The budget problem for California is only going from bad to worse as it gets close to the new year.

The state’s Legislative Analysts Office recently released it’s fiscal outlook for California’s 2026-27 budget based on current law and policy.

When considering revenue and spending estimates, the report concludes the legislature faces an almost $18 billion budget problem for 2026 and 27.

This is about five billion more than what was originally anticipated by the administration back in June.

Vice chair of the state’s Senate Budget Committee Roger Niello gave his reaction to the results of the report.

He does state that there’s good news that revenues have increased due to personal income tax…

“But the worst news is that we continue to be in a structural deficit and the increase in expenses are exceeding that increase in revenues,” Niello said. “So there we go, continuing down the road that we’ve known for the past three years or so that we do have this structural deficit where ongoing spending commitments are exceeding revenues that we can reasonably expect to collect during the same time.”

The report also states the reason the budget problem overshadows the revenue gain is due to constitutional spending for things like propositions like 98 and 2.

Costs for other programs like state expenditures are about six billion more than anticipated.

Trends like this make Niello feel like the structural deficit could possibly get worse, which will in turn affect affordability in a state where he says leaders haven’t done anything to help.

But what about reserve funds? Has California saved enough for during this time of structural deficits?

We absolutely do not, outside of addressing the gap between ongoing spending programs and reasonably expected ongoing revenue collections,” Niello said. “The former is greater than the latter as far as the eye can see.

One of many issues that according to the analysts office reports, California’s budget is less prepared for downturns.

FOX26 also reached out to Governor Newsom’s Office for his reaction to this report and received a response from the Deputy Director of the Department of Finance H.D. Palmer who had this to say:

While we’re still updating and refining our forecasts and projections for the Governor’s January budget, the LAO has again highlighted the challenges that we’ve underscored throughout the year – federal uncertainty, market volatility, and continued growth in both cost and caseload for major state programs. This year’s budget gap was closed through a range of solutions—including difficult but necessary actions to reduce ongoing expenditure growth and maintain budget resilience. In the coming weeks, the Governor will be finalizing his decisions on how he’ll propose to meet these challenges in the coming year.