California’s recently filed audited financial statement for the 2021-2022 fiscal year, submitted a staggering 350 days past the deadline, reveals a troubling financial landscape for the Golden State.
The filing acknowledges that the state must repay the federal government $29 billion due to COVID-era unemployment fraud and that California’s liabilities exceeded its unrestricted resources by a whopping $256 billion in 2022.
Despite the state’s economic prosperity in 2022, driven by substantial stock market gains and unprecedented job growth in the tech sector, California adopted a budget with $234 billion in general fund spending, surpassing its revenue of $220 billion.
California audit finds state is broke: $55 billion more owed than available https://t.co/a9Vj5vWKNg
— John Solomon (@jsolomonReports) March 21, 2024
Policy Analyst Marc Joffe of the Cato Institute expressed concern, stating, “If that’s the best in California we can do economically and the government is still not able to repay debt, what are we going to do now when we have a much worse financial situation and we’re looking into eating into our rainy day fund.”
As California faces a $73 billion deficit for the 2024-2025 fiscal year, the Democratic legislature has proposed cutting this year’s budget by $2.1 billion and spending half of the state’s rainy day fund, amounting to $12 billion.
However, with the state reducing its 2023 jobs growth forecast from 325,000 to a mere 50,000, revenues are expected to be significantly lower than anticipated.
Moreover, the expansion of benefits, such as extending taxpayer-funded MediCal to all illegal immigrants, and a shift in illegal immigration from Texas to California, could lead to higher-than-expected state expenditures.
State Controller Malia Cohen noted that the upcoming ACFR for the fiscal year ended June 30, 2022, will be the fifth consecutive year that California has published its financial statements well beyond the regulatory deadline.
State and local government spending has surged in blue states post-pandemic.
Lavish federal aid has dried up and now states like California have massive deficits.
A day of reckoning will soon be coming. Great chart below from my friend @spomboy! pic.twitter.com/zIG5tbNp8N
— Stephen Moore (@StephenMoore) March 20, 2024
This delay hinders voters and state leaders from having a comprehensive understanding of the state’s financial situation, as the ACFR provides a detailed, audited overview of both revenues and expenditures, as well as the state’s assets and liabilities.
The combination of lower revenues and higher expenditures could result in a deficit significantly greater than the projected $73 billion for the year.
Due to constitutional requirements mandating a balanced budget and prohibiting debt financing for deficits, the governor and legislature will likely need to make substantial cuts, potentially amounting to tens of billions of dollars, from the governor’s proposed $209 billion budget.
