Walters: Newsom's $18 billion budget gap has roots in pandemic aid ending

"Legislative Analyst Gabe Petek, the Legislature's independent fiscal advisor, estimates the state faces an $18 billion gap between projected spending and likely revenues next year and, if left unaddressed, the deficit will grow to $35 billion a year. Meanwhile, Petek says, the state has rung up $21.6 billion in off-the-books debt to cover deficits in recent fiscal years."

"Even without a recession, California's economy is, in Petek's words, sluggish. Jobs are shrinking, and at 5.6% of the labor force, California's unemployment rate remains the highest of any state. The recent history of papering over deficits with gimmicks and borrowed money is not an encouraging signal of a forthright approach. However, perhaps Newsom will opt to balance California's books before embarking on a near-certain presidential campaign."

"Throughout California, school districts, cities, counties and other units of local government are facing deficits rooted in the same dynamics that led to red ink in state finances immense injections of federal relief funds during the COVID-19 pandemic. It's been estimated that the feds pumped as much as $600 billion into California through state and local governments to counteract the pandemic's economic impacts, not counting many other billions that businesses and individuals received directly."

Gov. Gavin Newsom will unveil the state's 2026-27 budget draft next month, determining whether to confront a chronic multi-billion-dollar deficit or defer it. Legislative Analyst Gabe Petek estimates an $18 billion gap next year that could grow to $35 billion annually if unaddressed. The state has accumulated $21.6 billion in off-the-books debt and tapped emergency reserves to cover shortfalls. A possible national recession would worsen the imbalance. California's economy is sluggish, jobs are shrinking, and unemployment at 5.6% is the nation's highest. Local governments face similar deficits after massive federal COVID-era relief, estimated up to $600 billion into California, which provided a temporary revenue boost with few safeguards.

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