![]() If augmentations have not yet been distributed, the Legislature has an opportunity to reevaluate those expenditures. Early in 2023, we suggest the Legislature question the administration about the implementation and distribution of recent augmentations. Recommend Legislature Identify Recent Augmentations to Pause or Delay. As such, we suggest the Legislature begin planning the 2023‑24 budget without using general purpose reserves. Based on historical experience, should a recession occur soon, revenues could be $30 billion to $50 billion below our revenue outlook in the budget window. While our lower revenue estimates incorporate the risk of a recession, they do not reflect a recession scenario. The $24 billion budget problem in 2023‑24 is roughly equivalent to the amount of general‑purpose reserves that the Legislature could have available to allocate to General Fund programs ($23 billion). Consequently, our estimate of a $24 billion budget problem understates the actual budget problem in inflation‑adjusted terms. Because our outlook reflects the current law and policy of the Legislature, our spending estimates only incorporate the effects of inflation on budgetary spending when there are existing policy mechanisms for doing so. The extent to which programs across the rest of the budget are adjusted for inflation varies considerably. Under our estimates, the state can afford to maintain its existing school and community college programs and provide a cost‑of‑living adjustment of up to 8.38 percent in 2023‑24. The General Fund budget can be thought of in two parts: (1) the Proposition 98 budget for schools and community colleges, representing about 40 percent of General Fund spending, and (2) everything else. Inflation‑Related Adjustments Vary Across Budget. Over the subsequent years of the forecast, annual deficits would decline from $17 billion to $8 billion. Revenue losses are offset by lower spending in certain areas. (A budget problem-also called a deficit-occurs when resources for the upcoming fiscal year are insufficient to cover the costs of currently authorized services.) The budget problem is mainly attributable to lower revenue estimates, which are lower than budget act projections from 2021‑22 through 2023‑24 by $41 billion. Under our outlook, the Legislature would face a budget problem of $24 billion in 2023‑24. State Faces $24 Billion Budget Problem and Ongoing Deficits. Reflecting the threat of a recession, our revenue estimates represent the weakest performance the state has experienced since the Great Recession. The chances that the Federal Reserve can tame inflation without inducing a recession are narrow. The longer inflation persists and the higher the Federal Reserve increases interest rates in response, the greater the risk to the economy. Facing rising inflation, the Federal Reserve-tasked with maintaining stable price growth-repeatedly has enacted large interest rate increases throughout 2022 with the aim of cooling the economy and, in turn, slowing inflation. Were little changed after an initial knee-jerk decline after the release of the CPI data faded.Economic Conditions Weigh on Revenues. economy “fundamentally strong.”Ĭlimbed on Thursday but were off session highs, after a report on consumer prices showed inflationary pressures remained relatively subdued last month. The Biden administration blasted the action, with Treasury Secretary Janet Yellen calling the U.S. debt by Fitch Ratings, a move the agency said reflected “expected fiscal deterioration,” among other things. ![]() The government’s fiscal year runs from October through September.īig picture: The latest deficit numbers come in the wake of the downgrade of U.S. Spending has risen 10% to $5.3 trillion, with some of the biggest outlays being for Social Security, Medicare and Medicaid. Receipts have come in lower than Congressional Budget Office projections due to smaller-than-anticipated collections of individual and corporate income taxes, the CBO said in a separate report. For the fiscal year to date, receipts have fallen 10% to about $3.7 trillion.
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