The state of California is facing a $25 billion deficit next fiscal year as tax revenues decline, the Legislature's fiscal analysts project.
The nonpartisan California Legislative Analyst Office on Wednesday issued a report that recommended state lawmakers cut spending when they reconvene in January.
The report also suggested holding back some already-budgeted funding in order to avoid the shortfall.
The analysts noted that the risk of a recession is heightened by rising interest rates and persistent inflation.
"The chances that the Federal Reserve can tame inflation without inducing a recession are narrow," analysts wrote.
Recent California state budgets that benefited from a booming stock market and thriving tech sector has given way to a concern the money will dry up.
"Last year, it was really fun to be in Sacramento," Christopher Thornberg, a forecasting expert, told Politico. "Everyone was trying to figure out how much money they could spend. This year, not so much."
The LAO estimates California could see deficits between $8 billion to $17 billion during the next four fiscal years.
"It's not insignificant, but it is manageable," California Legislative Analyst, Gabe Petek said Wednesday, KCRA reported.
Democrat lawmakers and aides sought to downplay the problem.
Assembly Speaker Anthony Rendon, D, responded to the report by saying Democrat state lawmakers and Gov. Gavin Newsom, D-Calif., have built budget resiliency, with a record-high $37.2 billion in reserves.
"We can and will protect the progress of recent years' budgets," Rendon said, KCRA reported. "In particular, the Assembly will protect California's historic school funding gains, as districts must continue to invest in retaining and recruiting staff to help kids advance and recover from the pandemic."
Still, Politico reported that California tax revenues have fallen short of projections every month this fiscal year, and layoffs at marquee tech companies have increased economic concern.
The state's Republican minority pointed to the report as evidence of overspending by Democrats.
"We must refocus on fiscal responsibility," said Assembly Budget Vice Chair Vince Fong, R-Bakersfield, Politico reported.
Advocates such as David Weiskopf, senior policy adviser for environmental issues at NextGen Policy, worry about the projected budget decrease. That's because climate spending has been first to go when there's an economic downturn, Weiskopf said.
"Relying on surplus dollars and one-time spending is great when there's a budget surplus and that one-time budget is available," Weiskopf said, "but it's not going to be enough in terms of a strategy for how California spends its budget, if we really want to achieve our near-term or long-term climate goals."
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