The contours of the COVID-19 pandemic’s impact on California’s state budget are coming into sharper focus: An updated projection estimates state General Fund revenues will plunge by more than $41 billion dollars from what was expected in January.
The State Department of Finance (DOF) released the updated fiscal forecast. Thursday morning
But the projected deficit is even deeper.
The $41 billion shortfall, combined with $7.1 billion in additional caseloads for health and human services programs and unanticipated expenditures of $6 billion mostly related to the COVID-19 response, signal an overall budget deficit of $54.3 billion.
Of that, state finance officials project roughly a quarter of the shortfall will occur in the current fiscal year, with the rest falling on Governor Newsom and the Legislature to deal with in its upcoming budget negotiations over next year’s budget, which starts July 1.
But California won’t know the full extent of its revenue shortfall until August, after the July 15 deadline for paying income taxes, which account for two-thirds of California’s General Fund revenues.
Still, state finance officials anticipate personal income tax revenue are expected to fall by 25.5% below January projections, with sales and uses taxes down 27% and corporate tax revenue 22.7%.
Under the Proposition 98’s constitutional obligation to fund K-12 schools and community colleges, the required funding for education will be down $18..3 billion, a massive hit at a time when schools are struggling to deal with distance learning brought on by the pandemic.
The “good news,” if you can call it that, is that nearly a decade of strong economic growth leading to a once-anticipated surplus of  $5.6 billion in the 2020/21 budget.
That, combined with the the state’s “rainy day fund” will soften the blow somewhat. That fund, created by voters in 2014 and prudently managed by former Governor Jerry Brown, is now estimated to hold $18 billion which can be tapped within limits once the governor declares a fiscal emergency.
Still, those reserves will be cold comfort to those who feel the downturn hardest, disproportionately low- and middle-income Californians.
In his news briefing Wednesday Gov. Newsom hinted at the magnitude of the problem, calling the numbers “jaw dropping.”
The timing of announcement may draw questions, coming just hours after the Newsom administration finally released details of a $1 billion contract that’s raised serious questions about the state’s COVID-19 expenditures.
Previously, Newsom said any details of his so-called “May Revise” of the state budget wouldn’t be released until next Thursday. Instead, DOF sent out the deficit forecast at 9:45 pm Wednesday night, just a few hours after releasing details of the contract.
The imploding budget situation means Newsom will have to manage simultaneous crises, testing his ability to govern at a time when his popularity at home and national political stock had been rising as he and other governors filled a void left by the Trump Administration.
And the bad news, in the way of rising unemployment and plunging revenues, is hardly over. Since mid-March, more than 4.2 million Californians have applied for unemployment benefits.
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