Unemployment up, incomes down: State budget report gives grim outlook for Newsom’s California
California Gov. Gavin Newsom (Justin Sullivan/Getty Images)
California governor Gavin Newsom (D.) faces a $68 billion deficit in 2024, more than double this year’s $32 billion shortfall, the state budget analyst reported Thursday.
The shortfall stems from the state’s 2022 economic downturn and the accompanying declines in revenue even as California leaders maintained their high levels of spending with a nearly $311 billion budget.
California entered an economic downturn in 2022 as unemployment jumped to 4.8 percent—higher than the national rate of 3.9 percent—and Californians’ inflation-adjusted incomes declined for five straight quarters, the report says. Meanwhile, high borrowing costs have slowed home sales and investments into California’s profitable tech industry while deterring businesses from expanding or hiring more workers.
The grim outlook is the latest sign of domestic trouble for Newsom, who has presided over a three-year population exodus that included wealthy taxpayers while increasing spending by more than 60 percent. It comes as the governor’s poll numbers have tanked in his state, where the majority of voters worry about the economy, jobs, and inflation while Newsom builds his national profile ahead of a potential presidential campaign.
Republican assemblyman Vince Fong, who serves as vice chair for the state assembly’s budget committee, said Thursday’s report brought more “alarm bells.”
“I have said for years, a slowing California economy coupled with unsustainable spending is a recipe for fiscal disaster,” Fong said. ”No more gimmicks; we must take action now to get our fiscal house in order.”
A spokesman for Newsom did not respond to a request for comment.
The analysis warns that the state’s economic problems could drag into next year.
Californians’ personal income tax payments fell by 25 percent in 2023—similar to declines during the 2008 Great Recession and the dot-com stock market bust in the 1990s. Sales tax revenue stayed flat even as inflation drove prices higher. And $30 billion deficits are expected to continue for the next three years, according to the report.
Just two years ago, California had a nearly $100 billion budget surplus, which Newsom largely spent on one-off programs spanning homelessness, mental health, and climate.
This past year, even as state analysts warned California could yet face recession, Newsom and the Democratic legislature approved nearly $311 billion in spending. They closed last year’s $32 billion shortfall largely through budgetary maneuvers that shifted expenses to different state funds, deferred other spending, and borrowed about $6 billion. They cut expenditures by just $8 billion.
Newsom has hiked state spending considerably since taking office in 2019 even as California lost population. A decade ago, his Democratic predecessor, former governor Jerry Brown, enacted a $138 billion budget. In 2021, Newsom proposed boosting state spending by one-third with a $268 billion budget proposal that the legislature whittled down to $262.6 billion. By 2022, when more than 800,000 Californians left the state, spending jumped to nearly $308 billion.
While spending has grown, quality of life has not. Polls show that Californians feel the gap between rich and poor is growing as cost of living is more than 40 percent higher than the national average.
How has the rise in unemployment affected California’s overall economic stability?
Ue annually until at least 2026, according to the report.
The budget report highlights several factors contributing to California’s economic woes. Firstly, the state experienced a significant increase in unemployment, with the rate climbing to 4.8 percent in 2022, higher than the national average of 3.9 percent. This rise in unemployment has undoubtedly had a detrimental impact on the state’s overall economic stability.
Furthermore, the report reveals that Californians’ incomes have been on a continuous decline for five consecutive quarters, after adjusting for inflation. This decrease in real income is a concerning trend, as it directly affects individuals’ purchasing power and overall economic confidence. It also underscores the challenges faced by Californians in meeting rising costs of living.
The budget report also highlights the impact of high borrowing costs on the housing market, as it has slowed down home sales and discouraged investments in the state’s profitable tech industry. Additionally, businesses have been deterred from expanding and hiring more workers due to these high borrowing costs. This combination of factors further exacerbates California’s economic downturn.
Moreover, the report sheds light on the population exodus California has experienced under Governor Gavin Newsom’s leadership. Over the past three years, wealthy taxpayers have been leaving the state, resulting in a loss of tax revenue. This exodus, coupled with the state’s increasing spending, has created a significant fiscal strain on California’s budget.
Given these challenges, it is not surprising that Governor Newsom’s approval ratings have plummeted, especially among voters who express concerns about the economy, jobs, and inflation. While Newsom has been focusing on building his national profile, potential presidential aspirations may divert attention from addressing the pressing issues faced by Californians.
The budget report has prompted Republican assemblyman Vince Fong to issue a call to action. Fong emphasizes that the combination of a slowing California economy and unsustainable spending is a recipe for fiscal disaster. He urges the state to take immediate action to rectify these issues and restore fiscal stability.
Moving forward, it is imperative for California’s leaders to prioritize economic recovery and make necessary adjustments to the state’s budget. Concrete measures must be taken to address the unemployment crisis, boost real incomes, attract businesses, and encourage investments. Additionally, ensuring fiscal responsibility and implementing sustainable spending practices should be at the forefront of any economic recovery plan.
California’s economic problems are not to be underestimated, as they have far-reaching consequences for the well-being of its residents and the state’s overall prosperity. It is now incumbent upon Governor Newsom and state legislators to find effective solutions to navigate these challenges and put California’s economy back on track. The resilience and determination of California’s leaders will undoubtedly be tested as they strive to revive the state’s economy and provide a brighter future for all Californians.
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