California will likely have a $25 billion budget deficit next year. The nonpartisan Legislative Analyst's Office said Wednesday that state revenues are $41 billion below expectations.
SACRAMENTO, Calif. — California will likely have a $25 billion budget deficit next year, state officials announced Wednesday, ending a run of historic surpluses and acting as a warning to other states about a potential recession.
But tax collections have slowed significantly since Democratic Gov. Gavin Newsom signed that budget into law. This year, revenue is $41 billion below expectations, according to an outlook published Wednesday by the nonpartisan Legislative Analyst's Office. The future looks bleak. Soaring inflation has made everything more expensive. The Federal Reserve has tried to rein in inflation by raising a key interest rate. A higher interest rate makes it more expensive to borrow money, which eventually causes people to spend less. Although that would control price increases, it also cuts demand for goods and services. That leads to layoffs, meaning people pay less in taxes.
California's soaring revenues have fueled a large expansion of government services, including making 4-year-old kindergarten free for everyone and paying for the health care of low-income immigrants who are living in the country without legal permission.
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