Bo Tefu | California Black Media
California may face substantial financial challenges in the 2026-2027 fiscal year, according to the latest analysis from the nonpartisan Legislative Analyst’s Office (LAO).
Despite a surge in state revenue this year, which brought in roughly $7 billion more than expected, the state could face an $18 billion budget shortfall, driven by rising spending commitments and continued reliance on volatile revenue sources, particularly high-income earners and major technology companies.
Legislative Analyst Gabe Petek noted that the state currently has little capacity for new spending.
“There are some particular uncertainties with the numbers, and things could shift in the coming months,” he said, emphasizing that the state’s revenue relies heavily on companies like NVIDIA, Apple, Google, and Meta. Analysts warned that a stock market downturn or other economic shocks could quickly impact California’s finances.
The report highlighted concerns over abnormal growth in spending, projecting future deficits of $20 billion to $30 billion. Several factors are contributing to the strain, including expansion of state programs, new costs from recently passed ballot propositions estimated at $8 billion, and potential federal policy changes that could affect state industries and tax revenue.
Gov. Gavin Newsom has proposed additional spending, including a boost to the Hollywood tax credit, preparation for possible litigation under the incoming federal administration, and potential disaster relief funding. Analysts said addressing these proposals would require cuts to other programs, tapping reserves, or creating new revenue sources.
Senate President pro Tempore Monique Limón (D-Santa Barbara) responded to the report on Nov. 19.
“California’s economy remains steady, despite some self-inflicted economic wounds from our own federal government, including harmful tariffs, attacks on our workforce, and shortsighted federal budget actions,” said Limón.
She added, while the LAO forecasts a shortfall, upcoming January and May forecasts will guide the Senate in crafting a responsible budget that protects education, childcare, safety net programs, health care, and public safety. Limón also thanked the LAO and stressed collaboration with the Assembly and the governor to develop the best possible budget for Californians.
Assembly Speaker Robert Rivas (D-Hollister) urged preserving core services, while Republican Vice Chair of the Senate Budget Committee Roger Niello (R-Fair Oaks) called for a review of inefficient programs. Former Senate Pro Tem Mike McGuire (D-Healdsburg) emphasized strategic investments to support families, and Assembly Republican Leader James Gallagher (R-Yuba City) warned of long-term fiscal consequences.
California currently has about $11 billion in savings, but analysts stressed that careful oversight is essential to maintain fiscal stability while meeting the state’s policy priorities.
