California Says ‘No Capacity’ for New Spending, Annual Deficits Rising to $30B

California’s nonpartisan state analysis agency warned the state has “no capacity for new commitments,” and faces annual deficits of $20 billion or more starting in 2026 as spending growth outpaces weak sales tax revenue. For the 2025-2026 fiscal year, the Legislative Analyst’s Office said the state faces a $2 billion shortfall — assuming the Trump administration does not withhold any federal funding in response to California’s sanctuary state policies regarding undocumented immigrants. About half the $161 billion budget for Medi-Cal, the state’s taxpayer-funded healthcare system that covers one-third of Californians, comes from the federal government. This spending includes about $5 billion for covering undocumented immigrants, according to the California Department of Health and Human Services.