After clearing up a $47 billion budget deficit earlier this year, California may not be out of trouble just yet.
According to a report from the nonpartisan Legislative Analyst’s Office, California has a $2 billion deficit heading into 2025.
The backstory: California had been staring down a $32 billion deficit in 2023 that stretched to $46.8 billion earlier this year due to rising inflation, high unemployment and slower growth in the tech industry.
- Gov. Gavin Newsom signed the 2024-2025 budget earlier this year to deal with the deficit while maintaining $22.2 billion in reserves.
The big picture: As the current outlook stands now, California will have a $2 billion deficit in the 2025-2026 budget despite substantial revenue increases.
- The LAO is projecting California’s tax collections to beat expectations by $7 billion, largely coming from a boost in the stock market. That would be a 20% increase from two years ago.
- While the stock market boom has provided a boost for California’s revenue, the LAO characterized California as being “on shaky ground.”
- Despite the projected deficit, the LAO said the budget is “roughly balanced,” considering the state’s budget is nearly $300 billion.
What we’re watching: The LAO said California faces “double-digit operating deficits in the years to come” despite the roughly balanced budget in 2025-2026.
- Because of the grim future, the LAO said Califonria does not have any capacity for new commitments.
What they’re saying: “California is the highest-tax state in the country, yet we are still facing multi-billion-dollar deficits well into the future,” said Asm. Republican Leader James Gallagher (R–Yuba City). “Democrats got us into this mess and I have no confidence in their ability to fix things without inflicting real pain on Californians.”
