California’s Budget Gaps Could Total $126 Billion in Worst Case

(Bloomberg) -- California is likely to face revenue shortfalls long after the coronavirus crisis ends, resulting in budget gaps that may total as much as $126 billion over the next four years if the economy doesn’t quickly recover, the state’s nonpartisan legislative analyst office said in a report Friday.

The analysis comes a day after California Governor Gavin Newsom said the federal government needs to help the state grapple with a $54 billion shortfall projected through June 2021.

“The state’s newly emergent fiscal challenges are unlikely to dissipate quickly and will extend well beyond the end of the public health crisis,” the legislative analyst office said in the report.

Even under an optimistic scenario for the current recession, which assumes the economy will recover in the summer, the state will face budget deficits until at least fiscal 2024, the analyst office said. Over the years, the shortfalls would total from $64 billion to as much as $126 billion if the economy doesn’t start to improve until 2021.

The state’s record budget reserves can’t make up for the revenue lost due to the pandemic-induced shutdowns and the governor and legislators will have to agree on cuts. Newsom on Thursday will present a revised budget for the year beginning in July that legislators must approve by June 15.

“The state’s fiscal challenges will not go away quickly,” the report said. “Accordingly, long-term solutions to bring the budget into structural alignment are needed.”

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