Governor Gavin Newsom is set to leave California facing a staggering structural deficit estimated between $20 billion and $30 billion. State officials have openly admitted their confusion regarding how much general fund money is allocated for state employee salaries.
A recent report from the Office of Legislative Analysis paints a troubling picture that could impact Newsom’s presidential ambitions. Political analyst Thad Kousser remarked that Newsom “will be under tremendous scrutiny” as he prepares for his campaign.
The LAO, noted for its budget expertise over the last 75 years, indicated that California’s revenue has the potential to increase by $100 billion since Newsom began his term in 2019. However, the report emphasizes that maintaining current services is also driving costs up, leading to missed opportunities with surplus funds often directed toward discretionary expenses.
It’s alarming how the report reveals California’s officials struggle to account for how much taxpayer money is dedicated to employee compensation or the number of workers funded through the general fund.
Lawmakers expressed shock at these findings, criticizing the governor’s handling of state finances. “Governor Newsom’s massive spending disaster will probably be his greatest legacy: tens of billions in current account deficits despite increased revenues,” remarked state Sen. Roger Niello.
The LAO reported that approximately 70% of the $100 billion spending increase was directed toward sustaining existing services, including essential programs like Medi-Cal and education. The remaining 30% saw expansion in areas such as Medi-Cal coverage, funding for higher education, child care, police oversight, fire services, and health care for undocumented immigrants.
The LAO stated that if all discretionary expansions made since 2019 were eliminated, California could save about $15 billion—otherwise still only a fraction of the expected annual deficit.
Commenting on the report, MP David Tangipa expressed frustration, questioning how the state could be facing such severe deficits while lacking clarity on employee numbers and costs. He pointed out the unreliability of the available data and suggested this should raise concerns.
Newsom’s spokesperson, Tara Gallegos, contested the report’s conclusions about “new” spending under the administration, arguing that it primarily represents the cost of continuing existing programs. She reiterated the governor’s commitment to fiscal responsibility and maintaining a balanced budget.
H.D. Palmer from the state Department of Treasury defended Newsom’s strategy, suggesting that he aims to address the deficit not just this year but into the future.
With recent increases in state revenue linked to strong stock market and tech sector performances, California’s short-term outlook may appear brighter. However, the report warns that long-term fiscal challenges will persist without significant policy changes.
The LAO highlighted the uncertainty surrounding how much of the general fund goes to salaries and benefits, as well as the total number of covered full-time employees.
MP Tangipa criticized the state’s previous management of surpluses, questioning the lack of transparency regarding where the funds went, while expressing incredulity that a large entity like the state can’t effectively manage payroll.
Kousser, a political science professor, noted that while a balanced budget might pass by the June 15 deadline, it could be achieved through “gimmicks.” As Newsom prepares for a potential 2028 presidential run, ongoing budget issues might become a point of contention.
