From the Desk of Lydia Kanno, CFRW President
Submitted by Amy Russell, Modesto RWF
The 2025-2026 Budget California’s Fiscal Outlook

Forecast Multiyear State Budget Deficit Overview of the Legal Analyst Office - "Annual Fiscal Outlook"
In anticipation of the January 10 release of the Governor’s 2025-2026 proposed budget.
The Fiscal Outlook’s purpose is to project a baseline estimate of the budget before new policies or economic forecasts from the Governor. It identifies the budget’s size and direction and gives the legislature the fiscal context of 2025-2026.
Anticipated Deficits
2025-2026: 2 billion dollars
2026-202:7 20 billion dollars
2027-2028 27 billion dollars
2028-2029 29 billion dollars
current spending is at approximately 3.5%
*Remember that projected budgets are generally in deficit and corrected before the budget year.
Revenue is slightly up due to an uptake in the stock market, which increased upper taxpayer taxes. However, this is not an indicator of the economy improving.
State spending has accelerated beyond budget expectations but will not lead to a budgetary crisis for 2025-2026.
Future spending is expected at 6%, with revenue growth expected at 4%.
*Reasons for Expenses
In-Home Health Care
Programs expanded for the aging population = increased Medical spending
2023 health care minimum wage increase went into effect
State Economy
Under performance
Employment has not grown in 18 months
Government and healthcare employment has increased
Consumer spending is down
Business owner income is down
Federal Influences on the Economy
Expected increase in international trade – tariffs
Expected immigration enforcement will limit the labor market
Expected decreased funding for Medi-Care will lead to increased funding
from the state.
Monetary Policy
If interest rate cutting stops, it will negatively affect the economy.
The challenge is to reconcile outpacing spending trends with modest revenue growth.
2024 Spring Legislature and the Administration reduced expenditures through reduction, delays in payments, borrowing, shifting, and deferrals.

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