Overview
- The Legislative Analyst’s Office projects an almost $18 billion shortfall for 2026–27, about $5 billion worse than the administration’s June estimate.
- Spending is outpacing revenue, with roughly $6 billion in higher-than-expected program costs and an added $1.3 billion from recent federal changes to Medi-Cal and CalFresh.
- Recent revenue gains stem largely from high-earner income tied to an AI-fueled stock surge, which the LAO warns could be overheated and unreliable.
- Constitutional rules will direct most new revenue to K‑12 schools, community colleges, and reserves, providing education a short-term boost but limiting funds for other priorities.
- After years of one-time fixes and reserve drawdowns, the LAO urges ongoing spending cuts or revenue increases, noting structural deficits could reach about $35 billion by 2027–28 as Gov. Gavin Newsom prepares his January budget.