California’s Strong Revenue Trends Mask Looming Budget Risk

Jan 23, 2026 - To do this, we add a stock market indicator to our forecast models alongside other the economic variables. The added risk variable weighs on the range of revenue outcomes that we view as most plausible.
https://lao.ca.gov/Publications/Report/5104

The 2026-27 Budget: Overview of the Governor's Budget

Jan 12, 2026 - First, after four years of projected deficits and a cumulative total of $125  billion in budget problems solved so far, the state ’s negative fiscal situation is now chronic. Second, structural deficits have grown —our November outlook is the most negative forecast of the budget ’s position since the pandemic.
https://lao.ca.gov/Publications/Report/5101

The 2026-27 Budget: California's Fiscal Outlook

Nov 19, 2025 - Second, while our revenue estimates hedge against a market downturn, they do not reflect the revenue declines the state would experience in a recession. Third, the state has used most of its budget resiliency tools to address prior deficits.
https://lao.ca.gov/Publications/Report/5091

Whether or Not to Tap Reserves to Solve Estimated Budget Problem Emerges as Key Fiscal Decision Facing California’s Legislature

Apr 19, 2023 - This suggests that the Fed may have more inflation-fighting work to do. The Fed ’s continued efforts to lower inflation by raising the Fed funds rate has the effect of cooling the economy, which inherently raises the odds of a recession.
https://lao.ca.gov/Publications/Report/4762

The 2026-27 Budget: How to Use One-Time Revenue Improvements

Feb 20, 2026 - For example, we recommend the Legislature: Do Not Suspend the $3  Billion True Up Into the Budget Stabilization Account (BSA). The Governor ’s budget proposes suspending a roughly $3  billion true-up deposit that otherwise would be required in 2025-26.
https://lao.ca.gov/Publications/Report/5133

Rethinking California's Reserve Policy

Apr 10, 2025 - If the state has a more robust reserve policy, as recommended here, the Legislature would not want these rules —which do not always work as intended —to limit the use of reserves. Additionally, because the Governor can declare a budget emergency at any time in response to a disaster, authority to withdraw funds is already available near constantly.
https://lao.ca.gov/Publications/Report/5028

The State Appropriations Limit

Apr 21, 2021 - Within a few years, there is a good chance of a substantial amount of negative room. Specifically, by 2024 ‑25, the state is more likely than not to have negative room in excess of $ 10  b illion. As a result, we anticipate the Legislature will need to make —potentially major —changes to the state budget in the coming years.
https://lao.ca.gov/Publications/Report/4416

The 2023-24 Budget: California's Fiscal Outlook

Nov 16, 2022 - We do not make a similar adjustment because those costs do not reflect current law and policy. (If we had included these amounts in baseline spending, the budget problem would have been larger.) On the other hand, we do reflect spending on school facilities of $2  billion in 2023 ‑24 and $875  million in 2024 ‑25, and broadband spending of $300
https://lao.ca.gov/Publications/Report/4646

The 2021-22 Budget: Initial Comments on the Governor’s May Revision

May 17, 2021 - The state is permitted to use the fiscal relief funds: (1)  to respond to the public health emergency or negative economic impacts associated with the emergency; (2)  to support essential work; (3)  to backfill a reduction in revenue that has occurred since 2018 ‑19; or (4)  for water, sewer, or broadband infrastructure.
https://lao.ca.gov/Publications/Report/4432

The 2021-22 California Spending Plan: The State Appropriations Limit

Aug 30, 2021 - While, under these estimates, appropriations subject to the limit do exceed the limit across 2019 ‑20 and 2020 ‑21, under the administration ’s interpretation of the SAL, excess revenues do not occur until the first year of “negative room ” and the immediately proceeding fiscal year.
https://lao.ca.gov/Publications/Report/4449