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While Newsom’s budget predicts a small deficit this year, the Legislative Analyst’s Office (LAO) is on a very different page. Compared with Newsom’s $2.8 billion deficit, the LAO projects a whopping $18 billion.


Newsom’s 2026-27 Budget Outlook


BY FELIPE FUENTES S


acramento is bustling again since the start of the new year, the leg- islature is back in session, and


as of Friday, January 9, 2026, Governor Newsom released his budget proposal for the 2026-27 fiscal year. Newsom has proposed a budget of $348.9 billion with an anticipated $2.9 bil- lion deficit. Te governor plans to address this deficit by suspending a $2.8 billion top-up of the Special Fund for Economic Uncertainties (SFEU), similar to how he addressed the 2025-26 fiscal year’s deficit. Tis year, Newsom took a conservative approach to the budget and will monitor any changes in revenue and spending for


adjustment in the May Revision. Te budget proposal brings to atten-


tion current spending obligations and potential future deficits. Constitutionally required funding results in an $18 billion increase in expenditures, going toward education and our rainy-day funds. Addi- tionally, while this year’s proposed budget is balanced by the state constitution definition, it does so with a small deficit; it predicts larger troubles in the future. Te 2027-28 fiscal year is anticipated to result in a $22 billion deficit, with further shortfalls in the following two years. While Newsom’s budget predicts a small deficit this year, the Legislative


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Analyst’s Office (LAO) is on a very dif- ferent page. Compared with Newsom’s $2.8 billion deficit, the LAO projects a whopping $18 billion. Te differences between the two cal-


culations lie in how they account for the deficit. Te LAO includes analysis of the stock market and potential downturns, where the administration does not; the administration accounts for additional revenue streams outside of California’s top three tax categories, personal income, corporate, and sales and use, where the LAO only accounts for those three categories.


Tese differences result in very differ- 


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