{"id":72976,"date":"2025-11-28T06:00:14","date_gmt":"2025-11-28T06:00:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ca\/72976\/"},"modified":"2025-11-28T06:00:14","modified_gmt":"2025-11-28T06:00:14","slug":"california-tax-revenue-growing-from-ai-boomlet-but-will-it-last","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ca\/72976\/","title":{"rendered":"California tax revenue growing from AI boomlet, but will it last?"},"content":{"rendered":"

\"A<\/a>Gov. Gavin Newsom addresses the media during a news conference unveiling his revised 2025-26 budget proposal at the Capitol Annex Swing Space in Sacramento on May 14, 2025. (Photo by Fred Greaves\/CalMatters)<\/p>\n

This column\u00a0was originally published by CalMatters.\u00a0Sign up<\/a>\u00a0for their newsletters.<\/p>\n

In the four months since the Legislature and Gov. Gavin Newsom enacted a new state budget, revenues \u2014 primarily from personal income taxes \u2014 have outstripped expectations by several billion dollars.<\/p>\n

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

The uptick has buoyed hopes within the Capitol that California\u2019s\u00a0chronic budget deficits<\/a>\u00a0might disappear if the revenue surge continues. That would spare Newsom and legislators from having to dream up more\u00a0accounting gimmicks<\/a>, deferrals and loans to cover the gap between income and outgo.<\/p>\n

However, the Legislature\u2019s fiscal advisor, Legislative Analyst Gabe Petek, threw cold water on those rosy scenarios last week. He sees recent revenue gains as a spike driven by an artificial intelligence boomlet in Silicon Valley that\u2019s likely to implode, as have previous tech-related bubbles.<\/p>\n

\u201cWith so much exuberance surrounding AI, it now appears time to take seriously the notion that the stock market has become overheated,\u201d Petek says in his\u00a0annual fiscal overview<\/a>, which predates the governor\u2019s introduction of a new budget. \u201cHistory suggests that the stock market is prone to overreact to major technological advances, even if the technology itself turns out to be revolutionary.\u201d<\/p>\n

Instead of savoring a surge in revenues that would erase what officials are calling a \u201cstructural deficit\u201d that is somewhere in the $10-20 billion range, officials should anticipate a larger gap, Petek says.<\/p>\n

\u201cUnder our revenue and spending estimates, the Legislature faces an almost $18\u00a0billion budget problem in 2026\u201127,\u201d Petek says. \u201cThis is about $5\u00a0billion larger than the budget problem anticipated by the administration in June,\u00a0despite improvements in revenue.\u201d<\/p>\n

The analyst notes that California\u2019s constitution requires the state put money toward public schools and reserves, which will \u201calmost entirely offset revenue gains,\u201d and toward other spending that\u2019s running about $6 billion over the current budget\u2019s estimates.<\/p>\n

\u201cStarting in 2027\u201128, we estimate structural deficits to grow to about $35\u00a0billion annually due to spending growth continuing to outstrip revenue growth,\u201d Petek says.<\/p>\n

It should be noted, not for the first time, that California\u2019s chronic deficit is not caused by an economic downturn, which has occurred in the past, but rather by an enormous error by Newsom and his budget advisors three years ago.<\/p>\n

In 2022, they projected a permanent increase in revenues, based on a one-time spike, leading Newsom to declare a $97.5 billion budget surplus, boasting \u201cNo other state in American history has ever experienced a surplus as large as this.\u201d<\/p>\n

Confident that the money would be there, Newsom and lawmakers fattened up the spending side of the budget, only to learn that the supposed surplus was based on what was later acknowledged to be a\u00a0$165 billion overstatement of revenues over four years<\/a>.<\/p>\n

Ever since, revenues have failed to cover the elevated spending, and Newsom and lawmakers have covered the gaps with the aforementioned gimmicks. They have incurred more than $20 billion in internal loans from special funds that must be repaid. They also have drawn down reserves that were supposed to cover genuine emergencies, not political shortsightedness.<\/p>\n

Newsom and his staff are now in the final throes of drafting an initial 2026-27 budget that will be his last as governor and will be unveiled in January. The question is whether he will face the fiscal music and finally write a truly balanced budget or employ more short-term fixes and dump the problem on his successor.<\/p>\n

That would mean either making real cuts in spending or raising taxes, both of which would take some courage. The past has not been encouraging.<\/p>\n

CalMatters<\/a>\u00a0is a nonpartisan and nonprofit news organization bringing Californians stories that probe, explain and explore solutions to quality of life issues while holding our leaders accountable.<\/p>\n

Want to submit a letter to the editor, guest column or\u00a0opinion\u00a0piece? Find our guidelines and submission form\u00a0here<\/a>.<\/p>\n

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