California Gov. Gavin Newsom’s latest budget plan leaves the state “overextended” and vulnerable in the event of a stock market decline, according to the Legislative Analyst’s Office.The LAO is a nonpartisan office that provides fiscal advice to the Legislature. Its initial response to Newsom’s proposed budget plan known as the “May Revise” criticized the plan, saying that it would leave the state “ill-prepared for a slip-up in revenues.” (Video above: May Revise | A look at some of the proposals and reaction to governor’s budget.)Newsom’s $349.4 billion budget would be the largest state spending plan in California’s history. With the well-performing stock market bolstered by artificial intelligence, the state’s personal income taxes have been billions more than anticipated, meaning California’s government has more money to work with than expected this upcoming year.California, over the last several years, has been spending more money than it’s bringing in, and the governor and state lawmakers have had to close multi-billion-dollar budget gaps the last few years.State financial experts in Newsom’s administration and the Legislature have said the state is facing a structural budget problem, meaning there could be shortfalls in the years after Newsom leaves office.To help close those possible gaps, Newsom announced California has brought in $16.5 billion more in tax revenue than expected over the last three years. He is proposing to put $9.7 billion of that in a new, temporary holding account for surplus state funds that he and lawmakers established in 2024. There is currently no money in that account. Those funds could then be used to close future shortfalls.While the May Revise cut future deficits in half, the “underlying budget condition is not sound,” according to the LAO. “First, the existence of any operating deficits during a revenue boom of this magnitude is itself a warning sign. Further, given the state’s diminished reserves and an already accumulated wall of debt, California is ill-prepared for even a slip-up in revenues,” the LAO said. The LAO warned that even a mild decline could lead to “deep deficits” “Alarmingly, given current market conditions, the dot‑com bust probably is a better parallel,” the LAO warned. “If such scenario were to repeat, the revenue hole could be $100 billion.”The LAO said it agreed with the governor’s office on reducing the structural deficit by at least half. But it also called for putting $20 billion away into reserves and finding another $24 billion in “new budget solutions,” meaning more spending cuts or taxes.H.D. Palmer with the governor’s Department of Finance issued the following response: “The Governor has given the Legislature a plan to balance the budget across two years by banking the bulk of the current surplus and holding the line on new spending – building substantial reserves each year while sustaining core programs. The LAO proposes to put substantially more in reserves than even the May Revision – but fails to articulate and explain for the Legislature the significant policy implications of either the higher taxes or deep cuts that would necessarily be required to accomplish it.”See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter | Find us on YouTube here and subscribe to our channel | Make KCRA a preferred news source in Google

California Gov. Gavin Newsom’s latest budget plan leaves the state “overextended” and vulnerable in the event of a stock market decline, according to the Legislative Analyst’s Office.

The LAO is a nonpartisan office that provides fiscal advice to the Legislature. Its initial response to Newsom’s proposed budget plan known as the “May Revise” criticized the plan, saying that it would leave the state “ill-prepared for a slip-up in revenues.”

(Video above: May Revise | A look at some of the proposals and reaction to governor’s budget.)

Newsom’s $349.4 billion budget would be the largest state spending plan in California’s history.

With the well-performing stock market bolstered by artificial intelligence, the state’s personal income taxes have been billions more than anticipated, meaning California’s government has more money to work with than expected this upcoming year.

California, over the last several years, has been spending more money than it’s bringing in, and the governor and state lawmakers have had to close multi-billion-dollar budget gaps the last few years.

State financial experts in Newsom’s administration and the Legislature have said the state is facing a structural budget problem, meaning there could be shortfalls in the years after Newsom leaves office.

To help close those possible gaps, Newsom announced California has brought in $16.5 billion more in tax revenue than expected over the last three years. He is proposing to put $9.7 billion of that in a new, temporary holding account for surplus state funds that he and lawmakers established in 2024. There is currently no money in that account. Those funds could then be used to close future shortfalls.

While the May Revise cut future deficits in half, the “underlying budget condition is not sound,” according to the LAO.

“First, the existence of any operating deficits during a revenue boom of this magnitude is itself a warning sign. Further, given the state’s diminished reserves and an already accumulated wall of debt, California is ill-prepared for even a slip-up in revenues,” the LAO said.

The LAO warned that even a mild decline could lead to “deep deficits”

“Alarmingly, given current market conditions, the dot‑com bust probably is a better parallel,” the LAO warned. “If such scenario were to repeat, the revenue hole could be $100 billion.”

The LAO said it agreed with the governor’s office on reducing the structural deficit by at least half.

But it also called for putting $20 billion away into reserves and finding another $24 billion in “new budget solutions,” meaning more spending cuts or taxes.

H.D. Palmer with the governor’s Department of Finance issued the following response: “The Governor has given the Legislature a plan to balance the budget across two years by banking the bulk of the current surplus and holding the line on new spending – building substantial reserves each year while sustaining core programs.

The LAO proposes to put substantially more in reserves than even the May Revision – but fails to articulate and explain for the Legislature the significant policy implications of either the higher taxes or deep cuts that would necessarily be required to accomplish it.”

See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter | Find us on YouTube here and subscribe to our channel | Make KCRA a preferred news source in Google