Analysis of California’s Current Financial Condition
Written by Chriss W. Street
Total United States annual inflation-adjusted state tax revenue fell in 2023 compared with the prior year—the only time in at least 40 years that real annual revenue has declined outside of a recession. California’s -36.5% and New York’s -23.7% tax revenue declines accounted for over half of all state tax revenue decline nationally due to the states being heavily tied to tech stock market volatility and capital gain revenues.
The recently approved State of California FY 2024-2025 General Fund Budget forecasts a stronger state economy generating +$16.6 billion of revenue increases. But the non-partisan Legislative Analyst Office (LAO) warns that the state suffering a recession would eliminate the -$16.6 billion increase, and cause another -$30 billion in revenue losses. The approved state budget’s annual Taxpayer Burden per taxpaying resident is forecast as $17,112, but a recession would spike Taxpayer Burden to about $21,014.
State of California budget forecasts receipt of $162.9 billion of United States federal funding. But the state as of the March 31 deadlines for each of the last six consecutive years, has been delinquent in filing an audited Annual Comprehensive Financial Report. California has therefore been continuously in default under the United State S.1510 - Single Audit Act of 1984. California currently is at risk of some, or all of the projected $162.9 billion federal funding being subject to reduction, suspension, or termination.
State of California is the most indebted state with $131.5 billion of bonded debt, or about one seventh of the $966 billion bond debt owed by all 50 states. Given the current delinquency and defaults for failing to file timely audited Annual Comprehensive Financial Reports, California is unable to issue General Obligation bonds. California is also responsible for about one sixth of the $1.35 trillion of total unfunded pension liabilities and the $1.20 trillion of all other state liabilities owed by the 50 states.
State of California personal income over the last 40-years grew 13 times, 25% faster than the other 49 states. California taxing higher income brackets at much higher percentage rates resulted in state tax revenues growing at a much faster 18 times.
State of California reported the state’s +311,000 jobs gain in 2023 was second only to Texas. But in June, California slashed the reported job gain by -97%, down to just +9,000. According to the Tech Layoff Tracker, many of those job losses were in high paying tech jobs, with 2,011 tech companies laying off -429,515 people in 2023 and another 680 tech companies laying off -157,089 people in the first six months of 2024.
The economic forces driven by globalization, technology and financial services that caused California tax revenues to grow much faster than other states over the last 40-year period, have now reversed and California faces an existential financial crisis that the LAO warns could risk causing crushing deficits over each of the next five years.
There already are two Californias with about equal population as result of the state drastically curtailing infrastructure spending in the 1970s. The coastal strip is now a declining tech/finance model, and the rural/suburban interior that could rapidly grow manufacturing, agriculture and resource extractions if California could fund the $44 billion of water storage, electric capacity and transportation infrastructure.