By Antonio Ray Harvey, California Black Media
Following the non-partisan Legislative Analyst’s Office (LAO) announcement last week that California faces a $2 Billion deficit next year, legislative leaders are urging restraint and committing to focus on issues important to working families.
“The Assembly Budget Committee looks forward to crafting a budget that protects core programs, prioritizes accountability, safeguards California values, and focuses on the most important issues facing working families,” said Assemblymember Jesse Gabriel (D-Encino), Chair of the Assembly Budget Committee,
On Nov. 20, the LAO released its “The 2025-26 Budget: California’s Fiscal Outlook” forecasting a budget deficit that pales in comparison to last year’s projection, which was estimated at more than $50 billion.
This fiscal budget for July 1, 2025, is “roughly balanced” with an estimated $2 billion shortfall, analysts from LAO shared during a virtual news conference that was held the same day the report was released.
LAO analyst Gabe Petek, who led the discussion, said the Legislature has taken steps to put the state on solid financial footing for the next fiscal year by making “proactive decisions.” However, the report warns that spending in the future will be “restrained.”
“We describe the state’s budget condition as being in fair shape, Petek said.
The LAO operates as the “eyes and ears” of the Legislature to ensure that the executive branch implements legislative policy in a cost-efficient and effective manner.
State government took several actions to address last year’s budget shortfall, including making spending related resolutions amounting to about $11 billion. The state also raised about $15 billion in all other solutions, including $5.5 billion in temporary revenue increases and a $7 billion withdrawal from the state’s rainy-day fund, the report stated.
The current fiscal outlook report provides the Legislature with the LAO’s independent estimates and analysis of the state’s budget condition to assist legislators as they prepare for the 2025-2026 budget process.
“Although revenues are running ahead of budget act assumptions, those improvements are roughly offset by spending increases across the budget. On net, our assessment finds the state has a small deficit of $2 billion,” the report stated.
The LAO insists that while the budget is moderately balanced in the upcoming fiscal year, California still faces annual operating shortfalls starting in 2026-2027 — increasing from about $20 billion to about $30 billion. Lawmakers will likely have to confront the budget problems with a mixture of reduced spending, increased taxes, shifting costs, or using more reserves.
The LAO warned that its Fiscal Outlooks are always “highly uncertain.” Its main concern is projecting revenue, which could be up or down, the report stated.
According to the Fiscal Outlook report, the state faces some key uncertainties in the spending estimates. How Much healthcare minimum wage ultimately increases costs, the rapid growth of the senior Medi-Cal population, and the implementation of reductions among state departments that produce cost-saving measures have yet to be determined by the LAO.
“The extent of those savings is still unknown,” the report stated.
Assembly Republican Minority Leader James Gallagher (R-Yuba City) weighed in on the LAO’s prognosis of the state budget.
“California is the highest-tax state in the country, yet we are still facing multi-billion-dollar deficits well into the future,” Gallagher stated. “Democrats got us into this mess, and I have no confidence in their ability to fix things without inflicting real pain on Californians.”
Senate President pro Tempore Mike McGuire (D-North Coast) issued the following statement about the LAO Fiscal Outlook: “Through last year’s action, we’ve helped stabilize this year’s budget. And it goes without saying, there’s a lot more work to come. We need to continue to buckle down on spending and be incredibly strategic on any future fiscal expansion.”
The Legislature’s Democratic leadership plans to convene Assemblymembers in the new year to discuss the needs of working-class Californians and explore budget priorities.
The meetings will take place immediately after the Governor delivers his budget priorities in early January. Assembly Speaker Robert Rivas (D-Hollister) is also gearing up to prepare for the policies of Donald Trump when he assumes the presidency in January.
“We need to show restraint with this year’s budget, because California must be prepared for any challenges, including ones from Washington,” Rivas stated. “It’s not a moment for expanding programs, but for protecting and preserving services that truly benefit all Californians.”
