TRG | The Bottom Line – 2/23

The tit for tat between the California Governor’s Office and the state’s Legislative Analyst’s Office (LAO) over the budget “problem” heated up again this week. The LAO updated its projected FY’25 budget deficit to $73B, nearly doubling the total presented by Governor Newsom in January. In its analysis, the LAO identifies possible “one-time and temporary spending” options the legislature may consider to address the shortfall before presenting a balanced budget in June, as required by law. The Governor, who has vigorously disagreed with the LAO estimates, will present his final budget proposal in May, incorporating the latest data on revenue collections and expenditures. Should the updated budget even closely reflect the LAO’s $73B estimate, a significant budget rework will be needed. The graph highlights the dramatic drop in revenue collections the state has grappled with since 2022.