Gavin Newsom Forecasts Rosy CA Budget, Banks on AI Boom

"Gov. Gavin Newsom's office on Friday forecast a "modest shortfall" of $2.9 billion for the upcoming fiscal year, down sharply from previous estimates in a nearly $349 billion budget proposal that relies heavily on continued windfalls from tech and AI stocks. The governor's 2026-27 budget proposal projects $9 billion more in revenue than anticipated, banking on the AI-driven economy to last. It's significantly rosier than the grim outlook by the nonpartisan Legislative Analyst's Office, which in November projected an $18 billion deficit."

""A downturn in the market is one of the top risks," said state Department of Finance Director Joe Stephenshaw. The projected deficit could balloon to $22 billion in fiscal year 2027-28, a problem the governor will address in an updated fiscal forecast in May, Stephenshaw said. Newsom's proposal is the opening salvo in months of budget negotiations that begin in earnest in June."

"But Newsom's proposal for next year calls for spending nearly $30 billion more than this year. It includes $248.3 billion in the general fund, the primary account for state operations, up by $18 billion. The spike is primarily in education and health care, partly driven by the need to implement federal cuts to the Medi-Cal program and constitutional requirements to deposit portions of higher-than-expected revenue into education and state reserves."

California forecasts a $2.9 billion shortfall for the upcoming fiscal year within a nearly $349 billion budget that depends heavily on windfalls from tech and AI stocks. The 2026-27 budget projects $9 billion more revenue than anticipated by banking on an AI-driven economy, while the nonpartisan Legislative Analyst's Office had projected an $18 billion deficit in November. Finance Director Joe Stephenshaw warned a market downturn is a major risk and said the deficit could reach $22 billion in 2027-28, with an updated forecast due in May. The proposal raises spending nearly $30 billion, increases the general fund to $248.3 billion, and concentrates growth in education and health care amid federal Medi-Cal cuts and constitutional reserve requirements, prompting consideration of larger rainy day fund deposits.

Read at San Jose Inside