The nonpartisan Legislative Analyst's Office projected the shortfall in a report released Wednesday. It would mark the state's fourth deficit in a row, including last year's $12 billion shortfall. State spending continues to grow much faster than revenues, and new federal policy changes to health care and food assistance programs for low-income people will also increase costs for the state by $1.3 billion, the report says.
New federal policies on tariffs and ongoing high borrowing costs are leading to weaker corporate and sales tax trends and sluggish job growth, Legislative Analyst Gabriel Petek said at a briefing Wednesday.
"It's risky to assume that these trends will just continue unabated," Petek said. He added: "The budget condition right now has become relative weak."
He already had to roll back a signature health care program last year, dealing a major blow to state Democrats' priority of providing universal health care. The ambitious state-funded program started in 2024 to provide free health care to immigrants living in California regardless of their legal status. Those without legal status will no longer be eligible to enroll in the program starting next year, and some will have to start paying a premium in 2027.
More cuts to health care programs could come next year, as they are among the biggest expense in the state budget. The governor in past years had rejected calls to raise taxes to fix budget problems. Lawmakers have until June to pass a balanced budget.
California will likely see even a bigger deficit, up to $35 billion, the following year, the LAO report said.
"The state's structural deficit continues to grow because of the majority party's unstoppable spending problems," Republican state Sen. Roger Niello said in a statement.
Senate President pro Tempore Monique Limón, a Democrat, said lawmakers will work with the governor to craft "a responsible state budget that protects core programs, including education, childcare, safety net, health care, and public safety."
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