California‘s nonpartisan Legislative Analyst’s Office released its fiscal outlook for the 2026-2027 budget cycle, forecasting an $18 billion deficit that Gov. Gavin Newsom (D-CA) and the legislature’s Democratic super-majority will have to balance by June 15. This is the fourth year in a row California has posted a multibillion-dollar budget shortfall, and the LAO predicted next year’s deficit will double in size to $35 billion.

California’s persistent deficits are not caused by a lack of revenue. In fact, tax revenues came in $6 billion higher than expected just months ago. Although the LAO report warns that this boost in revenue, even though it is not enough to balance the budget, is unlikely to last. “Most of these gains come from the meteoric rise in the value of a handful of tech companies that investors believe will be major beneficiaries of recent advances in [artificial intelligence],” the report warns. “Recent income tax gains are tied to an unsustainable stock market,” predicting that “a market downturn is only a risk but not a certainty.”