California is staring at another major budget shortfall, with the state’s nonpartisan Legislative Analyst’s Office (LAO) projecting that next year’s deficit will hit nearly $18 billion and describing the state’s budget position as “relatively weak.”
The LAO report, released on Nov. 19, is an early look at the 2026–27 budget. It paints a picture of a state with growing obligations, slowing economic momentum, and fewer tools left to steady itself as it faces the prospect of the fourth straight year of operating in the red.
The forecast points to a widening imbalance between the state’s spending commitments and the revenue needed to support them, even as a surge in personal-income tax collections from the artificial intelligence boom has lifted California’s finances in the short term….