Governor Newsom to Announce 2024-2025 Budget Proposal Wednesday

Governor Gavin Newsom’s 2024-2025 State Budget proposal is due to be announced no later than Wednesday this week, with many analysts unsure at just how Newsom is planning to tackled the $68 billion deficit facing the state this upcoming fiscal year.

California’s state budget has fluctuated wildly in the past several years. During the COVID-19 pandemic, California saw the largest surpluses in state history, including an unprecedented $31 billion surplus in 2022-2023. However a weakening economy, a massive loss of the state population and businesses moving out of state, delayed tax changes and numerous other factors led to a severe deficit the next year. An initial deficit of $25 billion, which was later changed in May to $31.5 billion, rocked the state.

This figure was only raised by another $3 billion, leading to Newsom and the legislature to make some hard decisions within the budget. While the state managed to continue on with a reduced budget, experts warned that the situation would likely grow worse with continued tax shortcomings. Republicans in the legislature even warned that they shouldn’t bank on projected tax revenue to remain the same to balance the budget, as it could change drastically in the next year.  This proved to be correct in November when the Legislative Analyst’s Office (LAO) found that California will be facing a $58 billion deficit in 2024-2025. However, this figure was revised less than two weeks later when lower than expected tax revenues coming in because of taxes delayed by atmospheric river storms from early 2023, as well as recent losses in the tech sector, caused the deficit to jump up by $10 billion to $68 billion.

For the last month, that number has been hanging over both the state Capitol in Sacramento and the Governor’s house in Fair Oaks. The deadline to introduce a state budget comes on the 10th, meaning that Newsom has only roughly 48 hours to tack on any last minute changes and make his budget proposal public.

Where the cuts and spending changes will come from have concerned many experts. The usual suspects of drawing more from federal funds, delaying spending on previously approved funds, shifting spending between areas, reducing spending on previously okayed funds, and increased borrowing are likely in the cards. And, while major cuts to health care, education, and other massive social program areas had been avoided in the 2023-2024 budget, many are now worrying that, with such a massive deficit, they may not be so lucky in the upcoming budgets.

“I would hope that the impact on education would be the very minimum,” said Senator Roger Niello (R-Fair Oaks) in a statement last week. “We do have a $68 billion deficit, so it has to come from somewhere. To the extent that it doesn’t come from some of the education spending, it would have to come from somewhere else, and we’ll see how the governor views those priorities.”

A $68 billion deficit

Experts also worry just how drastic some of these cuts will be.

“Anything that will provide future income for the state is likely safe,” said accountant Lee Greenman, a California-based accountant who helps city and other regional entities fix budget problems, to the Globe on Monday. “For example, the Film and Television Tax Credit Program. Every dollar spent brings over that much in tax revenues coming back alone, not to mention how much it helps wages and local spending within the state. It takes a minute, but the state sees money back from that. Anything with social value, at least the core of it, will likely stick too. Like education. Now if there are some one-off programs or areas that both lose money and have been found to not be effective, then they are gone.”

“Anything that helps major or iconic California industries like entertainment, agriculture, or tech will also stay in place too, especially if California is getting their money back and then some in the end. But, yeah, expect delays on a lot of funding, expect reduced funding. The rainy day fund might get tapped a bit, because I think this qualifies. They are going to get every dollar they can from Washington. And, like previous deficits, the state is going to have to squeeze every penny.”

“Newsom’s budget will likely not have anything too controversial, like, say, slashing health care. And major potential spending, like, say, reparations proposals, that will be really hard to push forward when you are literally mulling over if you need to get rid of some education programs.”

“His budget will be out by Wednesday. It will be really interesting to see what it will be, as well as what the LAO says about it afterwards.”

Newsom’s first budget proposal is due to be released by Wednesday.