2026 state budget process continues
Momentum toward required June 15 legislative budget bill should continue this week
Last Week’s Budget Hearings. Last week’s Senate and Assembly budget hearings discussed the Governor’s May Revision proposals. Agendas for the hearings are on the Assembly and Senate budget committee websites. Archived hearing videos are on the Senate and Assembly websites.
Messages of Restraint. POLITICO’s California Playbook discusses legislative discussions of budget restraint. Lindsey Holden and Eric He have more details for that outlet’s subscribers here. The Legislative Analyst’s Office (LAO) review of the May Revision, noting the state is “ill-prepared for a slip up in revenues” is here, despite the Governor’s proposed increase in budget reserves and fund balances for 2026-27. LAO previously noted that 70% of state cost growth in recent years resulted from sustaining services that already existed in 2019.
Comparing LAO and Administration Revenue Estimates. While the LAO raised concerns about the administration’s May Revision, note that LAO’s recent revenue forecast projected considerably greater General Fund revenue receipts in 2025-26.
As shown below, the LAO projects about $7.3 billion more in General Fund revenues than the administration did for 2025-26 and about $0.9 billion more for 2026-27. These are the fiscal years that must be accounted for in the 2026-27 budget act to be passed next month. For 2027-28, for which the Governor also proposes actions to balance the projected General Fund budget, the LAO’s estimated state tax revenues are about $8.0 billion less than the administration’s.
According to LAO estimates, the $7.3 billion larger revenue estimate for 2025-26 would increase the Proposition 98 school funding guarantee by $2 billion to $3 billion. Proposition 2 rainy day fund deposits were suspended for 2025-26 in last year’s budget, and the Governor continues that suspension in the May Revision.
Stocks Remain Strong. As of 8:53 a.m., California time, on May 26, 2026, the S&P 500 stock index stands at 7505. The Governor’s May Revision economic forecast assumed the S&P 500 would remain at about 7000 for the rest of 2026. One year ago, on May 27, 2025, the S&P 500 closed at 5922, which means its value has increased 27% since then. Some key measures of Brent crude oil future prices, meanwhile, have fallen since the May Revision.