deficit Archives - California Political Review

California’s budget outlook is grim. Here’s what you need to know

January 1, 2026 By Yue Stella Yu 3 Comments

In summary How did we get here? Where do we go from here? Spend one minute to catch up on everything you need to know about California’s budget health this year.

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Gov. Gavin Newsom opened this year with a rosy forecast: Buoyed by $17 billion more in revenue than previously planned, the state would have a modest surplus of $363 million for fiscal year 2025-26, he told reporters in January.

But life turns on a dime.

The January wildfires that ripped through Los Angeles forced the state to spend billions in disaster aid and delay tax filings for LA residents. The cost of Medi-Cal, the state-run health insurance program for low-income residents, ballooned to $6 billion more than anticipated. President Donald Trump’s on-again-off-again tariff policies rocked the stock market, which California heavily relies on for tax revenue. And the state lodged a flurry of lawsuits against the Trump administration over its threat to withhold federal funding for food assistance, disaster recovery and other grants.

By May, Newsom no longer predicted a modest surplus, but a $12 billion deficit.

To plug the hole, Newsom initially proposed drastic cuts to Medi-Cal. But the final budget he negotiated with state lawmakers depended largely on internal borrowing, dipping into the state’s reserves and freezing Medi-Cal enrollment for undocumented immigrants to avoid deep cuts to other social services.

While Democratic leaders largely blamed the Trump administration for California’s budget problem, the volatility of state revenues is not new. California highly depends on taxing the income and capital gains of high earners, whose fortune is often at the mercy of the stock market. In 2022, the state saw a nearly $100 billion surplus, followed by a projected $56 billion deficit over the next two years.

2026 outlook

The deficit is projected to reach nearly $18 billion next year, mostly because the state is expected to spend so much money that it would offset, if not eclipse, the strong tax revenues driven by an AI boom, said the nonpartisan Legislative Analyst’s Office in its fiscal outlook last month.

If the estimate holds, it’ll be the fourth year in a row in Newsom’s tenure that California faces a deficit despite revenue growth.

Worse yet, the structural deficit could reach $35 billion annually by fiscal year 2027-28, the LAO said.

California is facing $6 billion in extra spending next year, including at least $1.3 billion because the state must now pay more to cover Medi-Cal benefits under Trump’s budget bill. The state also stands to lose more housing and homelessness funding from the federal government.

How can legislators fix it? The options are stretching thin, as the state already took one-time measures to balance the books. The LAO notes that solving an ongoing structural budget problem requires either finding more sustainable revenue streams, or making serious cuts, or both.

Click here to read the full article in CalMatters

Filed Under: Trending News Tagged With: budget, California Politics, deficit, Gavin Newsom

Walters: California’s chronic deficit looms again as Newsom prepares his last state budget

October 18, 2025 By Dan Walters 1 Comment

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This story is part of California Voices, a commentary forum aiming to broaden our understanding of the state and spotlight Californians directly impacted by policy or its absence. Learn more here.

It seems like just yesterday that Gov. Gavin Newsom and state legislators enacted a state budget that papered over a $20 billion gap between income and outgo while blaming President Donald Trump for their fiscal dilemma.

It was, in fact, less than four months ago that Newsom signed the $321 billion, 2025-26 budget, saying, “As we confront Donald Trump’s economic sabotage, this budget agreement proves California won’t just hold the line — we’ll go even further. It’s balanced, it maintains substantial reserves, and it’s focused on supporting Californians — slashing red tape and catapulting housing and infrastructure development, preserving essential healthcare services, funds universal pre-K, and cuts taxes for veterans.”

Trump, however, had nothing to do with what state officials have described as a “structural deficit,” meaning that spending encased in current law outstrips revenue expectations. Rather, it stems from what officialdom later acknowledged as a $165 billion error in revenue projections in 2022 that fueled Newsom’s boast of having a $97.5 billion surplus. That, in turn, resulted in a sharp increase in spending.

When the surplus was exposed as a phantom, the state was stuck with a chronic income/outgo gap that persists. To cover it this year, Newsom and legislators tapped emergency reserves, borrowed money from the state treasury’s special funds, postponed some spending and engaged in some accounting gimmickry.

On Thursday, the Legislative Analyst Office pegged the budget’s total borrowing — on and off the books — at $21 billion.

Although this budget is less than 4 months old, the annual budgetary cycle will soon begin anew.

The Legislature’s budget analyst, Gabe Petek, will issue his annual overview of the state’s finances in a few weeks, followed in December by the Department of Finance’s finalization of parameters and Newsom’s decisions on how to spend what money he assumes the state will have, and in January by the introduction of the first draft of a 2026-27 plan.

It will be Newsom’s final budget before his second and final term as governor ends 14 months hence and he very likely embarks on a campaign for the White House.

All indications point to another year of coping with a multibillion-dollar deficit. Major revenues have been running a few billion dollars ahead of estimates in the current budget, but not nearly enough to markedly shrink the structural deficit.

Click here to read the full article in CalMatters

Filed Under: Top Stories Tagged With: California Politics, Dan Walters, deficit

California faces an additional budget deficit of $12 billion

May 15, 2025 By Taryn Luna 4 Comments

The new shortfall comes on top of $27.3 billion in fiscal remedies already planned for 2025-26.

California is facing an additional $12-billion state budget shortfall next year, a deficit largely caused by overspending that Gov. Gavin Newsom said was made worse by President Trump’s federal tariff policy.

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“California is under assault,” Newsom said. “The United States of America, in many respects, is under assault because we have a president that’s been reckless.”

Newsom unveiled the forecast during a presentation Wednesday of his $321.9-billion revised spending plan that proposes walking back free healthcare for low-income undocumented immigrants, eliminating Medi-Cal benefits for expensive weight loss treatments and cutting back overtime hours for in-home supportive service workers, among dozens of other trims.

The new deficit comes in addition to $27.3 billion in fiscal remedies, including $11.2 billion in cuts and a $7.1-billion withdrawal from the state’s rainy day fund, that lawmakers and the governor already agreed to make in 2025-26.

The overall shortfall marks the third year in a row that Newsom and lawmakers have been forced to reduce funding for state programs after dedicating more money than California has available to spend.

Though Newsom said his plan still provides significant funding for Californians in need of government support, his proposed cuts received fierce pushback from unions and other advocacy groups often allied with Democrats.

“While California leads the fight against Trump’s extremist attacks on our neighbors, our co-workers and our families, we must stand strong behind our values here at home,” said David Huerta, president of SEIU California, in a statement. “Instead, the governor’s proposed budget reads more like a CEO wishlist — sticking it to the working poor to protect tax breaks for the rich, and continuing to hollow out good, middle-class jobs.”

New budget

cuts proposed

Among the new cuts Newsom put on the table Wednesday is a call to cut back on his signature policy to provide free healthcare coverage to income-eligible undocumented immigrants.

Newsom is proposing freezing new Medi-Cal enrollment for undocumented adult immigrants as of Jan. 1 and requiring those over 18 to pay $100 monthly premiums to receive healthcare coverage through Medi-Cal.

The cost share will reduce the financial burden on the state and could lower the total number of people enrolled in the healthcare program if some immigrants cannot afford the new premiums. Freezing enrollment may prevent the price tag of the program from continuing to balloon after more people signed up for coverage than the state anticipated.

The changes offer minor savings next year, which grow to $5.4 billion in 2028-29. The finance department said the cap is expected to result in a decline of 18,000 patients per month as people exceed income limits or drop out for other reasons and no new applicants are accepted.

Newsom’s budget proposes other cuts to healthcare for immigrants, including saving $333.3 million in 2025-26 by eliminating long-term care benefits for undocumented immigrants and others who are not recognized as citizens under federal law.

The California Immigrant Policy Center said the organization was “outraged by the cuts” to Medi-Cal and other funding reductions.

“At a time when Trump and House Republicans are pushing to slash healthcare access and safety net programs while extending tax cuts for the wealthy, California must lead by protecting, not weakening, support for vulnerable communities,” said Masih Fouladi, executive director of CIPC, in a statement.

The governor is following the federal government’s lead and cutting $85 million in benefits for Ozempic and other popular weight loss medications from all Medi-Cal coverage plans.

Newsom also wants to cap overtime hours for in-home support service workers, according to his budget, to save another $707.5 million next year.

The governor’s budget includes a controversial proposal to grab $1.3 billion in funding in 2025-26 from Proposition 35, a measure voters approved in November that dedicated the revenue from a tax on managed care organizations to primarily pay for increases to Medi-Cal provider rates.

The decision drew pushback from a coalition of doctors, clinics, hospitals and other healthcare groups that supported the proposition, which nearly 68% of voters backed. They said the governor’s move “raises serious legal concerns and disregards the will of California voters.”

Planned Parenthood Affiliates of California said the proposed changes in Newsom’s budget would slash the organization’s annual budget in the state by a third.

Click here to read the full article in the LA Times

Filed Under: Top Stories Tagged With: deficit, Gavin Newsom, Illegal Immigrants

How Many California Cities are Running Huge Budget Deficits?

May 14, 2025 By Katy Grimes 3 Comments

With the state budget deficit, are California’s cities also staring down the barrel of a loaded gun?

How many California cities are running huge budget deficits, yet refuse to cut out the real cancer – the bureaucratic and administrative bloat? California’s colleges and universities too – they are cutting sports and academic programs, but not the high-salaried, middle management administrative bloat.

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The California state budget has a $10 – $70 billion deficit. And that does not include the unfunded public employee pension debt, totaling over $1.5 trillion. Last May 2024, the Globe reported that The Legislative Analyst’s Office updated spending plan in Gov. Newsom’s revised budget showed a $55 billion budget deficit as opposed to the $27.6 billion figure Newsom presented. The $70 billion figure is from the LAO last year’s projections. This year, Gov. Newsom claimed the budget was balanced, but that’s only because he is running for president.

Politico kindly reported this week that Gov. Gavin Newsom is likely staring down a $10 billion budget hole that could deepen to $20 billion or more. With pending federal budget and DOGE cuts coming, that number is going to climb exponentially because Gov. Newsom and Democrats rely heavily on federal funding in their budget.

As the Globe recently reported, California Gov. Gavin Newsom is bragging that California owns the 4th largest economy in the world. But he leaves out some important details, like poverty, homelessness, crime, taxes, gas prices, housing costs, illegal aliens, welfare recipients, and a $1.5+ trillion total budget deficit, just for starters. And, California is the 1st most regulated state in the U.S. And, California has 15.6% of the nation’s unemployed – a third higher than the state’s overall share of US population.

What Dan Walters reported this week should be repeated in every daily news article for the rest of the year:

“…since Newsom became governor in 2019, state spending has increased, on average, by 9% a year while annual revenues have grown by just 6%. The difference between those two numbers constitutes what budget mavens call a ‘structural deficit,’ meaning that spending baked into law far exceeds what the current revenue system can generate.

The underlying discrepancy between income and outgo is important to remember, because when Newsom unveils his revised budget he’s likely to cite the Los Angeles wildfires and Trump’s tariffs as factors in the budget’s gap.

Both of those events are likely to increase the deficit, but they didn’t cause it. The deficit exists because Newsom and the Legislature have chronically spent more than the revenue system produces, even though Californians have one of the nation’s highest state and local tax burdens, relative to the state’s economy.”

As the Globe frequently reports, It is important to remember that when Gov. Jerry Brown was (re)elected in 2011, the state budget was $98 billion. The state’s population was a little over 38 million. Brown doubled the budget to $199.3 billion in 8 years – with no measurable increase in population. Gov. Gavin Newsom inherited Brown’s $199.3 billion budget, and has grown it to over $330 billion in 6 years – while losing population.

So are California’s cities also staring down the barrel of a loaded gun?

The City of Los Angeles has a $1 billion+ city budget deficit,

San Diego is over $300 million in debt.

The City of Sacramento has a $66 million budget deficit.

San Francisco has a $876 million budget deficit.

San Jose projected a $60 million budget shortfall, then ratcheted it down to $35.6 million, but is projecting a $52.9 million deficit for 2026.

The City of Fresno is facing a budget deficit of over $20 million in the 2026 budget. In 2025, the city expects to have an end-of-year surplus of nearly $15 million, but according to City Manager Georgeanne White, without federal American Rescue Plan Act dollars, 2025 could end up in the red, yourcentralvalley.com reports.

Oakland is facing a $268 million deficit over the next two fiscal years.

Berkeley has a $28M budget deficit.

What will cities do to address their budget deficits?

Sacramento is proposing cutting Sacramento Police Department employees, and raising parking fees. How innovative. LA Mayor Karen Bass announced several cuts and rollbacks in the city budget, including layoffs of 1,600 employees and the elimination of 1,000 positions. Bass also agreed to a reduced salary. San Diego will make cuts, including to police, homeless services, libraries, and other essential services. San Diego city lawmakers and employees, however, aren’t getting pay cuts. While Los Angeles and San Francisco are making a lot of sacrifices to cut back on their deficits, including SF Mayor Daniel Lurie not even taking a salary, San Diego isn’t taking those needed drastic steps, the Globe reported.

Smaller California cities work very hard to stay in the black, avoiding deficit spending, but Mayors report that unfunded mandates coming from the Legislature and Governor make it very difficult. One Mayor told the Globe, “these unfunded mandates are killing us.”

“The Governor’s mandating that we build houses even though we don’t have the resources, i.e. Public Safety and or water to cover the offset of new housing… he doesn’t care. He’s mandating it,” the Mayor said.

Click here to read the full article in the California Globe

Filed Under: Top Stories Tagged With: Budget Deficit, California Politics, deficit