The deficit, whatever its true dimensions, appears to be detached from California’s underlying economy, and is rather what fiscal mavens call a “structural deficit” – one in which baseline revenues and baseline spending are fundamentally imbalanced. They also imply that, if Newsom is trying to skate through the final three years of his governorship without making some basic fiscal adjustments, he’ll leave a big mess for his successor. The new revenue numbers and projections imply that Petek’s scenario is much closer to reality than Newsom’s. Will Newsom Leave a Mess for the Next Governor? On Tuesday, however, Petek’s staff added $15 billion to the estimated deficit, bringing it to $73 billion. He later declared that Newsom’s action could offset a $58 billion shortfall. The Legislature’s budget analyst, Gabe Petek, had originally estimated the deficit at $68 billion, largely due to revenue projections about $15 billion lower than the governor’s over the three-year “budget window,” from 2022-23 through 2024-25. He tapped the state’s emergency reserve and dug deeply into the bag of tools that the state has historically used to paper over deficits, including spending deferrals, loans from special funds, and accounting tricks, such as a maneuver involving school aid. When he unveiled his 2024-25 budget in January, Newsom proposed a series of fiscal maneuvers to close the gap, very few of which were actual spending reductions. The month’s income tax payments were $5 billion below the $20.4 billion the administration expected to collect. The shortfall was particularly acute in January, a key month on the fiscal calendar because quarterly payments for personal income taxes were due. If the downward revenue trend continues, the 2023-24 budget could wind up in a deep hole and there will be much less money available for the 2024-25 fiscal year that begins on July 1. On Tuesday, the Legislative Analyst’s Office, which advises the Legislature, increased its estimate of the budget’s deficit, which Newsom had originally pegged at $38 billion, to an eye-popping $73 billion after toting up Newsom’s proposals and decreasing its revenue estimate. Last week, his Department of Finance indirectly acknowledged the budget’s problems, reporting that through January revenues were running $5.9 billion behind the new budget’s assumption for the current fiscal year.

State budget no red ink