The Legislative Analyst Office (LAO) warned that California faces a $24 billion budget deficit for 2023‑24. The outlook, however, is a sharp contrast to the almost $100 billion budget surplus in 2022. Notably, the state has $37.2 billion in reserves.
The LAO warned that general economic conditions will hurt revenues. The longer inflation persists and the higher the Federal Reserve increases interest rates in response, the greater the risk to the economy, it said. “Reflecting the threat of a recession, our revenue estimates represent the weakest performance the state has experienced since the Great Recession,” the LAO stated.
The LAO attributes the projected budget deficit mainly to revenue estimates that are $41 billion lower than budget act projections from 2021‑2022 through 2023‑2024. The report noted that the estimate understates the actual budget problem in inflation adjusted terms. The LAO also projected annual deficits to decline from $17 billion to $8 billion over the subsequent years of the forecast.
The LAO reported that the $24 billion budget deficit is roughly equivalent to the amount of general‑purpose reserves that the legislature could have available to allocate to General Fund programs. The LAO, however, stated that revenues could be $30 billion to $50 billion below the revenue outlook if there is a recession.