California looking at $2 billion deficit after lawmakers, Newsom slashed spending

SACRAMENTO, Calif. — California lawmakers and Gov. Gavin Newsom are looking at a $2 billion deficit ahead of the next fiscal year, according to a report released Wednesday by the nonpartisan Legislative Analyst’s Office.

It’s a dramatic improvement over last year’s budget picture, when the LAO initially projected a $68 billion shortfall. Lawmakers and Newsom took early action to trim spending, shrinking the deficit to about $47 billion for the current fiscal year.

The LAO described the budget picture as “roughly balanced.”

The turnaround is driven by a budget approved earlier this year, which cut $11 billion in spending and temporary revenue increases of $5.5 billion.

The report cautions state leaders that revenues are unlikely to keep up with recent spending growth, meaning Newsom and the Democratic-led legislature cannot afford to take on new commitments next year.

“While the budget picture is fair for the upcoming year, our outlook suggests that the state faces double‑digit operating deficits in the years to come,” the report reads.

State leaders closed a $47 billion deficit in June by dipping into the rainy day fund, trimming the prison budget and cutting state operations and workforce positions. The state also delayed implementation of minimum wage hikes for health care industry workers, which took effect in October of this year.

The budget forecast released Wednesday morning provides an early look at the state’s expected revenues during the current fiscal year, which ends June 30.

The numbers are subject to change depending on several economic factors including the stock market, which fuels capital gains taxes, and income tax filing among the state’s wealthiest earners.

Lawmakers and Gov. Gavin Newsom begin the six-month budget crafting process in January, when Newsom is constitutionally required to unveil his spending priorities for the following fiscal year.

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