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California Democrats were aware of a roughly $2 billion budget accounting error for months, even though Gov. Gavin Newsom’s January spending plan already projected a roughly $3 billion deficit for the coming fiscal year, according to a report.
The mistake, tied to the state’s public employee retirement system, CalPERS, could shrink that projected deficit. But state analysts warn California still faces far larger long-term budget problems, with annual deficits projected at $20 billion to $35 billion.
State legislative leaders learned about the problem as early as February, after it was flagged by the nonpartisan Legislative Analyst’s Office, but did not publicly disclose it until it was reported in April, according to a memo reported by KCRA 3.
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Gov. Gavin Newsom speaks at a press conference at San Lorenzo High School as he signs an executive order to expand women’s access to capital and wealth-building opportunities on March 18, 2026, in San Lorenzo, Calif. (Tayfun Coskun/Anadolu)
The analyst’s office said Newsom’s administration double-counted some retirement contribution rates, creating a $1.6 billion error.
Another miscalculation involving future contribution estimates added another $450 million.
Together, the two errors total roughly $2 billion.
“Given the size and complexity of California’s budget, it is not uncommon that we come across errors stemming from calculation mistakes or formula errors etc.,” Legislative Analyst Gabe Petek said in a statement to KCRA 3. “Indeed, part of the role of our office is to serve as a check on the administration’s budget calculations.”
Petek said the issue is expected to be corrected in Newsom’s updated 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’s administration has disputed characterizing the issue as an error, saying the adjustment reflects a change in how the state estimates pension-related payments.
“This isn’t a calculation error — it’s a revision to better estimate how these payments are made,” Department of Finance spokesman H.D. Palmer told the outlet.
The lack of public disclosure has drawn scrutiny, as lawmakers had been publicly warning of budget shortfalls while the issue remained internal.
In its January overview of the governor’s budget, the Legislative Analyst’s Office said the administration projected a $2.9 billion deficit for 2026-27, while also warning the state faces multiyear deficits ranging from $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 office called those long-term deficits “alarming” and said they raise serious concerns about California’s fiscal sustainability.
The same report said the governor’s budget was only “roughly balanced” because of higher revenue assumptions, while warning that a potential stock market downturn could sharply cut income tax revenue and put the state on more precarious footing.
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Lawmakers are expected to ramp up negotiations next month when Newsom releases his revised budget.
Fox News Digital reached out to the governor’s office, the Department of Finance and the Legislative Analyst’s Office for comment.
