Gov. just rejected taking $30 Billion out of the $32.7 State Reserve fund to cover the deficit, as reported by Bloomberg on Friday Nov. 8.
They are considering declaring a State of Emergency over the budget.
They will be running around looking at things to cut.

But there is a $30 Billion structural deficit built in going forward. This means that using an emergency fund to bail yourself out one year won't help....if you are expected to run $30 Billion deficits every year going forward.

The take away is we're bumping into real consequences
"We're Spending Like Drunken Sailors" - Stan Drunkenmiller - He runs his own Family Office

As a side note, using an emergency fund to bail yourself out of your own poor/misleading budgeting is not a good idea. Former Governor Jerry Btown is the only one to get Keynesian Economics Right: 1) Save for a Rainy Day 2) One Day, Private Sector spending will decline dramatically (recession) 3) That is when government steps in with government spending to keep the society afloat until the private sector spending comes back and the recession ends.

I don't necessarily think Gov. Newson is quite as 'fiscally responsible' as Gov. Jerry Brown was .. but at least he has now declared an executive freeze (? "Fiscal Emergency"?) on new spending (like trips, new vehicles, new positions ...). The adjustment on the education Prop 98 funding 'future projections' to actually reflect the New Reality of state revenues / should be done IMO as the Legislative Analyst Office recommends [buck up California Teachers Association / union] and [ California School Boards Association / elected official advocacy organization] "pressure from advocates arguing that their priorities should be protected" ...

So much of the reduced income tax collection stems from less capital gains in 2022. But if you look at the stock market, it had a big decline in 2022 which continued for less than a month into 2023. Of course that created an incentive for investors to hold onto stocks that they would have otherwise sold, since they were down.

But then in 2023, the market fully recovered and so a lot of those pent up sales must have occurred. I bet the capital gains income in 2023 is higher than what they are estimating now. The income tax revenue to the state will increase in 2023 considerably. Maybe still not so bountiful, but plenty of revenue.

Oh, and also, some investors took losses at the end of 2022 which reduced their 2022 tax liability. With the market up in 2023, it's likely they took less losses in 2023. All around, it's more an issue of volatility than in a real reduction in income tax collection. A ton of investors have been making a lot of profit in the stock market. It will be different if the stock market does collapse. Record highs! Some will cash out and owe taxes.