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California doom: Staggering $54 billion budget deficit looms

New estimates from California Gov. Gavin Newsom's administration predict a staggering budget shortfall of $54.3 billion because of the coronavirus.

Posted: May 7, 2020 10:52 AM

SACRAMENTO, Calif. (AP) — California will have a budget shortfall of $54.3 billion because of the economic devastation wrought by the coronavirus, Gov. Gavin Newsom’s administration announced Thursday, a stunning reversal for a state that had a $21 billion surplus a year ago.

The state has been under a mandatory stay-at-home order since mid-March, forcing nonessential businesses to close and prompting more than 4 million Californians to file for unemployment benefits. After recording record low unemployment of 3.9% at the start of the year, the Newsom administration now predicts a jobless rate of 18% for the nation’s most populous state — 46% higher than the height of the Great Recession a decade ago.

Newsom hinted at the bleak numbers on Wednesday when he called the unemployment figures “Depression-era numbers.”

“These numbers are jaw dropping,” Newsom said. “I just hope that people are preparing themselves ... for the effort that we all need to engage together to undertake to unwind that and get back on our feet.”

It’s not yet clear what state programs will be cut or by how much. Newsom is scheduled to reveal his new spending proposal next week. But the revenue shortfall means the state’s constitutionally required funding level for public schools and community colleges will fall by $18.3 billion.

The virus-induced business closures, unemployed workers and cratering of the restaurant, tourism and entertainment industries has resulted in a staggering loss of tax revenue for California. The Newsom administration projects personal income will fall by close to 9% for the state’s nearly 40 million residents while permits for new housing construction — a key measure of the economy’s health — will drop more than 21%.

After facing budget deficits of more than $40 billion following the Great Recession, California lawmakers have been saving money for the next economic downturn to try and avoid a repeat of cuts to state services. For the past 10 years, the state has had an unprecedented run of economic growth, adding more than 3.4 million new jobs.

That led to increased state spending and huge budget surpluses in recent years, pushing the state’s “rainy day fund” to more than $16 billion. But the projected budget shortfall announced Thursday is nearly three-and-a half times that number. dispelling any notion of a quick recovery once the state’s coronavirus restrictions are lifted.

The Newsom administration estimates state general fund revenues will decline by $41.2 billion compared to the $222.2 billion spending proposal Newsom revealed in January. Plus, California must pay for an extra $7.1 billion for increased enrollment in some social safety net programs, including Medicaid, the joint state and federal health insurance program for the poor and disabled.

Another $6 billion in anticipated emergency spending on the coronavirus for things like protective gear, hotel rooms for the homeless and cash payments for low-income adults living in the country illegally pushes the projected deficit past $50 billion.

Meanwhile, lawmakers are already being asked to bail out the state’s essential industries. California hospitals say they have lost up to $14 billion by postponing elective surgeries and other procedures to make room for an anticipated surge of coronavirus cases that never happened. On Monday, the California Hospital Association asked lawmakers for more than $1 billion in aid.

Local governments, reeling from disappearing sales and hotel tax revenue as millions of people stay inside, are also asking lawmakers for billions in aid.

California already is in line to receive more than $26 billion in federal aid because of the coronavirus, according to an analysis by the nonpartisan Legislative Analyst’s Office. But in a memo released Thursday, the Newsom administration says the state’s bleak financial outlook “underscores the necessity of further federal stimulus to help states and local governments.”

“The next few years we’re going to have to work through these challenges,” Newsom said Wednesday. “But we’ll work through them. And we’ll get out the other side.”

(Copyright 2020 The Associated Press. All rights reserved.)

California Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 292560

Reported Deaths: 6718
CountyConfirmedDeaths
Los Angeles1232563643
Riverside21957515
Orange20225376
San Diego17842406
San Bernardino16586293
Imperial7464125
Fresno728184
Alameda7245142
San Joaquin581761
Kern575987
Santa Clara5552165
Tulare5298148
Sacramento477678
Contra Costa424186
San Francisco407150
Ventura385850
Santa Barbara380830
San Mateo3743111
Marin323226
Stanislaus300450
Kings282338
Monterey227017
Solano192227
Merced162311
Sonoma148714
Placer97011
Madera8578
San Luis Obispo8453
Yolo76028
Santa Cruz5033
Napa4534
Sutter3234
San Benito3042
Butte2954
El Dorado2800
Lassen2670
Shasta1715
Humboldt1574
Nevada1551
Yuba1543
Glenn1530
Lake1001
Colusa980
Mendocino980
Tehama981
Calaveras610
Del Norte580
Tuolumne580
Mono491
Amador350
Inyo341
Siskiyou330
Mariposa311
Plumas150
Alpine20
Trinity20
Sierra10
Unassigned00
Chico
Few Clouds
97° wxIcon
Hi: 97° Lo: 68°
Feels Like: 97°
Oroville
Clear
100° wxIcon
Hi: 100° Lo: 68°
Feels Like: 100°
Paradise
Few Clouds
97° wxIcon
Hi: 92° Lo: 67°
Feels Like: 97°
Chester
Clear
85° wxIcon
Hi: 83° Lo: 53°
Feels Like: 85°
Red Bluff
Clear
98° wxIcon
Hi: 100° Lo: 67°
Feels Like: 98°
Willows
Few Clouds
97° wxIcon
Hi: 101° Lo: 65°
Feels Like: 97°
The heat continues to rise around northern California as we progress through the week, and no real relief from this current heat wave is in sight.
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