Top California budget adviser reflects on 'daunting' fiscal outlook

Kate Wolffe, The Sacramento Bee on Dec 9, 2025

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SACRAMENTO, Calif. — The California Legislature’s top budget adviser reflected Tuesday on his office’s recent sobering forecast, calling the fiscal outlook “daunting.”

Gabriel Petek, California’s Legislative Analyst, warned in a report last month that the state’s current $18 billion deficit is driven by structural spending imbalances that could balloon to $35 billion annually in the coming years.

He told an audience at a Public Policy Institute of California luncheon that while the state has seen an uptick of roughly $11 billion in revenue due to enthusiasm around artificial intelligence, the money is already “spoken for” – largely obligated to debt payments, reserve deposits and school spending under Proposition 98. Meanwhile, state costs have risen by $16 billion.

“We have only $11 billion in higher revenues. That $5 billion gap gets added to the deficit and pushes it up to $18 billion,” Petek said.

However, Petek’s most urgent warning concerned the years ahead. He noted that economic indicators are currently “lining up similar to how they’ve lined up in the past, when there’s been a market downturn within a year or two.”

If the state does not adjust its trajectory, the Legislative Analyst’s Office projects the fiscal gap will widen significantly.

“In the subsequent three years of the forecast, we are showing even larger deficits,” Petek said. “The deficits grow to $35 billion per year.”

Correcting for an overestimation

Petek attributed part of the deficit problem to a two-fer of a stock market downturn in 2022 and a delayed tax filing deadline in 2023, which led to an incomplete picture when the budget was being drawn. When the revenue reports came back in November 2023, they were much lower than expected.

“So now we’re committed to spending more than we had in revenue coming in,” Petek said. “We’ve been adjusting to that essentially ever since.”

The analyst issued two recommendations to California’s leaders: Address the structural deficit and keep a healthy state budget reserve.

State leaders in recent bad budget years have used one-time solutions and borrowing to fill the gaps. Petek said his office “discourages” lawmakers against doing more of that. However, in terms of ongoing solutions, he said they must be “achievable.”

“We’ve made assumptions in prior years about what savings the state would achieve, and they haven’t materialized, and that’s contributing to the problem we face today.”

As for the challenges posed by HR 1, the federal government’s “One Big Beautiful Bill Act,” Petek highlighted the impact it will have on health care. He warned of a potential loss of coverage for populations like childless adults that could result in a spike in uncompensated care throughout the state.

“We think the Legislature is going to have to think creatively about how they respond to that,” he said. “That’s going to be a key challenge.”

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