(Image Credit: IMAGN) Stanislaus County, CA, USA; California Governor Gavin Newsom (C), and former Los Angeles Mayor Antonio Villaraigosa (L) meet with NorCal Carpenters Union workers along the construction of the Battery Energy Storage Systems (BESS) for the future site of Proxima Solar Farm in Stanislaus County, California, USA, 19 May 2023. The Governor unveiled legislation to speed up construction for a streamlined process and to expedite court review on legal challenges that often tie up projects. The project is expected to create 300 construction jobs and generate $35 million in local revenue. The project is expected to be operational by December, could power 60,000 homes in the surrounding region and can generate up to 210 megawatts of clean, renewable energy and 177 megawatts of better energy storage. Mandatory Credit: John G. Mabanglo/Pool via USA TODAY NETWORK
Sacramento, California – California’s economy has officially surpassed $4 trillion in annual output, making it the world’s fourth-largest economy if the state were a sovereign nation—behind only the United States, China, and Germany. This economic milestone allowed Governor Gavin Newsom to strut his stuff, celebrating California’s global stature.
“California isn’t just keeping pace with the world — we’re setting the pace,” Newsom said in a statement. “Our economy is thriving because we invest in people, prioritize sustainability, and believe in the power of innovation.”
Newsom also took the opportunity to criticize former President Donald Trump, blaming federal policy for undercutting progress. “While we celebrate this success, we recognize that our progress is threatened by the reckless tariff policies of the current federal administration. California’s economy powers the nation, and it must be protected.”
However, deeper fiscal concerns have undercut the state’s glowing economic headline. California’s unemployment rate is the third highest in the country, with over one million residents jobless. The state also holds the nation’s highest poverty rate, raising questions about the true reach of its economic prosperity.
Adding to the tension, the state faces a structural budget deficit fueled by years of spending increases outpacing revenue growth. As Newsom prepares to release his revised 2025–26 budget this month, he will have to address a gap worsened by ballooning Medi-Cal costs and prior accounting maneuvers.
The governor’s January proposal leaned heavily on one-time measures—$11 billion worth—including off-the-books borrowing and reserve fund withdrawals to paper over the budget hole. But updated figures show that Medi-Cal, California’s health system for low-income residents, is now $6 billion over budget. Much of that is due to higher-than-expected enrollment, particularly among undocumented immigrants.
The upcoming “May revise” is expected to include further temporary fixes, potentially pushing tough decisions onto the next administration. Critics warn that relying on such maneuvers has left the state vulnerable to future economic shocks.
According to the Legislature’s nonpartisan budget analyst Gabe Petek, state spending has grown at an average annual rate of 9% since Newsom took office in 2019, while revenues have risen only 6% per year. That imbalance has created a structural deficit—spending built into law that consistently exceeds the tax system’s ability to pay for it.
We expect Newsom to point to events like wildfires and lingering federal policies as contributors to the shortfall. But analysts argue that while such events may increase costs, they didn’t cause the underlying problem: a mismatch between ambition and affordability.
