California has filed its audited financial report for 2021-2022, despite the fact that it was 350 days after the deadline. The state admitted in its filing that COVID-era fraud on unemployment cost it $29 billion, which must be reimbursed to the federal government. In 2022, California had a liability of $256 billion, compared to its unrestricted resource.

Even after accounting for limited resources such as state trust funds or bonds with specific purposes, the state still owes $55 billion.

California enjoyed a prosperous year in 2022, with massive gains on the stock market and an unprecedented increase in high-paying jobs within the tech industry. This was due to a post-pandemic economic recovery. In FY 2021-2022, the state adopted a budget that included $234 billion of general fund spending compared to revenues of $220 billion.

The Center Square quoted Policy Analyst Marc Joffe of the libertarian Cato Institute as saying: “If this is the best we can do in California economically, and the government still cannot repay debt, then what will we do when we are in a worse financial situation, and we look at eating into our rainy-day fund.”

California faces a $73-billion deficit in the fiscal year 2024-2025. The Democratic legislature responded by proposing to reduce the budget for this year by $2.1 billion. They also proposed to spend $12 billion or half of the rainy day fund. Revenues are expected to be lower than anticipated due to the reduction of 2023 job growth from 325,000 down to 50,000. State expenditures may be higher than expected due to a large expansion of benefits including the extension of taxpayer-funded MediCal coverage to all illegal aliens and a shift from Texas, where illegal immigration is heavily enforced, to California.

A report that is up to date on the state’s finances for the 2022-2023 budget year would be invaluable in ongoing negotiations. But according to Malia Cohen of the State Controller, “The ACFR will mark the 5th consecutive year California has published their financial statements far beyond the regulatory deadline, which is nine months after fiscal year-end.”

The ACFR for 2022-2023 will be released in a few months. Joffe claims that without the ACFR’s detailed and audited financial report, voters and state leaders lack an essential tool for judging state finances.

The audited financial statements gives you a complete picture. Joffe explained that it’s important to look at both the state’s assets and liabilities as well as its revenues and expenses.

California could end up with a deficit of more than $73 billion for the entire year due to a combination of lower revenues and increased expenditures. The state must pass a balanced budget every year and cannot borrow to cover deficits. This means that the governor and the legislature will have to make tens or even hundreds of millions of dollars of cuts from the governor’s $209 billion proposed budget.