California Faces $18B Budget Deficit and $35B Structural Shortfall, LAO Says

California is projected to face an $18 billion budget deficit in the coming fiscal year, according to a new report from the Legislative Analyst’s Office (LAO). The analysis warns that California could see $35 billion deficits annually through the end of the decade, making the budget one of the top issues when lawmakers return to Sacramento from their winter recess in January.

The LAO said revenues are higher than expected but emphasized that the state is still spending more than it takes in. Analyst Gabe Petek noted that “leaders from both sides of the aisle acknowledge the state’s budget situation is not in good shape.” He added, “both sides stress difficult decisions lie ahead all as the blame game has already begun.” Petek recommended that state leaders either reduce the level of ongoing spending or increase ongoing revenues.

The LAO report also reiterates why the budget matters, stating that it determines how much the state allocates to key programs including education, fire prevention, and water storage.

Lawmakers are set to begin hearings on how to address the shortfall when they reconvene in January. Around that time, Gov. Gavin Newsom will release his preliminary spending plan for the upcoming year.

Assembly Speaker Robert Rivas attributed part of the strain to the policies of the Trump administration. “Trump’s cuts and tariffs are squeezing California’s budget even harder,” Rivas said. “…We must invest limited dollars on sustainable, vital essentials — health care, food aid, housing, and education.”

GOP State Senator Tony Strickland rejected that view. “Only in politics can you blame someone else for a job that you don’t do well,” he said. “California doesn’t have a revenue problem. It’s a wasteful spending problem. We keep spending more than we take in. That’s just a basic math issue.”

Deputy Director H.D. Palmer of the California Department of Finance, speaking for the Newsom administration, said the state continues to face “federal uncertainty, market volatility, and continued growth in both cost and caseload for major state programs.” Palmer added, “This year’s budget gap was closed through a range of solutions— including difficult but necessary actions to reduce ongoing expenditure growth and maintain budget resilience. In the coming weeks, the Governor will be finalizing his decisions on how he’ll propose to meet the challenges in the coming year.”

BY YEOL JANG [jang.yeol@koreadaily.com]