California’s per capita state budget has surged by more than 50% since Governor Gavin Newsom took office in 2019. During the same period, total state spending increased by approximately $106.3 billion but tax revenues fell far short of expectations, resulting in the largest deficit ever recorded. In fact, after spending approximately $215 billion on the 2019-2020 state budget and $139 billion in tax revenue, total spending soared to $332 billion in 2023-2024, while tax revenues amounted to only $193 billion.
While tax revenues briefly increased during the pandemic due to temporary federal subsidies, they quickly declined after 2022-2023, pushing the fiscal deficit to a record $73 billion (KRW 96 trillion) in 2024-2025.While state governments are responding with austerity measures and fund allocations, the Legislative Analyst’s Office (LAO) has diagnosed that a “chronic deficit” worth tens of billions of dollars is inevitable in the future. Overestimation of revenue: a “fatal trap” Experts assess that “due to the obligation to balance the budget, state governments overly optimistically estimated their revenues and poured massive amounts of money into various welfare and environmentally friendly policy pledges.”
The combination of declining tax revenues and excessive spending has fueled the deterioration of fiscal soundness, with ▲a surge in public service costs ▲an expansion of collective contracts for public officials and unions.
Fixed expenditures, such as ▲the cost of converting to electricity and renewable energy and ▲the expansion of free health insurance (full expansion of Medi-Cal), have surged, but actual revenues have fallen significantly less than expected due to the economic downturn, inflation, and population outflow. Local governments such as Los Angeles and San Diego are also facing budget austerity measures worth hundreds of billions of dollars due to worsening tax revenues following the COVID-19 pandemic. Rapidly rising public spending and tax revenue instability necessitate urgent fiscal restructuring.
The California legislature has reduced the deficit somewhat through drastic measures, including emergency spending cuts ($11 billion) and temporary revenue increases ($5.5 billion). However, experts point out that “the risk of a chronic, double-digit deficit in the long term remains.”
Experts warn that the fiscal crisis will persist without fundamental reforms, including restructuring expenditures, identifying new revenue sources, and streamlining budgets for key welfare and environmental policies.