With potential recession looming, California estimates $25-billion deficit next year
California is on track to run a budget deficit next year equivalent to more than $25 billion, according to the state’s new economic forecast.
The forecast on Monday, released by the state Department of Finance, showed the state could run a deficit of about 3.3 per cent of its $132 billion general obligation bond fund, which is the majority of the state’s budget.
One way businesses plan to keep state taxes low is to keep employees on the payroll, which means keeping the state’s workforce smaller.
It is estimated the state could lose between 9,000 and 12,000 employees next year.
In an attempt to stop the bleeding, the state is considering cutting health benefits for new hires, such as in-service training.
“It’s going to be challenging, but I’m hopeful that the state can control the fiscal problems that are in this budget,” Budget Director John Chiang said.
The fiscal problem will be much worse if the state borrows more, because the interest on the bond is more expensive.
“If we borrow more, the interest that we’re paying on that debt is going to be higher,” Chiang said.
The state’s new forecast, published on December 19, predicts its general obligation bond fund will have a surplus of $1.3 billion. This will have the effect of reducing the deficit to between $2.7 billion and $2.9 billion.
The difference, according to Chiang, is because the state borrowed $1.3 billion less per year in the previous two years than it is expected to borrow in 2017.
“So when we look at the numbers, we’re going to have some deficit,” he said.
While the budget outlook is positive, the Department of Finance estimates the net deficit could reach $25 billion in both 2017 and 2018.
“We continue to see a need to