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California Democrats are aware of an estimated $2 billion budget deficit for months, although the plan of Gov. Gavin Newsom’s January spending bill already revealed a deficit of nearly $3 billion for the next fiscal year, according to the report.
The shortfall, associated with the state’s public employee retirement system, CalPERS, could reduce that expected shortfall. But state analysts warn California still faces its biggest long-term budget problems, with annual shortfalls estimated at $20 billion to $35 billion.
State legislative leaders learned of the problem in February, after it was flagged by the nonpartisan Office of the Legislative Analyst, but did not disclose it publicly until it was reported in April, according to a memo reported by KCRA 3.
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Gov. Gavin Newsom speaks at a news conference at San Lorenzo High School as he signs an executive order to increase women’s access to money and opportunities to build wealth March 18, 2026, in San Lorenzo, Calif. (Tayfun Coskun/Anadolu)
The comptroller’s office said the Newsom administration had double-calculated the amount of retirement savings, creating a $1.6 billion error.
Other miscalculations involving future contribution estimates added another $450 million.
Combined, the two errors are estimated at $2 billion.
“Given the size and complexity of California’s budget, it’s not uncommon for us to encounter errors due to math errors or formula errors, etc.,” Legislative Analyst Gabe Petek said in a statement to KCRA 3. “Really, part of our office’s role is to act as a check on the administration’s budget calculations.”
Petek said the issue is expected to be addressed in Newsom’s revised May budget proposal.
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A view of the California State Capitol on Aug. 19, 2025, in Sacramento, California. (Justin Sullivan/Getty Images)
Newsom officials denied the issue was a mistake, saying the adjustment reflects a change in how the state estimates pension-related payments.
“This is not a calculation error – it’s an update to better measure how these payments are made,” Treasury spokesman HD Palmer told reporters.
The lack of public disclosure has drawn scrutiny, as lawmakers have been publicly warning of budget shortfalls while the issue is still in the works.
In its January review of the governor’s budget, the Legislative Analyst’s Office said the administration projected a $2.9 billion shortfall in 2026-27, while also warning the state faces multi-year deficits of $20 billion to $35 billion annually.
California Governor Gavin Newsom delivers his final State of the State Address at the California Capitol Building in Sacramento, Calif. Thursday, Jan. 8, 2026. (Jessica Christian/San Francisco Chronicle)
The bureau called the long-term deficit “shocking” and said it raises serious concerns about California’s fiscal sustainability.
The same report said the governor’s budget was “balanced” only because of high profit projections, while warning that the decline in the stock market could significantly reduce income tax revenue and put the state in a very critical situation.
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Lawmakers are expected to intensify negotiations next month when Newsom releases his revised budget.
Fox News Digital has reached out to the governor’s office, the Treasury Department and the legal analyst’s office for comment.
