Tanking State Revenues Paint Challenging Funding Picture

Sacramento, CA — The Legislative Analyst’s Office (LAO) yesterday issued its annual Fiscal Outlook, estimating state has a $68 billion budget deficit with potentially challenging implications for school funding. The report comes as a surprise in a unique year when the normal April 15 income tax filing deadline was pushed back to October, and then again to November to allow residents and businesses in most counties extra time following last winter’s severe weather. The delay in this deadline forced the governor and Legislature last summer to adopt the 2022-23 state budget without the usual April tax collection data—a key piece of information in the state’s complex revenue puzzle. With the solid 2022 revenue data in hand, the picture has clarified in an ugly way.

Declining Revenues Blow Hole in Overall State Budget

LAO estimates that the state’s calendar year 2022 revenues were $24 billion (roughly 25 percent) below the levels estimated when the current, 2023-24 state budget was enacted. These lower revenues are likely to continue in 2023-24 and beyond, if past experience holds.

The reductions stem from slowing economic conditions triggered by higher interest rates. The Federal Reserve raised...