California budget crisis worse than Newsom projected, as state watchdog warns deficit could reach record $73B

California governor appears to have underestimated state budget crisis

California's budget crisis is projected to expand more than previously thought and could hit a record deficit of $73 billion, according to a new report from the state's nonpartisan Legislative Analyst's Office (LAO).

The LAO laid out the grim forecast in a Tuesday report that cautions that a $24 billion "erosion in revenues" corresponds to a $15 billion increase in the state's budget problem. Due to this, the budget deficit, which last month was estimated to hit $58 billion, could now go as high as $73 billion.

"The actual increase in the state's budget problem will depend on a number of factors, including formula-driven spending changes, most notably Proposition 98 spending requirements for schools and community colleges," the report said.

Gavin Newsom

California Gov. Gavin Newsom's office previously told Fox News Digital he has ‘maintained fiscal responsibility.’ (Justin Sullivan/Getty Images)

H.D. Palmer, the deputy director of the California Department of Finance and Newom's spokesperson on budget matters, responded to the new LAO report by telling Fox News Digital that their budget shortfall differs from the $38 million they estimate.

"From now through April, more than $51 billion in income and corporate tax receipts are forecast to come in," Palmer said. "No one can say today with certainty how those numbers may change the budget estimate of a $38 billion shortfall."

"A responsible step would be for the Legislature to act now on the early action budget measures needed for $8 billion in solutions to help close this gap," he added.


California flag and state capitol split image

California has experienced a mass exodus in recent years. (Getty Images)

The projected bad news comes as Newsom has worked to increase his profile nationwide. It also occurred as California experienced a mass exodus.

California saw its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic. From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.

Newsom in China

California Gov. Gavin Newsom during his trip to China. (Gov. Gavin Newsoms office)

Census data has shown that Texas is the most popular destination for residents fleeing the state, followed by Arizona, Florida, and Washington. 

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