May has many pleasures in California. Poppies. Jumping frog contests. Waterfalls in Yosemite National Park.

In the capital, though, May can be painful. It’s when the annual haggling over the state budget usually shifts into high gear. Governors fine-tune their fiscal proposals. Lobbyists ramp up the pressure. The people who rely on state dollars the most brace for relief or disappointment, and legislators strain to balance the books.

Like the economy and the population of California, the state budget is the nation’s largest, and lawmakers are legally required to pass a balanced one by June 15 each year or lose their pay and expense money. Even in flush years, it’s a fraught process.

And this year, California is not flush.

California’s system of taxation is volatile by nature. The state relies heavily on taxes on personal income and capital gains. When the rich do well, the state government reaps a bonanza. But when the stock market slumps or initial public offerings dwindle, revenue plummets. For the past couple of years, as the Federal Reserve tried to rein in inflation with higher interest rates, state finance officials warned that California’s fiscal outlook was darkening.

A stock market decline in 2022 drove down receipts from capital gains taxes. Higher borrowing costs for businesses led to higher unemployment and fewer business startups.

Making matters worse, the state was late to recognize the full extent of the problem, because the severe winter storms in early 2023 prompted state and federal tax agencies to extend the deadline for filing income tax returns to November. That meant that lawmakers had to pass the current budget before it was clear how much money would be coming in, and they guessed too high.

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