California Budget ChallengeAbout Next 10Budget Overview

Budget Basics

The Current Situation

Governor Newsom released his proposed budget on January 10, 2023. Prior to the start of the COVID-19 pandemic, California was experiencing the longest economic expansion since WWII (began following the Great Recession in 2009). While the negative consequences of the pandemic have been severe, where not as catastrophic from a fiscal standpoint as the 2021 Budget Act anticipated. However, due to a sharp decline in tax revenues, the state is facing a budget deficit of approximately $22.5 billion.

The LAO Revenue Estimates predict that the General Fund will be $29.5 billion lower than assumed in the 2022 Budget Act. This is largely due to the personal income tax forecast being revised downward to reflect a less positive economic environment. The budget forecast does not assume further declines, it projects positive stock market growth throughout the fiscal year.

Unemployment: Prior to the pandemic, the unemployment rate in California was at a historic low of 3.5%—about one-third the Great Recession peak of 12.3%. Following the onset of the COVID-19 pandemic, the California unemployment rate reached a record 16.4% in April and May 2020 (the U.S. unemployment rate peaked at 14.7% in April 2020). Since March 2020, 29.2 million unemployment claims have been filed in California and the state has paid out $187 billion in total benefits (includes the state benefit and the supplemental emergency benefit). Total state unemployment benefit payments in 2019 were $5 billion. The California unemployment rate was 5.4% as of February 2022 and 4.3% in February 2023.

Personal Income: U.S. personal income increased by 7.4% year-over-year from 2021 to 2022 (up $1.45 trillion year-over-year). Total personal income in California increased by 11% from 2021 to 2022.

Federal Relief: Congress passed the $2.2 trillion CARES Act in March 2020, the largest fiscal stimulus in U.S. history. Through the end of August 2020, over 153 million stimulus payments (up to $1,200 for single tax filers + $500 per qualifying child) were made in the U.S., including 18 million payments in California. The CARES Act provided support to businesses and added $600 per week to all unemployment benefits through July 31, 2020. Congress passed a second COVID-relief bill in December 2020 that provided another round of stimulus checks (up to $600 per individual), extended unemployment benefits and provided an additional $300 per week, and billions more for economic relief for businesses. Following the inauguration of the Biden administration, Congress passed another $1.9 trillion COVID-relief bill (the American Rescue Plan) in March 2021. It provided approximately $26 billion to the state government and $16 billion to local governments in California, plus extended unemployment benefits, housing assistance, and other economic relief measures. A full accounting of California's share of funding (an estimated $150 billion total) from the American Rescue Plan can be found here (LAO).

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