California’s Budget Outlook for 2026-2027
A recent report from California’s nonpartisan Legislative Analysis Office (LAO), released on Wednesday, revealed that the state’s budget deficit for the fiscal year 2026-2027 is projected to be about $5 billion lower than previously estimated.
LAO Legislative Analyst Gabriel Petek, who leads the office overseeing budget policy, discussed the state’s financial outlook and highlighted ongoing budget issues. He urged Congress to tackle the “budget problems” that have persisted over the last three years. However, he noted that the deficit for 2026-2027 has turned out to be “bigger than expected.”
Petek mentioned, “Based on our revenue and spending estimates, Congress will be facing a budget challenge of nearly $18 billion in 2026-27, which is about $5 billion more than what the administration anticipated in June.”
Initially, the state administration had expected a budget challenge of around $13 billion for the upcoming year. But, with the revised estimates, it seems the figures have shifted significantly. Looking back at the previous fiscal cycles, California dealt with substantial budget deficits, including $27 billion in 2023-2024, $55 billion in 2024-2025, and $15 billion in 2025-2026.
However, the $18 billion deficit is not the only concern. Petek highlighted that California is projected to experience a structural deficit ranging from $15 billion to $25 billion between 2028 and 2029.
During a press conference following the report’s release, Petek informed reporters that the state is facing “a deficit problem of some size for the fiscal year 2026-27, with an even more serious situation looming afterward.” He noted, “This all occurs in a context where the economy is not in recession, the stock market is on the rise, and earnings are increasing.”
California’s budget has seen substantial growth under Democratic Governor Gavin Newsom, starting at $208 billion, peaking at $332 billion during the 2019-2020 fiscal period, and then slightly declining to $322 billion for the 2024-2025 cycle.
Petek emphasized that the “significant” budget issues need to be addressed through a “continuous combination of solutions,” which may include “achievable spending cuts and/or revenue increases.” He expressed concern about the projected larger deficit coupled with fewer available resources to manage it, implying that California’s budget might not be well-equipped to handle a potential recession.
