California’s state budget used to be something ordinary residents could actually follow. Not anymore.
There was a time when putting together California’s annual spending plan was a relatively clear process. The governor and lawmakers would agree on how much tax revenue the state expected to bring in, then argue over how to divide it up. Disagreements were common, especially in years when Republicans held enough seats in the Legislature to influence the outcome. But for the most part, voters could look at news coverage and get a reasonable sense of where their tax dollars were going.
That clarity has eroded over the years, and few could say exactly when the budget process turned into the tangle of accounting maneuvers, borrowed funds and projected revenue that never quite materializes that it is today. But under Gov. Gavin Newsom, the complexity has grown dramatically — a byproduct, critics argue, of one-party dominance in Sacramento that leaves little room for outside accountability.
Newsom and the Legislature have repeatedly approved spending that outpaces actual revenue, then closed the resulting gaps with what they call budget “solutions,” later touting the final product as balanced.
The newest example is the 2026-27 state budget, signed into law in June and pegged at $351.7 billion in state funds, plus another $188 billion in federal money. The plan is so complicated that even the Legislature’s own nonpartisan fiscal watchdog, Legislative Analyst Gabe Petek, admits his team had difficulty making full sense of it.
In a recent report breaking down the spending plan, Petek wrote that this year’s budget doesn’t fit the usual analytical framework. In most years, his office can clearly identify the size of a budget shortfall or surplus and explain how lawmakers addressed it. This year, he said, that straightforward explanation simply doesn’t apply.
Petek pointed to what appear to be contradictory moves within the budget — spending levels that exceed near-record state revenues, reliance on reserves and borrowed funds to cover the difference, and yet also setting aside additional money in a newly created “surplus holding account.” Even though the budget contains some familiar tools for balancing the books, Petek said the overall picture is difficult to summarize in simple terms.
To make sense of it, his office broke its review into two parts: one examining spending decisions, the other looking at how the state closed the gap between what it’s taking in and what it’s spending.
According to Petek’s analysis, the budget relies on roughly $14 billion in budget maneuvers to close that gap, mostly by drawing down reserve funds and borrowing. Part of that borrowing comes from delaying $3.9 billion in constitutionally required funding owed to local school districts — money the state will eventually have to repay.
But even that $14 billion falls short of the $18.5 billion operating deficit the Newsom administration itself projects for the fiscal year, meaning the state is continuing the pattern of deficit spending that has defined every budget of Newsom’s second term.
That pattern traces back to 2022, when Newsom announced the state had a $97.5 billion surplus, fueled by a temporary surge in income tax collections. That announcement triggered a wave of new spending commitments. The surplus, however, proved illusory, and the administration later admitted it had overestimated state revenues by a combined $165 billion over a four-year period.
Petek’s report notes that the state has never kept a running, cumulative tally of exactly how much it owes from years of covering these operating shortfalls. His office estimates that “wall of debt” now stands at roughly $29.2 billion, which includes the $3.9 billion currently being withheld from schools.
Some observers have suggested — with a fair amount of skepticism — that Newsom’s approach to managing repeated deficits and mounting IOUs might be useful preparation should he seek the presidency, given that the federal government has its own chronic deficits and a national debt now approaching $40 trillion.
Original source: CalMatters
