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California faces ‘severe revenue decline,’ record $68 billion budget deficit as mass exodus continues


California is facing a major budget crisis due to a “severe revenue decline,” and a record $68 billion budget deficit, likely forcing Democrats running the state to cut spending as the mass exodus of people and businesses moving to Republican-run states continues.

According to California’s non-partisan Legislative Analyst’s Office (LAO) report released Thursday, the state’s budget deficit has grown exponentially in just a few months’ time, up more than $54 billion from just $14.3 billion in June.

The deficit isn’t the largest to ever face the state as a percentage of overall spending, but it is the largest in terms of real dollars.

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The LAO’s report made no mention of the billions in tax revenue lost by California due to the exodus of its people and businesses, but said the massive deficit increase and lower revenues were largely driven by a change to the state’s tax filing deadline and poorer than expected economic conditions.

According to IRS data reported by CNBC in May, California lost $29 billion in tax revenue in 2021 after suffering a loss of $18 billion in 2020.

As a remedy to the ballooning deficit, the LAO suggested the state dip into its $24 billion in cash reserves, as well as reduce spending on schools and community colleges. It also pointed to one-time spending cuts and shifting costs without impacting core services.

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California capitol aerial view

An aerial view of the California State Capitol on February 01, 2023 in Sacramento, California. (Justin Sullivan/Justin Sullivan)

It added that the legislature should “exercise some caution” should it take such measures, and noted that the cash reserves would likely be insufficient to cover what it said were California’s multi-year $30 billion average deficits. 

It went on to suggest a long term fix would be to either increase revenue, cut more spending, or both.

California saw its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic. From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.

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Democrat California Gov. Gavin Newsom

Democrat California Gov. Gavin Newsom speaks during a press conference on October 06, 2022 in San Francisco, California. (Justin Sullivan/Getty Images)

Erin Mellon, the communications director for Democrat California Gov. Gavin Newsom, told Fox News Digital that the governor “has maintained strict fiscal responsibility since taking office,” including building the state’s reserves to the maximum allowed under its constitution, and paying down debt.

“Federal delays in tax collection forced California to pass a budget based on projections instead of actual tax receipts. Now that we have a clearer picture of the state’s finances, we must now solve what would have been last year’s problem in this year’s budget,” she said.

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“In January, the Governor will introduce a balanced budget proposal that addresses our challenges, protects vital services and public safety, and brings increased focus on how the state’s investments are being implemented, while ensuring accountability and judicious use of taxpayer money,” she added.

Fox News’ Nikolas Lanum contributed to this report.



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