Staff Reports
California just got a stern talking-to from the Legislative Analyst’s Office. The state is seeing a big jump in tax revenue, yet the LAO says Sacramento still plans to plug a giant budget hole by raiding reserves and suspending required savings. If that sounds backward, that’s because it is.
LAO: A $20 billion raid on the rainy day fund
The LAO told lawmakers that the governor’s budget relies on about $20 billion in maneuvers that aren’t real budget fixes. That number comes from withdrawals from reserves and skipping deposits that are supposed to build the rainy day fund. The LAO’s math shows billions moved around just to paper over a larger gap. Even with those tactics, the numbers still show roughly a $16.9 billion shortfall.
Why this is a problem: Prop 98 and Medi-Cal lock in spending
California has big rules that tie spending to booms and busts. Prop 98 forces more money into K–12 schools and community colleges when state revenue rises. Sounds fine until you realize it doesn’t let spending fall when revenue drops. Medi-Cal is the same story: it grows fast in bad times and barely slows in good times. The result is a budget that keeps expanding no matter what the economy does.
The politics of spending over saving
When money pours in from the tech and AI boom, the right move is to save, not spend it on long-term programs that can’t be cut later. Instead, Sacramento treats a revenue bump like a shopping spree. Throw in volatile capital gains and the risk that high earners could flee if tax schemes get worse, and you have a recipe for disaster. The LAO’s warning is simple: don’t pretend a temporary boom is a permanent solution.
Voters should take this seriously. If the state won’t stop raiding the rainy day account during good times, there won’t be much left when things go bad. California needs budget rules that reward saving and force hard choices on spending. Otherwise the state will keep calling itself “flush” while living paycheck to paycheck — and taxpayers will pay the tab.
