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Law360 (May 7, 2020, 8:01 PM EDT ) The economic collapse brought on by the novel coronavirus will lead to a $41.2 billion drop in tax revenue for California, the finance department of the nation's most populous state said Thursday.
The novel coronavirus pandemic has turned California's projected budget surplus into a projected $54.3 billion deficit through fiscal 2021. (AP)
The initial budget forecast for 2020-21 outlined in January by Democratic Gov. Gavin Newsom reflected a $5.6 billion surplus. At that time, Newsom was proposing a $222 billion budget that included many of his priorities, such as additional funding for programs for the homeless.
The Department of Finance compared tax revenue between what it currently estimates, and what it estimated in the forecast in January. Revenue from the personal income tax would decline by 25.5%, the department said. Revenue from the sales and use tax would decline by 27.2%, and revenue from the corporate income tax would decline by 22.7%.
Even though most of the budget for the current fiscal year was complete by the time the pandemic began affecting California, the department still estimates a $9.7 billion decline in tax revenue by June 30 of this year. For fiscal 2021, the department estimates a $32.2 billion decline in tax revenue.
"The widespread economic interruption caused by the global pandemic is unprecedented in modern history," the department said. Still, the state's yearslong effort to build up its reserves would now serve it well, according to the department.
"While the COVID-19 recession is causing an unprecedented loss of jobs and income, the projected deficit as a percent of general fund spending is modestly smaller than the budget deficits faced by the state in 2003 and 2009," the department said.
Also on Thursday, Newsom gave a briefing outlining California's progress in battling the virus, saying that the state has done well enough that as of Friday, it will begin to cautiously open what he termed as "low-risk" businesses, such as clothing stores. But Newsom began that briefing with a discussion of the fiscal collapse brought on by the coronavirus, and said that his state, or any other, would not be able to go it alone no matter how much belt-tightening they do.
"It's absolutely incumbent on our federal partners to recognize the magnitude of this moment," Newsom said in a plea for a federal aid package to shore up state and local governments.
The governor is scheduled to give his annual May budget update on May 14.
--Editing by Neil Cohen.
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