California's $68 Billion Budget Deficit: Defaulted Loans, Drastic Measures, And A State In Crisis

This unprecedented deficit, the largest ever recorded in the state's history, has prompted Newsom's Department of Finance to impose a spending freeze across all state agencies, a drastic measure only previously enacted at the onset of the Covid-19 pandemic when revenues began to nosedive, as reported by KCRA News.

Republican Congressman Kevin Kiley (R-CA) has been vociferous in his criticism of the deficit, attributing it to gross financial mismanagement. "It doesn't have to be this way," Kiley stated on X. "Well-governed states currently have a surplus while also providing a much higher quality of government services."

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December 17, 2023

Kiley further elaborated on the state's dire financial situation, stating, "California is now facing a $68 billion deficit. It has also defaulted on a $20 billion loan from the federal government. The situation is so dire the state is telling agencies not to replace broken printers or re-stock office supplies. Workers are being stripped of benefits and could face furloughs."

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The congressman also highlighted the state's spending on High-Speed Rail and the expansion of Medi-Cal to all undocumented immigrants, while simultaneously losing billions in tax revenue due to residents leaving the state.

In an attempt to mitigate the budget deficit projected for fiscal years 2023-24 and 2024-25, Newsom's Department of Finance issued a letter to state agencies outlining a series of austerity measures. These include limiting office supplies, vehicle fleet purchases, and travel, as well as cancelling the accrued vacation time buy-back program for employees. Departments have also been instructed not to enter into any new contracts unless absolutely necessary.

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The letter further stipulated that "Agency Secretaries and Cabinet-level Directors will be required to report monthly to Finance and the Governor’s Office on all approved exemptions as well as achieved savings."

The budget deficit has been exacerbated by the extension of the filing deadlines for federal and state income tax returns for 2022 from April to November, as reported by the Washington Examiner. This resulted in tax revenues for the fiscal year ending in June falling short by $26 billion, according to the Legislative Analyst Office, which anticipates similar shortfalls for the current and subsequent fiscal years.

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Jon Coupal, the president of the Howard Jarvis Taxpayers Association, expressed concern that the state Legislature would pass the cost onto taxpayers. He warned that raising taxes to balance the budget would only drive more residents out of the state. "We should be lowering taxes, making it easier for people to stay here instead of treating the working poor and middle class as just ATM machines," Coupal cautioned.

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Earlier this year, Governor Newsom proposed a controversial measure to tax Californians even after they had relocated out of the state. This proposal comes in the wake of over 300,000 California residents leaving the state in 2022, according to the US Census Bureau. The state saw the highest number of departures of any state during that period, with even Newsom's in-laws among those who chose to leave.

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The Public Policy Institute of California reports that between 2015 and 2021, 413,000 adults cited housing costs as a primary reason for leaving the state, with the majority of those departing being middle or low-income residents.

This mass exodus, coupled with the state's financial mismanagement, paints a grim picture for California's economic future under its current leadership.