California is heading into 2026 with a projected $18 billion budget deficit, a shortfall nearly $5 billion larger than previous estimates, according to a new assessment from the state’s nonpartisan Legislative Analyst’s Office (LAO). The report signals a challenging fiscal year ahead as lawmakers prepare to address widening financial gaps across the nation’s most populous state.
State Lawmakers Brace for Budget Cuts and Tough Choices
As the shortfall expands, legislators from both parties agree on one thing: serious action is unavoidable.
“The Legislature has to pass a budget that is in balance,” said H.D. Palmer, spokesperson for the California Department of Finance.
But consensus ends there. Lawmakers differ sharply on what caused the deficit — and what must be protected as cuts become likely.
Republicans Blame Overspending — Democrats Cite Federal Policy Shifts
Assemblymember David Tangipa, a Fresno Republican, pointed to Sacramento’s spending trends as the core issue.
“If other states have surpluses and we have a deficit, that’s a spending issue — that’s Sacramento’s fault,” Tangipa said.
Democrats agree that some waste should be examined but argue that the deficit cannot be separated from national economic conditions and recent federal policy changes under the Trump administration.
“There’s been wasteful spending — that’s always been a problem,” said Assemblymember Jasmeet Bains, a Democrat from Delano. “But a deficit forces Sacramento to take it seriously.”
Republicans also argue they have been excluded from major negotiations.
“Without any say from the minority Republican party, they should get 100% of the blame for the deficit,” Tangipa added.
Federal Policy Changes Add New Pressure on California Budget
A major contributor to the widening deficit is reduced federal funding tied to the “Big Beautiful Bill,” legislation that tightened eligibility for programs including Medi-Cal and CalFresh.
California is now expected to cover billions in lost federal support.
On food assistance reforms, GOP Assemblymember Carl DeMaio of San Diego said:
“Cut the fraud on food stamps so that poor people get food assistance.”
Democrats counter that essential services must remain untouched.
“Food assistance, child care, funding for schools — those things are not wasteful,” Bains said. “We have to protect them.”
Assembly Speaker Robert Rivas echoed that message, saying lawmakers must safeguard “vital essentials — health care, food aid, housing, education.”
For background on federal safety-net programs, readers can refer to resources from the U.S. Department of Health & Human Services.
Republicans Want More Oversight on Homelessness Spending
GOP lawmakers say more transparency is needed before any cuts are discussed, especially around billions allocated to homelessness.
“We haven’t done the work that needs to be done,” said Sen. Roger Niello, vice chair of the Senate Budget Committee.
Republicans also argue voter-approved public safety measures like Proposition 36 should not be sidelined during budget negotiations.
Next Steps: Newsom’s Budget Proposal Expected After Thanksgiving
Gov. Gavin Newsom is preparing to release his initial 2026 budget proposal soon after Thanksgiving. Lawmakers will return to the Capitol in January, debate revisions in May, and must pass a final spending plan by June.
As the state works through its growing deficit, the 2025–26 budget cycle is expected to be among the most difficult California has faced in more than a decade.
