Exodus slams California’s revenues

Like many families and businesses, the state of California faces budget problems largely due to a slowing economy, high interest rates and spending too much. A new projection by the nonpartisan Legislative Analyst paints a difficult picture. Anticipated revenues could drop $58 billion below the projections in the Budget Act enacted last June by the Legislature across the three years from fiscal year 2022-23 through 2024-25.

The LAO blamed the revenue shortfall on “postponed tax payments, the impact of recent economic weakness and last year’s financial market distress.”

Also, since early 2022 the Federal Reserve Board pushed its key fed funds rate to a 22-year high of 5.5%.

For California, the LAO said this has cut housing sales by half, with the average new home mortgage rising from $3,500 to $5,400 a month.

The combination of factors “pushed the state’s economy into a downturn” since 2022, with unemployment rising from 3.8% to 4.8% in October. At least it’s still nowhere the double-digits of the Great Recession of the late 2000s.

It’s not likely to get better. The economic slump and rising unemployment “do not bode well for California tax revenues this year,” Raymond Sfeir told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University.

The school’s economic forecast for 2024 will be released Dec. 14. He added the “much higher net outflow of people in the last three years” also has cut revenues. And the net income of those who leave for other states is higher than those who move here.

U.S. Census data shows the state’s population dropped 342,000 between 2021 and 2022.

In that time, 102,000 Californians moved to Texas, with 42,000 moving here, for a net loss of 60,000 to the Lone Star State, which has no income tax, compared to the Golden State’s top rate of 13.3%.

In January Gov. Gavin Newsom will release his budget proposal for fiscal year 2024-25, which begins next July 1. It will update the deficit projection of $31.5 billion for the current 2023-24 fiscal year.

Meanwhile, on Jan. 1 the top income tax rate digs in at 14.4%, up from 13.3%. And according to the Wall Street Journal, “Those making between $61,214 and $312,686 would pay 10.4%,” up from the current 9.3%.

That means the middle class here will pay more than millionaires in every state except New York, New Jersey and Hawaii. Even as inflation continues to erode family budgets.

The California Supreme Court also just decided to put on its docket the lawsuit by Newsom and the Legislature to remove from the November 2024 ballot the Taxpayer Protection Act, which would make it harder to raise taxes even higher. Why are they afraid of the voters? So much for their devotion to democracy.

Newsom should stop gallivanting around the world on what some call his shadow campaign for president and start working to make this state more hospitable to taxpayers, instead of driving them to low-tax states. The hard work of governing might be uninteresting to Newsom at this point, but that what he’s been elected to do.