California facing projected $18B deficit as Newsom heads into his last year as governor

"California will face a projected $18 billion deficit next year, setting up a challenge for Gov. Gavin Newsom to safeguard some of the progressive policies that have defined his tenure as he considers a presidential run. 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. 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."

"Newsom will release his own budget estimates in January as he lays out a spending proposal for the next fiscal year; sometimes his office disagrees with the LAO and paints a rosier financial picture. His second and final term as governor ends in January 2027, and this year's budget will be his last say on how money is spent in the nation's most populous state. Governors in California are limited to two terms."

"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. The only bright spot has come almost exclusively from strong investments in artificial intelligence, allowing the state to collect billions more in personal income tax than projected. But most of those revenue gains must go toward schools and paying down state debt."

California faces a projected $18 billion budget deficit next year, marking a fourth consecutive shortfall. State spending is growing much faster than revenues amid weaker corporate and sales tax trends and sluggish job growth driven by new federal tariff policies and high borrowing costs. New federal changes to health care and food assistance programs for low-income people will raise state costs by $1.3 billion. Strong investments in artificial intelligence have produced significant personal income tax gains, but most of those revenues are earmarked for schools and debt repayment and may not be sustainable. Governor Gavin Newsom will release budget estimates in January during his final term and must balance priorities accordingly.

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