Last week, I said Governor Newsom was going to excuse his complete incompetence in handling the state budget by blaming Trump and his tariffs. Indeed that is exactly what his Department of Finance (DOF) did. Here is the quote from the summary of the May revise from DOF:
Those risks have now become a reality. Washington’s imposition of tariffs has driven a
downgrade in both the economic and revenue forecasts. Combined with increased
expenditure growth above the Governor’s Budget—most notably in Medi-Cal—the
state must now close an estimated shortfall of $12 billion to balance the budget and
provide for a prudent discretionary reserve. This will require difficult but necessary
decisions to reduce ongoing expenditure growth
The only problem is that this is a completely false, politically driven narrative. We are told the state has a $12 billion deficit in the 2025-26 budget year, which doesn’t include the “cuts” the federal government is contemplating. One would think that if there is a deficit, that comes from an unexpected drop in revenue, at least that is what it would mean in plain English. But government budget types don’t speak in plain English. So let’s look at the real numbers.
One of the best documents put out by DOF is the Schedule 6, which lists government spending trends over the last 50 years. Here is the link for the Schedule 6 for the 2025-26 budget:
https://ebudget.ca.gov/2025-26/pdf/BudgetSummary/BS_SCH6/pdf
Looking at the document, several figures jump out. First, there is an expected $2.5 billion INCREASE in general fund revenue from the 24-25 to the 25-26 budget, and an overall (general and special fund) $6 billion INCREASE in revenue. The more interesting numbers, however, the expenditure numbers. General fund expenditures, which are discretionary and totally under control of the Governor and the Legislature, are $10 billion above revenue, , and overall expenditures are $30 billion above revenue.
Given those numbers, what is the more likely cause of a $12 billion deficit? Trump’s tariffs (which, if fully enacted, are still less than 2 months old) or a state government that under the management of Governor Newsom, and apparently completely out of control. In the current year, all of the revenue of which was generated by taxes owed before Trump took office, California state government spent $30 billion more than it took in from all sources. How on earth could any honest analyst say this incompetence is due to the actions of Trump.
I took one more step. I went back to see what the actual approved budget numbers were for 2024-25. The problem is even worse than the Schedule 6 shows. The enacted 2024-25 budget approved a total of $298 billion from all funds, but Schedule 6 shows it spent $332 billion, $34 billion more than actually budgeted.
So, there was a $34 billion deficit carried over from the current year to the budget year. Did DOF say anything about that? Could it also be they are hiding the full extent of the budget collapse to build up to a political narrative that blames all of their incompetence on Trump and Republicans in Congress when the expenditure reductions in Washington are passed?
Given the $10 billion current year overspending, the budget year is not facing a $12 billion deficit. It is much larger. If I was getting paid to figure it out, I could do it, but based on what I am seeing right now, I would estimate we are looking at a $25 billion general fund deficit and an overall budget shortfall of $45 billion in the budget year, all of it caused by the failure of the Legislature and the Governor to control state spending.
Yet they are playing hide and seek with these numbers so they can blame it on Trump and hide their own incompetence. It is an inexcusably false politically driven, budget narrative.