By Jose E. Navarro | The Navarro Report | California
Every June, Sacramento announces a balanced budget, and every year since, the state has found itself managing a fresh shortfall. The disconnect isn’t an accounting mystery — it’s visible in a single trend line buried in the budget’s own supporting schedules, one that shows California’s state government has grown structurally larger relative to the size of its economy than at any point in the past fifty years.
The Number That Explains the Deficits
State general fund spending stood at 7.9% of total Californian personal income in 2019-20, the year before Gov. Gavin Newsom’s first full budget cycle. By 2023-24 it had climbed to 9.58%, the highest share recorded since the state started tracking the figure in 1975. It has since eased only slightly, to 9.42%. Over the same stretch, the state added roughly 100,000 positions to its payroll — a one-third increase relative to population growth — reversing a decades-long pattern in which state government had scaled with, not faster than, the population and income it served.
The clearest illustration of what that growth costs when the underlying revenue estimate is wrong came four years ago, when Newsom announced a $97.5 billion surplus, calling it the largest in American history. Legislators built new ongoing spending on top of that number immediately. It never appeared in the actual budget, and turned out to rest on a revenue estimate that was later found to be off by $165 billion. The spending increases it triggered, including a Medi-Cal expansion to undocumented immigrants that ultimately cost $6.2 billion more than budgeted, are still working their way through the state’s finances years later in the form of chronic deficits and coverage cutbacks.
What the Enacted Budget Doesn’t Tell You
The June-enacted budget is a political document as much as a financial one — a collection of estimates, some grounded, some optimistic. The more reliable picture sits in the state’s Annual Comprehensive Financial Report, the audited filing the Controller’s office submits to the federal government. That report covers 201 state agencies and programs, versus the much narrower set reflected in the headline budget, and shows $595.5 billion in revenue against $582.5 billion in spending — about 66% larger than the $351.7 billion budget lawmakers debate publicly. It also discloses $176.5 billion in unfunded liabilities for state employee pensions and retiree healthcare, a figure that doesn’t show up in the budget conversation at all.
State Controller Malia Cohen filed the 2024-25 report in May, two months past the federal deadline. That counts as progress: California hadn’t filed on time since 2018, a stretch during which the state’s FI$Cal financial system ran years behind schedule and badly over budget while failing to produce reliable numbers.
The Fiscal Trend Behind the Political Fight
This structural growth is the backdrop for the fight now underway over Proposition 40, a ballot measure that would tax the wealth of California’s roughly 200 billionaires. Critics argue the tax could accelerate an exodus of the state’s highest earners — and the state’s own audited financial data gives that argument real teeth: California’s top 1% of taxpayers, about 175,000 people, already generate nearly half of the state’s income tax revenue. A state that has grown its spending base faster than its economy for six straight years has correspondingly less room to absorb the loss of that concentrated a revenue source, whichever way voters decide the measure.
One addendum to the current budget projects deficits continuing through the next governor’s entire first term, even if spending stays flat — which, given the trend line of the past six years, is not the way to bet. For a state whose general fund has grown from under 8% to over 9% of personal income in half a decade, flat spending would itself be the anomaly.
Human-Directed AI Journalism: This article was researched and drafted with AI assistance under the direction, editing, and final approval of Jose E. Navarro. The Navarro Report | navarro-report.com