Understandably, very few citizens of California follow closely the state budget process which, for the 2026-27 fiscal year, just kicked off with the release of the Governor’s proposal. Of course, part of that may be due to the complexity of public finance issues, but the reality is that since 2010 with the passage of Proposition 25, the state has no discernible annual spending plan.
Technically, the timing of passing a budget hasn’t changed. It’s merely that the deadlines in the constitution are ignored.
This column has previously reported on how all phases of the budget dance are fake insofar as they are subject to substantial amendments throughout the year. This happens through so-called “trailer bills” and “junior budget bills,” rendering what was for decades a rational process for fiscal planning into a never-ending convoluted outflow of taxpayer cash.
The real corruption in the budget process – percolating for several years prior – was constitutionalized in 2010 with the passage of Proposition 25, laughingly labeled the “On-Time Budget Act of 2010.” Its real purpose was to repeal the two-thirds vote requirement for the state budget. Voters were promised three things. First, annual budgets would be passed on time; second, the budget process would be fully transparent; and third, legislators would forfeit their pay if the budget was late. As we now know, all three of these representations were lies.
While the “budget bill” is constitutionally mandated to be enacted by June 15, what the politicians actually pass on that date is a temporary placeholder budget. And it only passes so that legislators can get their pay checks.
The damage Prop. 25 inflicted is hard to overstate. Just last year, a major overhaul in the California Environmental Quality Act (CEQA) was passed as a trailer bill, bypassing many of the normal procedures for enacting legislation. Granted, CEQA reform was needed, but the far-reaching proposal should have been enacted under regular order with more debate and transparency.
The fact that there is no longer a single budget bill, and that money is appropriated 365 days a year, has removed all seriousness in dealing with California’s precarious financial position.
Just a month ago, California’s Legislative Analyst (in a desperate display of wishful thinking) recommended that elected leadership deal with the budget challenges now rather than waiting until we have a full-blown crisis, such as a recession.
“While important components of the state economy are sluggish, revenues are not falling, nor are conditions as bad as they would be in an outright recession,” the LAO explained. “This makes solving the budget problem with ongoing solutions all the more important. Continuing to use temporary tools – like budgetary borrowing – would only defer the problem and, ultimately, leave the state ill-equipped to respond to a recession or downturn in the stock market.”
But hopes for rationality were dispelled on January 9th with the release of Newsom’s latest budget proposal. While the LAO is traditionally diplomatic and measured in reporting on the initial plan in January, this year, the criticism was particularly harsh.
Here are the problems laid out by the LAO. First, Newsom is overly optimistic that the stock market will stay strong. The Legislative Analyst warns that several reliable indicators show the market may be overheated and at risk of a downturn. Because the state relies heavily on high earners and capital gains, revenues drop sharply when markets fall rather than decline slowly.
Second, LAO reports that the budget doesn’t begin to address the long-term structural problems: “Even under the administration’s more optimistic revenues, the budget is only roughly balanced in the near term.” The problem with the now-permanent structural deficit is that it just gets worse every year.According to the LAO, “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.”
The governor and the California Legislature should heed LAO’s chilling conclusion: “Taken together, these trends raise serious concerns about the state’s fiscal sustainability.”
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
