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The Deficit California Can't Tax Away
Brief
California's fiscal position has deteriorated because spending has far outpaced revenue: the Legislative Analyst’s Office found General Fund spending grew $102 billion (70%) from 2019–20 to the Governor’s proposed 2026–27 budget while revenue rose 60%, producing structural deficits of about $20–30 billion annually. The LAO attributes roughly 70% of that growth to sustaining baseline commitments (K–14 $37B, Medi‑Cal $25B, Developmental Services $8.4B, IHSS $8B), with employee compensation and ~18,000 new positions accounting for material state operations growth. Constitutional rules — chiefly Proposition 98 (which automatically routes ~40–50% of new GF revenue to K–14) and the State Appropriations Limit — mean tax hikes are partly trapped and would require far larger revenue increases (the LAO’s illustrative package includes extending Prop 30/55, +6% PIT, +6ppt corporate tax, and +1¢ sales tax). The LAO, led by Gabriel Petek, warns that reversing all expansions would save only about $15B, leaving hard, politically fraught choices ahead.
Why it matters
The LAO’s 22-page review found General Fund spending rose $102 billion (70%), from $146B in 2019–20 to $248B in the Governor’s proposed 2026–27 budget, while revenue grew 60%, creating persistent structural deficits of roughly $20–30 billion per year.
Key details
- About 70% of the $102B spending growth sustained existing services; largest line items were K–14 education (+$37B), Medi‑Cal (+$25B), Developmental Services (+$8.4B), IHSS (+$8B), child care (+$3.7B), and universities (+$3.2B); the state workforce jumped ~28% (from ~377,000 to ~482,000) with ~18,000 authorized positions added (~17%).
- Constitutional constraints make a revenue‑only fix impractical: Proposition 98 diverts ~40–50% of new General Fund dollars to K–14, the State Appropriations Limit (SAL) restricts room to raise taxes, reversing all post‑2019 expansions would save only ~$15B, and >40% of PIT comes from taxpayers with $1M+ in income.