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To understand what happened to the 2024 state budget, we have to go back to 2023.
That year, Gov. Gavin Newsom and the Democrats who control the Legislature decided not to raid the state’s roughly $37 billion rainy day fund, despite the precarious fiscal situation. Those funds came in handy as lawmakers scramble to close an estimated $56 billion shortfall this year and next.
The state’s large deficit is partly due to its blind actions on the fiscal front. In response to the devastating storm, federal and state tax collectors last year extended filing deadlines well past the day lawmakers typically finalize state budgets. As a result, the outlook for earnings is incomplete. Basically, last year’s state spending plan assumed more revenue than would ultimately come in, all because critical data wasn’t available in time.
What do these deficit numbers put into context? The state’s general fund budget (spending on schools, health care, prisons, green energy initiatives, etc.) from July 1 to next June is $2,980. Billion dollars, the highest amount ever. As of 2021, states were spending $270 billion.
How did lawmakers close the gap in this year’s budget? First, they pulled $12 billion from state reserves over the next two years. Lawmakers also cut appropriations for most state agencies by nearly 8%, eliminated thousands of government vacancies and eliminated a handful of midsize spending programs, resulting in $16 billion in savings. The state will loan money to universities to build more student housing, $1.1 billion in affordable housing loans and a new program that pays college students to take jobs related to their majors. Plans to loan about $500 million have been scrapped.
Other savings came from freezing business tax credits. Additionally, there are budget “fund shifts” that apply to the numbers that lawmakers move money around to increase savings.
Among the few state programs that actually saw their budgets increase?Public universities are set to see an 8% cut next year, unless the state’s budget situation improves, including the University of California and California State University.
Outlook for 2025
So far, returns have exceeded expectations, thanks to strong gains in the stock market, especially tech, and the income taxes investors pay. But increased revenue doesn’t necessarily mean there’s room for more spending, as independent budget analysts for Congress predict a multibillion-dollar budget deficit from 2028 to 2029. It states that there is no. Additionally, much of what California currently spends money on is expected to become even more expensive.
After all, how much the state decides to spend on its vast programs depends on the stock market and the incomes of California’s wealthiest residents, even though the United States doesn’t just boast the world’s fifth-largest GDP. Much depends. Capital gains taxes, fueled by Wall Street frenzy, mean billions of dollars for state programs.
Stock prices could be fueled by a Republican-led White House and Congress turning to tax cuts (although tax cuts often mean cuts to federal programs). However, President-elect Donald Trump’s plans for high tariffs and the mass deportation of undocumented workers could strain the economy through higher inflation and a shortage of workers.
