Gavin Newsom wants Americans to believe California’s budget problems are solved. Last week, he stood confidently before cameras and declared victory.
No deficit this year. No deficit next year. “Zero structural deficit through July 2028,” Newsom proclaimed while praising what he called proof that “fiscal discipline and progressive values go hand in hand.”
It sounded polished. It sounded presidential.
It also collapsed almost immediately.
Just five days later, California’s own nonpartisan budget analysts publicly contradicted him during a legislative hearing in Sacramento.
Rachel Ehlers of the Legislative Analyst’s Office delivered the kind of reality check Newsom carefully avoided during his press event.
“Despite these booming revenues, the state’s underlying fiscal condition, in our assessment, is not sound,” Ehlers told lawmakers. “We continue to have a structural deficit.”
Not past tense. Present tense.
And not just for one year.
Ehlers specifically warned the structural deficit remains under Newsom’s own proposals for both the 2026-27 and 2027-28 budget cycles.
That detail matters because Newsom’s public presentation gave the exact opposite impression. He framed the state as having fundamentally stabilized its finances through disciplined governance. In reality, California is balancing the books the same way struggling governments often do: by burning through reserves while postponing the underlying problem.
The LAO made that crystal clear.
“Really, the only way the budget proposal before you is balanced is by relying on reserves,” Ehlers explained.
According to the analysts, California is withdrawing roughly $20 billion through reserve drawdowns and suspended reserve deposit requirements just to make the budget appear balanced on paper.
That is not structural reform. It is emergency-fund accounting.
Even Newsom’s own Department of Finance quietly admitted during the same hearing that the governor’s revised budget merely cuts the structural deficit “by more than half.” In other words, the deficit still exists. The administration simply reduced part of it temporarily thanks to unusually strong tax revenues.
The remaining shortfall, according to the LAO, still sits around $16.9 billion.
What makes this even more remarkable is that California just experienced a massive revenue surge. State revenues reportedly came in roughly $30 billion higher than analysts predicted last year. California effectively hit the fiscal lottery through stock market gains and capital gains tax collections.
And Newsom still cannot sustainably balance the budget.
That is the core issue critics keep hammering: California does not primarily have a revenue problem. It has a spending problem.
The state continues committing enormous sums toward long-term progressive priorities even while warning signs flash throughout the broader budget.
The Assembly Budget Subcommittee agenda includes billions in climate-related spending, including $2.1 billion in climate bond funds for 2026-27. California also plans to spend bond money purchasing the former Golden Gate Fields racetrack property for redevelopment into a recreational project along San Francisco Bay.
Meanwhile, Medi-Cal expansion costs tied to illegal immigrants continue adding pressure to the state’s finances as enrollment and healthcare obligations rise.
Even left-leaning fiscal organizations that typically support Newsom’s policy agenda are warning the numbers remain unstable.
The California Budget & Policy Center acknowledged this week that structural deficits are still projected in future years “without additional action.”
That is political language for: the math still does not work.
The rainy day fund itself is shrinking rapidly under the current plan. According to the projections discussed at the hearing, California’s reserve cushion could drop from roughly $4.5 billion now to just $2.1 billion by 2027-28.
So while Newsom publicly markets the budget as a triumph of progressive governance, the underlying strategy appears far more fragile: spend heavily, rely on temporary revenue spikes, raid reserves when necessary, and hope future revenues continue bailing the system out.
That may work politically in California for a while longer. But if Newsom runs for president, the rest of the country will likely scrutinize those numbers much more closely than California’s media often does.
Because once you strip away the press conference language, the reality becomes difficult to hide:
California still has a structural deficit. Its own budget analysts just said so publicly.
