California Faces $18 Billion Deficit Next Year, Deepening Multiyear Budget Crisis

California Gov. Gavin Newsom speaks to reporters in Stockton, Calif., on Oct. 22, 2025. Justin Sullivan/Getty ImagesCalifornia is staring at another major budget shortfall, as the state’s nonpartisan Legislative Analyst’s Office (LAO) has projected that next year’s deficit will hit nearly $18 billion and described the state’s budget position as “relatively weak.”The LAO report, released on Nov. 19, is an early look at the 2026–2027 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.