【Epoch Times News November 23, 2024】 Technology giant Nvidia’s stock price has experienced a remarkable growth over the past year, soaring by about 190% and accounting for one-third of the S&P 500 index gains, leading to California’s revenue exceeding expectations. However, analysts warn that over-reliance on the high-tech and artificial intelligence industries may expose California to market volatility risks.
According to the annual fiscal outlook released on November 20, California’s revenue is $7 billion more than what was projected in June. However, the non-partisan Legislative Analyst’s Office warns that these revenue increases have an “unstable foundation.”
Legislative analyst Gabriel Petek stated at a press conference, “While the revenue rebound since the June forecast is favorable, it is more unstable for us because it is coming from stock market appreciation, rather than being based on in-state job growth and consumer spending recovery. When it’s market-based, market sentiment can change very rapidly, making it highly unpredictable.”
The report indicates that bonuses and stock option compensations from four companies—Nvidia, Apple, Meta, and Alphabet—make up nearly 10% of California’s income tax revenue in the first half of the year.
Deputy analyst Brian Uhler mentioned at the press conference that future market corrections in Nvidia’s stock price could potentially lead to a reduction of California’s revenue by as much as $3 billion.
California has faced deficits over the past two years, with market fluctuations reducing capital gains tax revenue, exacerbating fiscal shortages. Meanwhile, the report shows that California’s expenditures have grown by an average of 5.8% per year over the past two years, nearly double the historical average of 4% annual revenue growth.
Analysis found that some economic indicators are showing weakness, with wage earners in California facing challenges while high-income earners capitalize during stock market prosperity.
Consumer spending is on the decline. Analysts state that California is grappling with the effects of a two-year economic slowdown, leading to sluggish job growth. The report indicates that the state’s unemployment rate has risen to 5.4% in the past two years, with the current number of unemployed individuals increasing by 25% compared to 2022.
Analysts predict that California’s budget for the 2025-26 fiscal year is “essentially balanced,” but a deficit of $2 billion may arise. Factors that could impact California’s finances include the newly passed minimum wage increase in the healthcare industry, estimated to result in losses ranging from hundreds of millions to billions of dollars for the state, along with the costs of implementing the proposal.
Looking ahead, California is expected to face a “substantial” deficit of approximately $20 billion for the 2026-27 fiscal year, with the deficit projected to expand annually at least until 2029 (the last year included in the forecast).
Petek stated, “These deficits largely reflect the mismatch between our growth rate of expenditures and revenue.”
According to the report, lawmakers will need to address fiscal shortages by raising taxes, cutting expenditures, shifting costs to other budgets, or utilizing reserves.
Analysts also recommend strong oversight of various programs to identify potential opportunities for expenditure reductions and prioritization.
A legislator noted that thousands of programs need evaluation by the legislative body to determine whether they are meeting their objectives. Roger Niello, Vice Chair of the State Senate Budget Committee, told Epoch Times on November 20, “Taking action this year to address the deficits over the next few years is crucial for us.” He suggested that programs failing to achieve their goals should be trimmed.
Niello also agreed with analysts that the state government’s reliance on stock market gains is risky. “I think the stock market is, in fact, overvalued, and we cannot continue to depend on it,” he said, emphasizing the need for expenditure control by lawmakers to improve California’s fiscal health.
The California Department of Finance responded to the outlook report, emphasizing revenue growth and stating that the state government, through a budget passed by the governor and legislature, is better equipped to address future budget shortfalls.
H.D. Palmer, the main spokesperson for the Newsom administration’s finance issues and Deputy Director of External Affairs for the Department of Finance, wrote in an email to Epoch Times on November 20, “Each budget in California may be influenced by forces beyond our control — whether it is overseas conflicts or unpredictable domestic stock markets.” In addition, California is also facing uncertainty due to dramatic changes in federal policies next year.
Palmer also acknowledged that the state government is aware that new laws passed by voters and rising healthcare costs may pressure the budget. He stated, “In short, while we can be satisfied with the progress made over the past year, we must be clear-eyed about the challenges ahead.” ◇