California Faces Severe Fiscal Crisis in 2023 and Beyond

By Dylan Martin

November 28, 2022

California’s oncoming fiscal crisis will make previous ones look like a mere bump in the road. A perfect storm of out-of-control spending, the flight of businesses and taxpayers, rampant inflation, and a looming recession will take a big toll on state and local budgets.

A mere months after California politicians claimed they had a national record budget surplus of $97.5 billion, independent financial analysts now say the state is facing years of massive budget deficits.

This week, the nonpartisan Legislative Analyst's Office announced that California is projected to have a $25 billion budget deficit next year. That could be followed by further annual deficits of $8-17 billion for the following 3 years.

But Carl DeMaio, chairman of Reform California, says the fiscal situation is even worse.

“For the past decade, California politicians have repeatedly spiked spending at the state and local levels of government at the very same time that they have been ignoring a massive exodus of revenue-generating businesses and taxpayers from the state - and now the bill is finally coming due” DeMaio says. 

DeMaio points to what he calls a “perfect storm” of factors that is driving the oncoming fiscal crisis:

  • Out-of-Control Spending: state and local politicians have greatly expanded social welfare programs and the size of state and local government bureaucracies in the past two decades
  • Government Salaries and Pensions: politicians have spiked salaries and benefits for state and local government workers - and continued to grant overly-generous pension payouts in government. DeMaio says state and local pension programs have used Enron-style accounting to cook the books and have suffered significant investment losses during the recent stock market downturn. The latest estimate pegs California’s unfunded state and local pension shortfalls at over $500 billion and growing each year.

 

  • Inflation: as politicians have embraced inflationary policies, the higher inflation increases the operating costs of government and increases social welfare payouts that are tied to inflation indexes. 

 

  • Loss of Taxpaying Residents and Businesses: California is now suffering from “net-migration” out of the state as businesses flee costly mandates and families move due to the high cost-of-living and/or dissatisfaction with crime, homelessness, and poor quality schools.

 

“Bad policies eventually impact the bottom-line of the government’s budget - and we’re definitely seeing that in California,” DeMaio says.

How will California politicians respond to the crisis?  

DeMaio says they should reform government spending and enact policies to entice businesses and residents to stay, but he does not think that is the route the current state and local politicians in California will take.

“There’s no doubt about it - California politicians will try to put the burden of their fiscal mismanagement onto the shoulders of small businesses and residents by trying to impose higher taxes,” DeMaio warns.

“We’re talking about tax-and-spend Democrats here who just put up over 250 tax hikes on the November 2022 ballot,” said DeMaio. “Governor Newsom and his leftist legislative partners will merely raise taxes again to cover the difference.”

And there are signs that this is already starting. DeMaio points to the state government’s recent imposition of a quiet 1.1% income tax increase. 

“They got away with it, they got away with the gas tax increase — what’s to stop them from trying more tax hikes when they’re so emboldened?” asked DeMaio.

Reform California’s analysis shows that a tax hike to cover $25 billion dollars would mean an extra $1,100 in taxes — or more — per taxpayer.

DeMaio is asking the public to join Reform California’s campaign today to oppose more tax hikes in California - and instead fight for a return to sound fiscal policies.

“No doubt we need to prepare for a major battle in 2023 and 2024 in California - and we believe we can win if we get the public to wake up and get into this fight,” DeMaio concludes.

Join the Fight: Stop the Tax Hikes

Photo Credit: Getty Images

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