The fiscal year just started, and the US government is already running a massive budget deficit. In November, the federal shortfall was a larger-than-expected $314 billion, fueled by a 17% increase in spending. In only the first two months of FY 2024, the gap totals $381.5 billion, thanks to huge outlays for Social Security, Medicare, national defense, and interest payments. Washington’s river of red ink and IOUs stretches across the nation, including into one of the largest states in the country: California.
Budget Deficit in California
While California Gov. Gavin Newsom (D) proved to the nation during his debate with Florida Gov. Ron DeSantis (R) why his state is a mess, the latest figures confirm what many already know: The Golden State is being sucked into a fiscal black hole. The non-partisan Legislative Analyst’s Office (LAO) confirmed on Dec. 8 that the state’s budget deficit soared to an all-time high of $68 billion, driven by shrinking tax revenues. This topped the June estimate of a $14.3 billion shortfall.
State budget analysts warn that California will need to address the ballooning deficit. This could involve using its $30 billion cash reserves, employing one-time spending cuts, and adjusting how it funds education and other generous social programs. However, all of these options could be short-term solutions, as the LAO forecast that California could face annual budget deficits of $30 billion for the next few years.
The good news for Newsom is that California is not facing a crisis. LAO official Gabriel Petek told reporters: “The state remains in a good cash position, and that really wasn’t the case back at the start of the Great Recession. We don’t face the same kind of liquidity challenges that we had at that time, and so I would stop short of describing it as a crisis.” At the same time, massive budget deficits suggest that the state needs to be more cautious moving forward, says California Senate President Pro Tem Toni Atkins. She told Politico that “we’re going to have to slow down over time,” pertaining to existing and new spending. But will Gavination decelerate its expenditures? Unlikely.
Other States in the Red
The Golden State isn’t the only one facing an immense budget deficit. In fact, nine others are enduring long-term fiscal imbalances, including Connecticut, Illinois, Massachusetts, New Jersey, and New York. This has been driven by governors and legislative chambers overpromising, overspending, and underdelivering for years without any respite.
More could be joining the list soon, including Minnesota, which is forecast to see a shortfall of $2.31 billion in the 2026-27 fiscal years. Mark Koran, a GOP senator in North Branch, summarized the situation in a recent statement following the Office of Minnesota Management and Budget’s economic projection:
“In only one session, single-party Democrat control of government has taken us from a $19 billion surplus to a projected $2.31 billion deficit in the near future. Their record of reckless overspending, massive tax increases, broken tax relief pledges, and now looming deficits are simply not sustainable. At the same time, inflation continues to put pressure on family budgets every month. Minnesotans cannot afford Democrats’ irresponsible governing any longer.”
Sorry, Cheney, Deficits Do Matter
Former Vice President Dick Cheney famously said that “deficits don’t matter.” This Republican mantra was shared shortly before former President George W. Bush declared that the United States needed to sacrifice free-market principles to save the free market. Democrats might not be so blunt in their support of debt and deficits, but their actions, whether at the state or federal level, show that they also lack the ability to balance the books. Since arriving at the White House in 2021, President Joe Biden has overseen the national debt soaring by approximately $7 trillion while recording some of US history’s largest deficits. Many experts have warned of the growing consequences of fiscal irresponsibility, but with interest rates at their highest levels in more than two decades, budget deficits being the new normal might breed a fiscal crisis.