"It is all too common for California's budget to careen from year to year. Between 2022 and 2024 the state experienced a $175-billion from surplus to deficit. This time the crunch came because spending fueled by the post-pandemic economic recovery was not sustainable when revenue plummeted just a few years later - but the state budget has long gone through similar boom-and-bust cycles."
"Although California's leaders deserve their fair share of the blame for putting the state on this budgetary roller coaster, there are three underlying factors that make effective fiscal management in California uniquely challenging: an overreliance on the state's personal income tax; mandatory spending commitments that limit policymakers' discretion to address challenges; and a lack of accountability for the taxpayer money that is spent."
"First, California has an outdated tax system. In the 2025-26 budget, for example, the personal income tax made up nearly 70% of general fund revenue. By comparison, personal income taxes account for 38% of total state tax collections nationally. The Golden State's extreme reliance on the personal income tax means that when incomes are high in California, revenue collections are strong, but when the economy slows and incomes fall, state revenue weakens drastically too."
The 2026-27 state budget shows a relatively small deficit of about $3 billion, but projections warn of a potential $22 billion shortfall the following year. California's budget has swung dramatically in recent years, dropping from a $175-billion surplus to a deficit between 2022 and 2024. The primary drivers of volatility are extreme dependence on personal income tax revenue, the outsized role of capital gains in receipts, binding mandatory spending commitments that limit fiscal flexibility, and insufficient accountability for how taxpayer dollars are spent. These structural factors make sustaining balanced budgets difficult through economic cycles.
Read at Los Angeles Times
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