CFRW Capitol Update December 14, 2024

From the Desk of Lydia Kanno, CFRW President

Submitted by Amy Russell, Modesto RWF

The 2025-2026 Budget California’s Fiscal Outlook

Forecast Multiyear State Budget Deficit Overview of the Legal Analyst Office - "Annual Fiscal Outlook"

In anticipation of the January 10 release of the Governor’s 2025-2026 proposed budget.

The Fiscal Outlook’s purpose is to project a baseline estimate of the budget before new policies or economic forecasts from the Governor. It identifies the budget’s size and direction and gives the legislature the fiscal context of 2025-2026.

Anticipated Deficits

2025-2026: 2 billion dollars

2026-202:7 20 billion dollars

2027-2028 27 billion dollars

2028-2029 29 billion dollars

current spending is at approximately 3.5%

*Remember that projected budgets are generally in deficit and corrected before the budget year.

Revenue is slightly up due to an uptake in the stock market, which increased upper taxpayer taxes. However, this is not an indicator of the economy improving.

State spending has accelerated beyond budget expectations but will not lead to a budgetary crisis for 2025-2026.

Future spending is expected at 6%, with revenue growth expected at 4%.

*Reasons for Expenses

In-Home Health Care
  Programs expanded for the aging population = increased Medical spending
  2023 health care minimum wage increase went into effect

State Economy
  Under performance
      Employment has not grown in 18 months
      Government and healthcare employment has increased
  Consumer spending is down
  Business owner income is down

Federal Influences on the Economy
  Expected increase in international trade – tariffs        
  Expected immigration enforcement will limit the labor market
  Expected decreased funding for Medi-Care will lead to increased funding
    from the state.

Monetary Policy
  If interest rate cutting stops, it will negatively affect the economy.

The challenge is to reconcile outpacing spending trends with modest revenue growth.
2024 Spring Legislature and the Administration reduced expenditures through reduction, delays in payments, borrowing, shifting, and deferrals.

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