State Budget Seeks to Close $12B Deficit

This month, the California Legislature approved a state budget that closes a projected $12 billion deficit. Much of the concern, however, revolves around losing federal funding. The state is contemplating withholding income tax revenue from the federal government if it deems any funding cuts unconstitutional or illegally enforced.

Overall, the state budget reaches above $325 billion, but compromises that truly fund the budget are still expected before the new fiscal year starts in July. The biggest sticking point revolves around Medi-Cal, the state’s supplemental Medicaid program, which is seeing faster-than-expected spending increases due to unprecedentedly high enrollment rates. Gov. Gavin Newsom has proposed certain caps on enrollment, freezes in other benefits and premium increases. However, many Democratic lawmakers are hesitant to embrace those solutions.

Supplementing revenue to fund programs like Medi-Cal primarily comes from shifting money between special funds (where legal), drawing over $7 billion from rainy day reserve funds and potentially borrowing against other revenue programs. Unfortunately, state income tax revenue is not projected to reliably increase with the stock market’s slowdown and other long-term economic headwinds.

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Source: CalMatters

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