Early outlook suggests $2-billion California deficit, warns of federal changes under Trump

The California Legislative Analyst’s Office reported Wednesday that Gov. Gavin Newsom and lawmakers could face a relatively small $2-billion budget deficit next year, but warned that the outlook looks worse in the future and does not account for changes under the incoming Trump administration. The Newsom administration agreed with the main tenets of the preliminary fiscal report and said the state should “expect even more uncertainty than usual.” “Every California budget can be affected by forces outside of our control – whether it’s conflict overseas or an unpredictable stock market here at home,” said H.D. “But this year, we have the added uncertainty of dramatic changes in federal policy next year under a new administration, and how policies such as higher tariffs and changes in legal immigration could add additional costs that affect not only the California economy overall, but our bottom line as well.” The outlook released from the Legislature’s nonpartisan fiscal advisor offers lawmakers a preliminary analysis of the state budget picture through summer 2026. The balanced budget outlook through 2025-26 also relies on $7 billion from the state’s rainy day fund, which Newsom and lawmakers previously agreed upon, and continuing to limit corporate tax deductions and credits.