In summary California’s independent legislative analyst is warning that the state faces a nearly $18 billion deficit. It is “critical” for lawmakers to rein in spending and increase revenues long term, he said.
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California will face a nearly $18 billion budget deficit in the new fiscal year due to higher than expected spending, despite an economic boon largely driven by AI enthusiasm and strong revenue, the nonpartisan Legislative Analyst’s Office said Wednesday.
To make things worse, the $17.7 billion shortfall could balloon to an annual $35 billion by fiscal year 2027-28, as spending continues to grow and debts come due, the office warned in its annual fiscal outlook.
The gloomy forecast is a refreshed look at California’s financial future since June, when the state Department of Finance projected a $17.4 billion deficit for the upcoming fiscal year. The widened budget gap could undercut the legacy of Gov. Gavin Newsom, as he will likely be forced to make tough budget choices in his last year as governor.
It also means that for the fourth year in a row in his tenure, California is projected to have a deficit despite revenue growth.
“Today’s fiscal outlook underscores the challenging decisions ahead,” said Assembly Budget chair Jesse Gabriel of Encino. He said the committee “remains committed to crafting a responsible budget that prioritizes essential services, uplifts working families and protects our most vulnerable communities.”
But state Sen. Roger Niello of Roseville, the Republican vice chair of the Senate Budget Committee, attributed the structural deficit to Democrats’ “unstoppable spending problems.”
“The state must assess the effectiveness and sustainability of the programs that were created during the surplus and make necessary corrections,” he said in a statement.
Since June, the state has witnessed stronger-than-expected tax revenues, raking in $6 billion more than projected between July and October. But the revenue gains in the new fiscal year will “almost entirely” go toward K-12 schools, community colleges and state reserves by constitutional requirements, the office projected.
Additionally, the fiscal challenges California faces have also persisted, if not deepened, due to steep federal cuts to health care and housing and homelessness services, as well as growing stock market uncertainties driven in part by Trump’s drastic tariff shifts. It raises a major question as to if, and how, the state can absorb the costs of those federal cuts.
Spending outpacing revenues
The state is projected to spend $6 billion more than previously anticipated next year, including $1.3 billion implementing Trump’s budget bill, which is expected to kick millions of Californians off Medi-Cal, hike health care premiums and shift much of the cost for programs such as food stamps onto the state, the LAO said. The increase is largely because the state must now shoulder a larger share of the cost to continue to provide benefits, said Carolyn Chu, chief deputy analyst with LAO.
The added cost of the federal cuts to health care will grow to $5 billion annually by fiscal year 2029-30, the office projected.
California also stands to lose hundreds of millions of dollars in funding for permanent housing under new policies the Trump administration rolled out last week, just as some counties are starting to see drops in their homeless population. Homelessness agencies warn that thousands of Californians could be kicked out of their subsidized housing and back on the streets.
Democrats’ “unstoppable spending problems.”
UH DUH!
You voted for them. They then morphed into the RSP and you did not care.
It just gets worse.