“ – And so it begins…. Today, California will launch back into the perennial debate over how to spread its wealth around — and there are abundant assets to allocate.”

That was four years ago, on January 10, 2022.

A trio of journalists on the Sacramento beat was covering the hottest story in town. “Like the return of migratory birds to rice fields,” they wrote exuberantly, “an annual California politics ritual will occur this morning as Gov. Gavin Newsom unveils his budget proposal for the next fiscal year….” California begins its budget dance (January 10, 2022) Jeremy B. White et al, politico.com.

The yearly January announcement itself is not the most significant aspect of the constitutionally choreographed “annual California politics ritual.”  It is a starting point only, the reporters explained, based in part on revenue estimates to date. “Keep in mind that this represents a prelude to a prelude: the truly important negotiations tend to start after Newsom releases his May update, which reflects more recent revenue numbers.”

The high drama intensifies in the final weeks counting down to July 1, the new fiscal year. The governor and a majority of lawmakers from both the Senate and the Assembly must reach consensus on a “balanced budget”  and enact it into law by that date.

That was then.

This is now: January 2026. A  week ago on January 9th, the governor’s office released the most current Governor’s Proposed Budget for the upcoming FY 2026-27 to begin July 1, 2026. See CA State Proposed Budget Moves Front and Center (January 13, 2026) FPLG Blog.

Why are we suddenly talking again about the January 10, 2022 budget announcement for FY 2022-23?

Has something happened? Hint: Yes.

An Earlier Whirlwind Budget Cycle 

Back on January 10, 2022, the headlines around the Golden State were about the “defining fiscal dimension; … we’re in a time of plenty.”

Six months earlier, on July 1, 2021, lawmakers had approved a “record $262-billion budget” for FY 2021-22. The good news didn’t stop at that point, though. It got better the rest of the calendar year 2021: “California’s coffers are once again overflowing, with a surplus of tens of billions.”

What Politico.com could not report in that January 10, 2022, news article was what happened from January through the end of June, 2022. The Franchise Tax Board was collecting much-higher-than-estimated tax payments, blowing way beyond the most optimistic January predictions.

It was that spring of 2022 when we started our real-time coverage [now in the fifth year] of the anything-but-boring California budget saga. A few of our blog titles succinctly tell the evolving story that year. See e.g.: Nonprofits Reaching for Piece of CA Budget Pie (April 11, 2022) [$29-billion surplus; “…a time of plenty”] and That CA Budget Pie?: Much Bigger Than Expected (May 17, 2022) [Surplus figures again revised upward to $97-billion. “That’s three times as much pie. Yum.”]

The California Fiscal Rollercoaster

After the surpluses of 2021 and 2022, the state plunged into deficit territory in 2023 and 2024. See e.g., Home Stretch: Nonprofit Advocacy on 2024-25 CA Budget (May 30, 2024) FPLG Blog [This budget cycle “is particularly challenging: Following the heady days of record surpluses in 2021 and 2022, we are now in the second year of (predicted and planned-around) budget deficits.“]

By early 2025, the financial headwinds shifted back towards positive territory. See  CA Budget Time Again: Small Surplus is Back But Catastrophic Needs Ahead (January 11, 2025) FPLG Blog. What ensued, though, starting January 20th was the “utter chaos” from “unconscionable economic harm inflicted by our own federal government.” It continued all year long and will likely continue for the near future.

Even before the White House’s draconian economic interventions in 2025, California state finances and budget planning had been on a rollercoaster for many years. Rollercoasters are good for weekend family fun. They are disastrous for government finance.

Among the continuing concerns is the California formula for raising revenue. Though decidedly progressive, it is also notoriously volatile. See e.g.: From big surpluses to projected deficits… (February 14, 2025) Jason Sisney, jasonsisney.substack.com.  The author discusses “how California’s budget situation evolved in recent years.” He advises the Speaker of the California State Assembly and Assembly Democrats on state budget matters, and represents the Assembly at staff level in budget negotiations with the Governor’s Office and the California State Senate.

See also:

The Development of This Annual Budget

The California budget process is a year-round activity happening largely behind the scenes. The workload for the dedicated staff at the California Department of Finance accelerates sharply in the frenzied weeks ahead of the January release of the Governor’s enormously consequential budget proposal package.

“The annual state budget is – next to the State Constitution – the most important document in California government.” The Budget Process: A Citizen’s Guide to Participation, [20 pp. PDF] (February 2023) sen.cal.gov.

In the fall of 2025, there was major buzz in the finance world about the remarkable growth of the Artificial Intelligence tech-startup market especially in California. The success was producing impressive jumps in actual state tax revenue collected. But finance people in and out of government have been burned in the past when fiscal bubbles burst. They are appropriately wary of counting chickens before they hatch.

LAO 11/25 Report

On November 19, 2025, several weeks ahead of the big California executive-branch announcement, another group of government finance experts – at the Legislative Analyst’s Office (LAO) – confidently presented their [regularly scheduled] state budget preview. See: The 2026-27 Budget: California’s Fiscal Outlook (November 2025), Gabriel Petek, Legislative Analyst.

The LAO’s role is to present “independent estimates and analysis of the state’s General Fund budget condition with the goal of helping lawmakers prepare for the 2026-27 budget process.”

Mr. Petek and his colleagues took a somewhat gloomy stance on California’s current fiscal situation. While acknowledging the current strength in AI/tech, they present it as one of a number of sources of growing deficits due to volatile revenue. See Executive Summary (p.3), the Introduction (p.4), and the first section titled “AI Enthusiasm Boosting Revenues, But For How Long?” (pp. 4-6). These excerpts set the stage for the LAO’s conclusions and recommendations dripping with caution.

The Budget Released on January 9th

The Governor’s Proposed Budget for FY 2026-27 (January 9, 2026) presented a somewhat more optimistic tone, while acknowledging the risk always inherent with finance bubbles. “There are encouraging signs in the California economy—our population is increasing, businesses are expanding, and our innovation ecosystem, fueled in no small part by the state’s burgeoning AI industry, has boosted budget revenues,” explained Governor Newsom In his Message to legislators, “Yet history teaches us that prosperity, if taken for granted, can vanish as quickly as it arrives. California’s responsibility is to act with steady hands and anticipate future instability.”

Accordingly, the governor has recommended an unusual but defensible approach for the coming months although it strays somewhat from the rigid, Constitutionally prescribed, procedure and timeline for the budget deliberations.

“This January budget is not the final word. It is a beginning—a statement of purpose. In the months ahead, we will work together to refine a final budget that looks beyond a single year, mindful of the obligations to the people we serve. I look forward to working with you to safeguard what we have built, to strengthen what remains unfinished, and to prepare California for the years ahead.”

Most of the substantive budget decision-making will take place after the Mid-May Revision is released. The final numbers presented in the January 9th proposed budget (i.e., estimates) are already way off the actual tax money coming into the treasury, including amounts actually paid into the FTB in December 2025.

Reaction

There were, as expected, immediate statements from the usual sources, ranging from the legislative leaders to budget experts to large charitable nonprofits associated with one or another popular charitable causes.

The much-anticipated response from the Legislative Analyst’s Office did not pull any punches; the Governor’s proposed budget was “alarming.” See The 2026-27 Budget: Overview of the Governor’s Budget  [16 pp, PDF] January 12, 2026). More particularly, the LAO criticized the proposed timetable: “The state’s deficits will require legislative action. It is essential that the Legislature begin that work now, rather than waiting until the administration puts forward a revised budget in May….”

The Legislative Analyst is content with proceeding on the basis of the January revenue estimates and wonders why everyone else is not.

That takes us back to the query at the beginning of this post: “Why are we suddenly talking again about the January 10, 2022 budget announcement for FY 2022-23? Has something changed?”

Brand-New Franchise Tax Data

The Governor’s Proposed Budget was posted on Friday, January 9th.

Reaction from important sources including the leadership of the Senate and Assembly, media outlets, and other stakeholders was available that same day. More responses came in over that weekend.

As noted, the Legislative Analyst’s frosty commentary was posted on Monday, the 12th. (The FPLG blog post was available on Tuesday, the 13th.)

Then along came Jason Sisney, our favorite budget expert and fly on the wall at the California Capitol.

On about Wednesday, January 14th, he posted this Revenue Alert on LinkedIn:

“#CABudget January 15 is a major personal income tax collection date – this year, for 4th quarter 2025 tax payments, principally of higher-income people. Last year, on January 14, California FTB collected $601 million, perhaps depressed due to the recent fires. Today, FTB collected $1.27 billion.”

Then, just before this weekend, on Friday, January 16th, he posted this Revenue Alert on LinkedIn:

“#CABudget: 1/15 is a big tax payment date–for high-income filers’ 4th quarter 2025 obligations. FTB booked $4.6 billion today related to the Jan. 15 deadline, with more likely next week. These levels are similar to totals in Jan. 2021 & 2022. Promising for exceeding recent administration estimates.”

Conclusion 

To repeat: “These levels are similar to totals in Jan. 2021 & 2022….”

In 2022, when everyone was hoping to grab a piece of that budget pie, the original estimated surplus amount was $29 billion. By the Mid-May Revision, it jumped to $97 billion.

I’m thinking that many of the entities and individuals who posted immediate commentary on this year’s Governor’s Proposed Budget will want to update their thoughts in light of this interesting news.

– Linda J. Rosenthal, J.D., FPLG Information & Research Director 

 

The post There Are Already New Developments in the CA Budget Saga appeared first on For Purpose Law Group (FPLG).