On Wednesday, the state’s nonpartisan Legislative Analyst’s Office published its fiscal outlook for the 2026-2027 fiscal year — and it’s not pretty.
“Under our revenue and spending estimates, the Legislature faces an almost $18 billion budget problem in 2026-27,” the LAO reports. “This is about $5 billion larger than the budget problem anticipated by the administration in June, despite improvements in revenue.”
New revenues, they explain, are almost entirely consumed by mandated spending obligations like Proposition 98, which requires minimum funding levels for the state’s education system.
In addition, perennial problems like rising pension costs and health benefits for government retirees continue to erode finite resources.
The report also notes that California will be spending $850 million more in the Department of Corrections and Rehabilitation. Gov. Gavin Newsom’s alliance with the prison guards union has meant union dollars have propped up his political campaigns in exchange for his support of lucrative contracts for the union.
The LAO notes the state’s budget problem is projected to only get worse after next year.
“Starting in 2027-28, we estimate structural deficits to grow to about $35 billion annually due to spending growth continuing to outstrip revenue growth,” they note.
But California will be facing this in a worse position than in years past because “the state has used most of its budget resiliency tools to address prior deficits” already. This includes, “over $20 billion in borrowing, one-time and temporary spending solutions are exhausted, and budget reserves are at about half of their peak.”In the face of higher deficits, this is certainly a problem and means the termed-out Newsom is getting out just in time.
The LAO notes that even if the state saw significant levels of revenue growth, increased spending obligations are likely to outpace what’s reasonable to expect.
This is all the consequence of mismanagement and short-sightedness by the state’s Democratic supermajority, which has always preferred to spend whatever it can regardless of the outcomes or costs.
We know Newsom and the current crop of state leaders are competent only at shellgames and buck-passing, so we don’t expect much from them. But we certainly hope California voters elect better leaders at the next available opportunity. Preferably leaders with basic budgeting skills and appreciation for even rudimentary math.
