Lawmakers in California have recently passed a preliminary budget to meet the legal deadline, but they are still working out the final details. The state’s finances have been fluctuating a lot in the past few years.
California’s state budget is so massive that it exceeds the gross domestic products of some countries. It supports the most populous state in the U.S. and the fifth-largest economy in the world. When the state’s finances go up and down, it has a significant impact. Just two years ago, there was a surplus, but now lawmakers are facing billions of dollars in red ink.
In California, legislators are required by law to pass a balanced budget by June 15 each year. If they fail to do so, they risk losing their pay and expense money. This year, there is a lot of debate over how much social spending should be cut and whether the state should delay the increase in the minimum wage for health workers.
The Legislature recently passed temporary legislation to meet the deadline while negotiations with Governor Gavin Newsom continue. The final budget deal is expected to be finalized in the coming days and will take effect on July 1.
California’s finances are known to be volatile due to the state’s taxation system. The system, designed to be fair to low-income taxpayers, heavily relies on personal income and capital gains taxes. When the wealthy have a good year, the state benefits, but when the stock market declines, revenue drops. Additionally, the state has limited options for raising revenue during economic downturns.
To manage the volatility of its finances, Californians have made some efforts to address budget issues. In 2004, voters approved a constitutional amendment that required the state to set aside 3 percent of general fund revenue annually. However, this reserve fund was not enough to withstand the 2008 financial crisis.
Overall, California’s budget crisis highlights the challenges of managing a large and fluctuating economy. The state continues to grapple with finding solutions to ensure financial stability and meet the needs of its residents.