California Facing Significant Decline in State Revenue as Many Thousands Continue to Flee State

[Photo Credit: By Office of the Governor of California -, Public Domain,]

With a record $68 billion budget deficit and a “severe revenue decline,” California is now confronted with a major budget crisis that will likely force the state’s Democratic administration to reduce expenditure as the mass exodus of businesses and individuals to states governed by Republicans continues.

Thursday’s publication of a report by the nonpartisan Legislative Analyst’s Office (LAO) of California indicates that the state’s budget deficit has increased by over $54 billion in less than a few months, from $14.3 billion in June.

While the state has not ever incurred the largest deficit in terms of actual dollars, it is the largest in comparison to its overall expenditures.

The billions in tax revenue lost by California as a result of the exodus of its residents and businesses were not mentioned in the LAO’s report.

However, the enormous increase in the state’s deficit and lower revenues were primarily attributable to a change in the tax filing deadline and poorer-than-anticipated economic conditions.

In May,  IRS data indicated that California incurred a tax revenue loss of $29 billion in 2021, following a $18 billion deficit in 2020.

The LAO recommended that the state utilize its $24 billion in cash reserves and reduce expenditures on schools and community institutions as a remedy for the ballooning deficit.

Additionally, it mentioned cost shifting and one-time expenditure reductions that did not affect essential services.

2020 marked the first-ever population decline in California due to the implementation of strict lockdowns in response to the COVID-19 pandemic.

The state lost well over half a million residents between January 2020 and July 2022, with the number of departing residents exceeding the number of incoming by nearly 700,000.

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