California is facing a $68 billion budget deficit in 2024, the largest deficit in the state’s history according to a new budget report by the nonpartisan Legislative Analyst’s Office, or LAO for short.

The revenue generated from taxes this year was a lot lower than expected, according to the LAO. A contributing factor was the state extending the tax filing deadline from April to November as a result of a series of winter storms.

This forced the state to put together the budget, without a clear idea of how much was going to be available. The report projects revenue generated from 2022 to 2023 will be $26 billion, below estimates.

The LAO points to other contributing factors being the state’s top earners making less money due to inflation, high-interest rates and the stock market underperforming.

The new chair of the Assembly Budget Committee, Assemblymember Jesse Gabriel said tapping into the state’s reserve fund is one of the many tools that will be explored to balance the budget.

“I suspect there are some folks that are going to want to dip deeper into the reserves, some folks that don’t, and we have to figure out what the best path forward is to address this challenging situation,” Gabriel said.

The state has about $24 billion available in reserves to help make up for the deficit. In order to draw from the state’s reserve, Gov. Gavin Newsom would need to declare a fiscal emergency.

Although the LAO advises the state to be careful about relying on reserves to make up for the shortfall.

“Our high-level suggestion to the Legislature is to be judicious about the use of reserves because there’s a lot of uncertainty ahead,” Legislative analyst Gabe Petek said.

Both budget committees in the Legislature will have to work with the Governor’s Office to come up with solutions for the impending deficit.

The LAO is advising the state to pullback onetime spending commitments for education, transportation and the environment.

“One of the things that we’re going to hope to avoid at all costs is deep cuts to social services for our most vulnerable Californians,” Gabriel said.

The report indicates billions of dollars could be cut in Proposition 98 funds, which go to K-12 public schools and community colleges.

“…Obviously we want to do everything we can to protect classroom funding, protect and strengthen public education and to protect the progress that we’ve made on various fronts over the last couple years — but difficult budgets require difficult choices,” Gabriel said.

Sen. Roger Niello, the co-chair of the Senate Budget Committee, points to the state’s supermajority as the reason for the recent budget deficits.

“Republicans have had very little input on it and I see that as a problem,” he said. “It’s totally up to the democrats and I do think they’ve increased spending when we had flush budget years, unwisely.”

Although this is the largest budget deficit in terms of dollar amount, when looking at in proportion of the state’s budget, it is similar in scale to the deficits faced in the early-2000s and during the Great Recession.

“I wouldn’t call what we have right now a crisis yet, but what we do for this budget year and for the 2024-2025 budget will determine that we will absolutely have a crisis in the years after that,” Niello said.

The LAO is projecting the deficit to grow even more over the next few years if major changes aren’t made with the state’s spending

“We are actually estimating also $30 billion annually for three years after that, so cumulatively we are talking about $155 billion,” Petek said.

Newsom will present his budget proposal in January. He will then work with the state legislature to pass a budget bill by June 15.