{"id":120823,"date":"2026-01-05T14:40:25","date_gmt":"2026-01-05T14:40:25","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ca\/120823\/"},"modified":"2026-01-05T14:40:25","modified_gmt":"2026-01-05T14:40:25","slug":"californias-budget-outlook-turns-grim-amid-deepening-deficit-despite-strong-revenues","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ca\/120823\/","title":{"rendered":"California’s budget outlook turns grim amid deepening deficit despite strong revenues"},"content":{"rendered":"

GOV. GAVIN NEWSOM\u00a0opened last year with a rosy forecast<\/a>: 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.<\/p>\n

But life turns on a dime.<\/p>\n

\"\"<\/a><\/p>\n

The January wildfires that ripped through Los Angeles forced the state to\u00a0spend billions in disaster aid<\/a>\u00a0and delay tax filings for LA residents. The cost of Medi-Cal, the state-run health insurance program for low-income residents,\u00a0ballooned to $6 billion more<\/a>\u00a0than anticipated. President Donald Trump\u2019s on-again-off-again tariff policies\u00a0rocked the stock market<\/a>, which California heavily relies on for tax revenue. And the state lodged a\u00a0flurry of lawsuits<\/a>\u00a0against the Trump administration over its threat to withhold federal funding for food assistance, disaster recovery and other grants.<\/p>\n

By May, Newsom no longer predicted a modest surplus, but a $12 billion deficit.\u00a0<\/p>\n

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\u2019s reserves and freezing Medi-Cal enrollment for undocumented immigrants to avoid deep cuts to other social services.<\/p>\n

While Democratic leaders largely blamed the Trump administration for California\u2019s 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.<\/p>\n

2026 outlook<\/p>\n

The deficit is projected to reach\u00a0nearly $18 billion<\/a>\u00a0in the coming 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\u2019s Office in its fiscal outlook last month.<\/p>\n

If the estimate holds, it\u2019ll be the fourth year in a row in Newsom\u2019s tenure that California faces a deficit despite revenue growth.<\/p>\n

Worse yet, the structural deficit could reach $35 billion annually by fiscal year 2027-28, the LAO said.\u00a0<\/p>\n

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\u2019s budget bill. The state also stands to lose more housing and homelessness funding from the federal government.<\/p>\n

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.<\/p>\n

This story originally appeared in CalMatters.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"GOV. GAVIN NEWSOM\u00a0opened last year with a rosy forecast: Buoyed by $17 billion more in revenue than previously…\n","protected":false},"author":2,"featured_media":120824,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[16476,7,9,8,6752,13939,5037,405,44715,1755,2803,25060,13438,13876,1695],"class_list":["post-120823","post","type-post","status-publish","format-standard","has-post-thumbnail","category-california","tag-budget-deficit","tag-california","tag-california-headlines","tag-california-news","tag-calmatters","tag-fiscal-policy","tag-gov-gavin-newsom","tag-government","tag-legislative-analysts-office","tag-medi-cal","tag-president-donald-trump","tag-public-spending","tag-state-budget","tag-taxation","tag-trump-administration"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/120823","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/comments?post=120823"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/120823\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media\/120824"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media?parent=120823"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/categories?post=120823"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/tags?post=120823"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}