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Coronavirus brings an end to California’s good-times budget. How bad will it get?

you create enough disruption, it’s not so easy to go back,” Mitchell said. “So you could be looking at a very prolonged period here in California where the underlying economy is not good.”

Under a moderate recession scenario modelled by state finance officials — larger than the dot-com bust of 2001 but not as bad as what happened in 2008 — California would lose $50 billion in tax revenue over two years. Declines of $15 billion to $20 billion would continue for several more years as the economy clawed back to recovery.

“Conditions are incredibly fluid and dynamic,” said H.D. Palmer, San Francisco News a spokesman for the Department of Finance. “We’re going to have a better sense four to five weeks from now what the world looks like than we do today.”

Gabriel Petek, the nonpartisan legislative analyst, warned in a memo last week that “abrupt and nearly across-the-board curtailment of spending that now underway sets it apart from previous downturns.” His office expects that the drop in stock prices will cost the state billions from a steep decline in capital-gains taxes, which provided more than 10% of the general fund last year.

“Regardless of the ultimate revenue estimates, the Legislature almost certainly will have to reassess its policy priorities for the upcoming year,” Petek wrote, and shift spending to aid public health and economic recovery efforts.

The Legislature suspended its session last week because of the outbreak. For now, lawmakers are set to return April 13, giving them about two months to meet a constitutionally mandated deadline of June 15 to pass a budget or go without pay.


Even that could wind up being an interim plan. Filing deadlines for personal income taxes, which make up two-thirds of general fund, recently were pushed back until July 15. Although not everyone will take advantage of that option, the state will be relying more than usual on economic forecasts, rather than cash on hand from April collections, to craft a budget.

The state is sitting on more than $20 billion Press Release Distribution Services In San Francisco in reserves, which could help cushion the blows of the economic downturn. About $16 billion of that is in the rainy-day fund created by then-Gov. Jerry Brown and the Legislature in 2014. As approved by voters, the law automatically sets aside money each year until the balance reaches 10% of general fund revenue.

To tap the reserve account, the governor must declare a fiscal emergency, and the Legislature can use only up to half in the first year. But even under the Department of Finance’s moderate recession scenario, the savings could disappear quickly — and fall far short of filling the budget holes that open.

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