most important revenue source. Income taxes exceeded sales taxes for the first time in 1983. The gap has steadily increased since then, as a detailed chart in the budget’s addendum reveals. The progressive structure of the income tax system ensures that high-income taxpayers supply most of its revenue. The Great Recession that struck California in 2007 drove the volatility factor home. Then-Gov. Arnold Schwarzenegger and legislative leaders created a blue ribbon commission to recommend steps to make revenues more predictable. Months of hearings ensued and a sharply divided commission finally recommended lowering the state’s dependence on income taxes and substituting a revised sales tax that would extend to more transactions. The report was never seriously considered. When Jerry Brown succeeded Schwarzenegger in 2011, he championed “rainy day” reserves that would, he said, cushion volatility’s impacts during economic downturns. However, during the last four years of chronic deficits, Newsom and legislators have tapped those reserves to cover the gaps, even though there’s been no recession, breaking promises to preserve them.Petek has warned of a possible downturn — with big revenue declines — if the artificial intelligence stock market boom fades. It happened in 2000 when the dot-com tech boom imploded.Dear Abby: I find showering unpleasant, so I don’t do it. How do I know if this is problem?Miss Manners: I'm a regular at the hostel, and a new volunteer behaved unforgivably toward meAsking Eric: The running club's campout tested our marriageMiss Manners: Here's why 'sir' and 'ma'am' aren't appropriate anymoreNewsom zeroes out California’s landmark deal to save local news
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Will California address the issue of its out-of-state firefighters?'As of 2023, more than 150 firefighters live out of state, some as far away as Alaska, Texas and Florida. Others are in Northern California,' writes an L.A. Times reader.
Read more »
Escondido nursery owner sues California as state destroys 32,000 plantsA longtime Escondido nursery owner says California is destroying tens of thousands of healthy citrus plants and refusing to reimburse him.
Read more »
California Post Launches, Promising Common Sense Journalism and Accountability Across the Golden StateThe California Post, a sister publication of the New York Post, has officially launched, aiming to provide in-depth coverage of issues directly impacting the Golden State. The new publication promises to hold powerful institutions accountable and offer a blend of hard news and engaging content. The launch also includes the debut of Page Six Hollywood.
Read more »
First pediatric flu death in Washington state highlights rising cases across the stateA school-age teenager has died after becoming ill from influenza last week, marking the first pediatric influenza death in the state this season.
Read more »
Colorado State women come up just short against San Diego StateThe crowd noise was deafening inside Moby Arena on Wednesday, and the Colorado State women’s basketball team nearly pulled off one of its biggest wins of the season.
Read more »
California mental health hospitals warn of cuts after state hands down staffing rulesCalifornia is postponing emergency staffing requirements for acute psychiatric hospitals until June 1 amid bed and workforce shortages.
Read more »