California Faces $30 Billion Deficit as Gavin Newsom Exits: State Struggles with Payroll Tracking Issues

Gavin Newsom is poised to leave California with a staggering legacy of structural budget deficits estimated between $20 and $30 billion. Alarmingly, state officials have admitted to not knowing the exact amount of general fund money allocated for state workers’ salaries.

A recent report from the state’s Legislative Analyst’s Office (LAO) is so critical that it could potentially impact Newsom’s anticipated presidential ambitions. Political analyst Thad Kousser remarked, “He will face immense scrutiny as we approach a potential presidential run.”

California’s fiscal watchdogs, the LAO, which have been advising the Legislature on budget and policy matters for 75 years, noted in their report that state revenue has increased by $100 billion since Newsom assumed office in 2019.

However, the cost of maintaining services has also risen, and the state has dissipated budget surpluses through discretionary spending.

Alarmingly, the report also underscores a significant lack of transparency, revealing that California officials cannot fully account for the taxpayer money spent on employee compensation or the number of workers paid from the general fund.

The findings left lawmakers astonished, prompting them to quickly target California’s governor with their criticism.

“Governor Newsom’s colossal spending disaster will likely be his biggest legacy: recurring deficits of tens of billions of dollars despite growing revenue,” state Sen. Roger Niello (R-Fair Oaks) told The Post.

The LAO also found about 70% of the $100 billion increase in spending was used to sustain existing services, including programs such as Medi-Cal, K-14 education, developmental services and in-home supportive care. 

But the remaining 30% included a vast expansion of university funding, childcare, police oversight, firefighting services and Medi-Cal coverage — including health care of undocumented immigrants. 

The LAO said eliminating all discretionary expansions adopted since 2019 would save about $15 billion — just half of the potential annual shortfalls.

“As noted by the Legislative Analyst’s Office report, ‘underlying costs and discretionary choices were never affordable,’” Niello said.

Assemblymember David Tangipa was furious over the report’s findings.

“We’re looking at deficits in the tens of billions and the state can’t even tell you how many people it’s paying or what they cost?” he scoffed.

“The LAO says the data isn’t reliable.” 

Tangipa added, “That should stop everyone in their tracks.”

Tara Gallegos, a spokesperson for Newsom, disputed the report’s findings on “new” spending under the governor since 2019.

“This isn’t spending on new programs — it’s the cost of maintaining existing commitments like schools, health care, and services for vulnerable Californians,” Gallegos wrote in an email.

“The governor has consistently called for fiscal discipline: the state must manage long-term obligations, curb spending, and maintain a balanced budget.”

H.D. Palmer, a spokesperson for the state’s Department of Finance, told The Post that steps are being taken to address spending, and he defended Newsom’s approach to not leaving a deficit wasteland in his wake.

“He’s made it very clear with his statements to address the deficit not just this fiscal year, but the following year when he’s not in office,” Palmer said.

Recent gains in state revenue tied to the stock market and technology sector have temporarily improved California’s near-term outlook, but the report warns that long-term imbalances will remain without policy changes.

“We cannot say with certainty how much General Fund the state spends on salaries or benefits, or how many full-time equivalents are filled using General Fund resources,” the LAO report states.

Tangipa, who has been banging the drum on runaway spending since joining the Legislature in  2024, ripped into the state’s handling of huge surpluses in recent years.

Budget analysts expect the deficits to persist even during periods of strong revenue growth, and part of the problem is a glaring lack of data on public employee costs.

“Sacramento burned through a massive surplus and now nobody can give a straight answer on where the money went,” Tangipa said. “People balance their budgets every month. Why can’t the state even count its own payroll.”

“Absolutely ridiculous.”

Kousser, a political science professor at UC San Diego, told The Post that Newsom and the Legislature will almost certainly pass a balanced budget as required by June 15, but “gimmicks” could be employed.

If budget issues persist ahead of the 2028 presidential campaign, Newsom may feel the pinch.

“Gavin Newsom will absolutely be held accountable for California’s financial health, growth and every policy that has come out of his time as governor,” Kousser said.

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