Walters: California sees revenue uptick but not enough to erase chronic deficit

"However, the Legislature's fiscal advisor, Legislative Analyst Gabe Petek, threw cold water on those rosy scenarios Wednesday. He sees recent revenue gains as a spike driven by an artificial intelligence boomlet in Silicon Valley that's likely to implode, as have previous tech-related bubbles. With so much exuberance surrounding AI, it now appears time to take seriously the notion that the stock market has become overheated, Petek says in his annual fiscal overview, which predates the governor's introduction of a new budget."

"Instead of savoring a surge in revenues that would erase what officials are calling a structural deficit that is somewhere in the $10 billion-$20 billion range, officials should anticipate a larger gap, Petek says. Under our revenue and spending estimates, the Legislature faces an almost $18 billion budget problem in 202627, Petek says. This is about $5 billion larger than the budget problem anticipated by the administration in June, despite improvements in revenue."

California revenues, primarily from personal income taxes, exceeded expectations by several billion dollars in the four months after the new state budget. The revenue uptick raised hopes that chronic budget deficits might disappear if the surge continues. Legislative Analyst Gabe Petek calls the gains a spike driven by an artificial intelligence boomlet in Silicon Valley and warns the market may be overheated. Petek estimates an almost $18 billion budget problem in 2026-27 and projects structural deficits growing toward about $35 billion annually starting in 2027-28, noting constitutional school and reserve obligations and rising spending pressures.

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