California faces budget deficit despite nearly $100 billion surplus last fiscal year

California will likely face a $25 billion budget deficit next year driven by high inflation and the threat of a recession, despite lofty projections in May that forecast a surplus of nearly $100 billion for the current fiscal year. 

The Legislative Analyst’s Office, which provides state lawmakers with fiscal and policy advice, said the 2023-24 budget problem is due to low revenue estimates. Revenues are $41 billion below expectations, according to a forecast published by the LAO. 

The estimated deficit is lower because some of those revenue losses were offset by lower spending in other parts of the budget.



In May, Gov. Gavin Newsom announced the state was entering the 2022-23 fiscal year with a $97.5 billion surplus. The surplus came as the state collected $55 billion more in taxes than expected. 

At the time, Newsom said one of his priorities was providing Californians with inflation relief, Fox Los Angeles reported. 

“People are feeling deep stress, deep anxiety,” he said.

The Democratic-controlled state taxes rich people more than other state, meaning a significant drop in revenue is linked to the uber-wealthy not making as much money as they used to. 

The budget shortfall is not expected to impact some of the state’s major government services like free kindergarten for 4-year-olds and free health care for low-income illegal immigrants.

“It’s not insignificant, but it’s also manageable,” Legislative Analyst Gabriel Petek said of the deficit. “We don’t think of this as a budget crisis.”

Democratic Assembly Speaker Anthony Rendon said lawmakers “can and will protect the progress of recent years’ budgets.”

“In particular, the Assembly will protect California’s historic school funding gains, as districts must continue to invest in retaining and recruiting staff to help kids advance and recover from the pandemic,” Rendon said.

The Associated Press contributed to this report. 

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