Exactly one year ago the Globe reported, “California will have a $31 billion surplus next year,” according to the 2022-2023 California state budget Fiscal Outlook report compiled by the Legislative Analyst’s Office.
The tide completely turned in one year.
Wednesday, the Legislative Analyst’s Office reported California revenue is $41 billion below expectations, likely resulting in a massive $25 billion shortfall in the upcoming 2023-2024 state budget. The LAO recommends lawmakers start cutting the budget when they begin the January session.
The Globe spoke with Republican Assemblyman Jim Patterson Wednesday who scoffed at the idea that his Democrat colleagues in the Legislature will start cutting the budget.
The perfect storm for a recession may be upon us with high inflation, high taxes, high energy costs, high food costs, a sizable budget deficit, and now tens of thousands of big tech layoffs, which is the other issue California lawmakers and governor need to address. Meta, Twitter, Salesforce and now Amazon are all cutting thousands of staff. The potential for, or early economic ramifications to the cities and counties in which they reside, as well as the state, and the ripple effect these could have on startups and investment banks, looks to be immense.
“At least 20,300 U.S. tech workers were let go from their jobs in November, and more than 100,000 since the beginning of the year, according to Layoffs.fyi, which tracks layoffs in the field,” CNBC reported.
Meta is laying off 11,000 employees; Twitter is laying off 3,700, Sales force is letting 1,000 employees go, and Amazon announced it will lay off 10,000 employees.
What does this mean for the already struggling California economy? And why was this budget deficit information released only one week after the midterm elections? (rhetorical question)
The letdown has been abrupt for employees of big technology companies.
Aside from the devastation to the thousands of employees accustomed to six-figure salaries, fat equity packages and cushy amenities, many employees are now facing staff cuts for the first time, along with shrinking net worths as stocks fall during a bumpy stretch for big tech, the Wall Street Journal reported.
Meta, Lyft, Salesforce and other tech firms downsizing are now dumping high-priced office space as they downsize. First, they realized that after the Covid lockdowns with employees remotely working, they didn’t need as much office space. Now with massive layoffs, they really don’t need multiple floors of office space in cities’ high rent districts.
“Tech firms also showed a preference for higher-end workspace, a move that they thought helped attract top talent and enabled landlords to command top dollar for high-quality new properties,” WSJ.com reported.
The downtowns of California’s largest cities are already resembling ghost towns from the Covid lockdowns and riots of 2020. Businesses are also fleeing or shutting down over rampant crime and issues with homeless sleeping in their doorways and on city sidewalks. Add to that the big tech layoffs and the additional loss of tax revenue, and some cities may find municipal bankruptcy the only feasible choice.
“Big tech’s retreat is a blow to the office market and to many city economies, which for several years have counted on the sector’s real estate appetite to power growth,” WSJ.com reported.
“The national office vacancy rate is 12.5%, up from 9.6% in 2019 and the highest since 2011, according to data firm CoStar Group Inc. Overall, about 212 million square feet of sublease space is on the market, a record since CoStar started tracking the statistic in 2005.”
“The pullback has been particularly hard on San Francisco. Businesses leased 850,000 square feet in the third quarter compared with the average in the five years leading up to the pandemic of about 2 million square feet per quarter, said Derek Daniels, San Francisco research director at the commercial real estate services firm Colliers International.”
“Salesforce, one of the city’s biggest employers, this year said it was looking to cut about one-third of the space it occupies in the 43-story tower it owns in the business district.”
With tens of thousands of big tech workers losing high-paying jobs, expect to see home and condo sales up, as well as renters leaving big cities as workers look elsewhere for work.
“Assembly Republicans have been warning that Democratic policies and spending would trigger inflation and recession. Now that has come to pass. It’s time we right the ship,” Assembly Republican Leader James Gallagher said. “We overtaxed Californians and grew government while ignoring investments in critical infrastructure like new water storage. The LAO report has some good recommendations to get us started on a better path. It’s not too late to focus our spending on the fundamental priorities, save for the rainy day to come, and pursue policies that will grow the economy and lower everyday costs for Californians.” Last year California Democrats spent a historical budget surplus of $97 billion.
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