“We have a $31.5 billion challenge, which is well within the margin of expectation and well within our capacity to address,” Newsom said at a press conference on Friday.

The state’s Legislative Analyst’s Office had estimated the actual deficit to be $5 billion more than the January report, according to the Associated Press, but the May revision by Newsom went beyond that estimate.

The increased budget deficit is a symptom of the state’s progressive tax code, which relies on high-income taxpayers whose income is dependent on the stock market. Capital gains are lower than in recent years, leading to less revenue.

“Foundationally, the work we have done over the course of the last number of years to pay down debt, to use one-time surpluses disproportionately for one-time programs, the work we have done to reconcile that we are a progressive state in every way shape or form, including a progressive tax system,” Newsom said. “And as a consequence of that progressivity, where roughly one-half of the revenue that we receive in the state through the personal income tax comes from 1% of the population, we recognize the nature of volatility.”

Newsom also discussed uncertainties affecting the economic forecast in the Golden State, including the status of federal debt ceiling, high interest rates, the potential for recession, and delayed tax receipts.

The IRS approved extensions for Californians affected by the winter storms in March, meaning their tax deadline is now Oct. 16 instead of April 18. Due to the extension for various taxpayers, the state will likely not know how much revenue it is bringing from income tax until far later than usual.

With the increased deficit, Newsom will have to negotiate cuts with the state legislature to various programs before the beginning of the state’s fiscal year on July 1.

Newsom announced on Thursday an additional $290 million to his revised budget, which he says will “support flood response and projects to protect communities from future floods.” With the new spending on flood response projects, he will have to cut funding in other areas.

In his January proposal, Newsom called for a $330 million-per-year extension of the state’s tax credit program for television and film productions from 2025 to 2030. He also pushed to allow the credits to be refundable.

However, the film and television industry may be a future problem for state revenues because Hollywood writers are currently on strike. The 2008 writers strike cost the California economy $2.1 billion, according to the Los Angeles Times.

Another future cost for the state could be the proposed reparations from the state’s task force. The state task force approved a plan for an estimated reparations cost of $800 billion to give eligible black residents. The final report will be sent to the California legislature by July 1, where it will be up to the legislature and Newsom on whether it gets enacted.

Newsom had remained quiet on the task force as it worked but finally broke his silence this week by saying that the work was more about “dealing with the legacy of slavery” and “is about much more than cash payments.”

“Many of the recommendations put forward by the Task Force are critical action items we’ve already been hard at work addressing: breaking down barriers to vote, bolstering resources to address hate, enacting sweeping law enforcement and justice reforms to build trust and safety, strengthening economic mobility — all while investing billions to root out disparities and improve equity in housing, education, healthcare, and beyond. This work must continue,” Newsom said on Tuesday regarding the task force’s work.

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

A spokesperson for Newsom further clarified to the Washington Examiner that he had not declined to endorse the reparations payments and would evaluate the final report once it is completed.

“The governor looks forward to reviewing the final report — and all recommendations — when complete,” the spokesperson said.