‘Larger than anticipated’: California admits it botched deficit estimation by $5B

In an update to California’s fiscal 2026-2027 budget outlook on Wednesday, a new report released by the state’s nonpartisan Legislative Analyst’s Office (LAO) admitted it botched the deficit estimate by roughly $5 billion.

LAO’s legislative analyst Gabriel Petek, who leads the office of budget and policy watchers for the state legislature, gave an update on the state’s upcoming fiscal outlook and its predicted budget problems. Within the report, Petek called out the legislature for needing to address its “budget problems” for the last three years, before admitting the 2026-2027 issue is now “larger than anticipated.”

“Under our revenue and spending estimates, the Legislature faces an almost $18 billion budget problem in 2026-27. This is about $5 billion larger than the budget problem anticipated by the administration in June,” Petek wrote.

At the time of last year’s fiscal cycle, the administration anticipated the state would face an almost $13 billion budget problem for 2026-2027. However, with the new update, the figures were drastically off. For the last three fiscal cycles, California has had to deal with massive deficits, hitting a $27 billion deficit in 2023-2024, $55 billion in 2024-2025, and $15 billion in 2025-2026.

But the $18 billion deficit won’t be the only issue for the state, as Petek wrote that the administration now estimates California will continue to face structural deficits between $15 billion and $25 billion through 2028-2029.

During a press conference after the report’s release, Petek told reporters the state will face “a somewhat sizable deficit problem in 2026-27 (fiscal year) and worse problems after that,” according to the Sacramento Bee.

“This is happening in the context of an economy that’s not in recession, when the stock market has been going up and when revenues have been growing,” Petek added.

The state budget has also grown substantially under Democrat California Gov. Gavin Newsom’s administration, starting at $208 billion during the 2019-2020 fiscal period, peaking at $332 billion in 2024-2025, and slightly lowering to $322 billion in last year’s cycle.

Petek said the “critical” budget issue needs to be addressed through a “combination of ongoing solutions,” including “achievable spending reductions and/or revenue increases.”

“If our estimates hold, the Legislature will face a fourth consecutive year of budget problems—all during a period of overall revenue growth. As it stands—with larger forecasted deficits and many fewer tools available to address them—California’s budget is undeniably less prepared for downturns,” Petek wrote.

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