Why It Matters
California’s chronic boom-and-bust budgeting cycle is drawing renewed scrutiny as the state confronts projected structural deficits that threaten to constrain the next governor before they ever take office. With taxpayers bearing an ever-growing government spending burden and hundreds of thousands of residents voting with their feet, the Golden State’s fiscal trajectory has become one of the most consequential economic policy debates in the country.
The stakes extend well beyond Sacramento. How California manages its deficit — through tax increases or spending discipline — will shape the state’s economic competitiveness for years to come.
What Happened
Five candidates seeking the California governorship squared off in a recent debate hosted by a coalition of groups called Jewish California, where they were pressed on how to address the state’s structural budget deficits. The field divided sharply along familiar lines.
Eric Swalwell and Tom Steyer argued in favor of higher taxes to close the gap. Matt Mahan, Steve Hilton, and Antonio Villaraigosa contended that California should extract better performance from the revenues it already collects rather than increasing the tax burden on residents and businesses.
The debate comes as the Legislative Analyst’s Office projects persistent structural deficits with no easy resolution in sight. Compounding the urgency, voters may decide November ballot measures — including a proposed wealth tax — that could significantly restrict the policy options available to the next administration before it even begins.
The commentary, authored by Pete Weber, a New California Coalition board member and cofounder of its Hartland chapter, and Chris Thornberg, a founding partner of Beacon Economics and fellow coalition board member, argues that California’s core problem is a spending problem — not a revenue problem.
By the Numbers
The scale of California’s fiscal challenges is significant:
- $18 billion — Projected structural budget deficit for fiscal year 2026–27, according to the Legislative Analyst’s Office
- Up to $35 billion — Projected deficit for fiscal year 2027–28 and beyond
- 66% — Rise in California’s general fund expenditures over the past seven years, with inflation accounting for only about one-third of that increase
- 19% — Increase in state employees per resident over the same period, even as the state’s net population declined by 450,000 people
- 1.8 million — Total Californians who have left the state, partially offset by immigrant growth and births; between 2018 and 2022, roughly 57,000 high-net-worth individuals departed, taking an estimated $1.1 trillion in personal wealth with them
- $23 billion — Government spending on homelessness programs, during which period the houseless population rose 40%
Zoom Out
California’s fiscal struggles reflect a broader pattern seen in high-tax, high-spending states that have grown dependent on volatile revenue streams — particularly capital gains taxes tied to stock market performance. When markets surge, revenues spike; when they fall, deficits balloon. This boom-and-bust cycle makes responsible long-term budgeting structurally difficult.
By contrast, states that have prioritized spending restraint and maintained robust rainy-day reserves — such as Texas and Florida — have demonstrated more resilient fiscal positions, even through economic disruptions. California currently holds the highest unemployment rate in America, the lowest housing affordability in the continental United States, and infrastructure rankings near the bottom nationally, raising questions about the return taxpayers are receiving on decades of rising government expenditures.
The ongoing investigation into Riverside County ballot handling and other governance controversies have added to concerns about public trust in California’s institutions at a critical fiscal moment.
What’s Next
Governor Gavin Newsom and the current Legislature will play a decisive role in shaping California’s fiscal path before the next governor takes office. How they address the projected multi-year deficit gap — through cuts, tax increases, or structural reforms — will set the financial foundation the next administration inherits.
November ballot measures, including the proposed wealth tax, represent another variable that could lock future policymakers into fiscal commitments regardless of their preferences. Gubernatorial candidates will continue making the budget debate a central issue as the 2026 campaign intensifies.
Fiscal watchdogs and reform advocates are calling for California to break its boom-and-bust cycle by bolstering budget reserves and reining in government spending growth — before the next economic downturn forces far more painful choices on Sacramento and California taxpayers. Other legal and policy debates playing out in California courts and legislatures are unfolding against this same uncertain fiscal backdrop.