The Real Story Behind California’s “Trump Slump” - Increasing Budget Woes
Despite Governor Gavin Newsom and the California Legislature declaring, during this year’s May Revision, that the state was suffering from a “Trump Slump” — supposedly causing a significant revenue loss — President Donald Trump had nothing to do with what state officials themselves have described as a structural deficit, meaning current-law spending exceeds current-law revenues.
The real problem stems from a $165 billion error in revenue projections made by state budget writers in 2022. That mistake fueled Newsom’s boast of a $97.5 billion surplus, which in turn drove unsustainable budget growth and ballooning General Fund expenditures. The Democratic Governor and Legislature simply could not stop themselves from significantly overspending.
Once the phantom surplus was exposed, the state was left with long-term spending obligations that were badly out of alignment with long-term revenues. The “fish mouth” is wide open — and Governor Newsom will likely finish his second term having spent four full years trying, and failing, to bring the state’s budget back into balance. Not exactly a great place to end up for someone who once bragged about his fiscal management skills.
This week, the Legislative Analyst’s Office announced that the long-term budget deficit for the next fiscal year will be at least $21 billion. No amount of fund shifts, accounting changes, or budget gimmicks can paper over a shortfall of that size — and this just four months after the last “balanced” budget was passed by the California Legislature and signed by Governor Newsom.
Some elected officials and Capitol staff are pinning their hopes on a miraculous rebound in revenues. But even if that rebound occurs, would it really vindicate the so-called “Trump Slump”?
Personal and corporate income tax payments to California’s treasury in September 2025 surpassed budget estimates by $2.3 billion, and General Fund income tax collections are now $3.5 billion above year-to-date projections. That may sound impressive at first glance.
However, the higher revenue collections were entirely predictable. The California Department of Finance had lowballed its May Revision revenue forecast by basing its capital gains estimates on the lowest point of the S&P 500 index in 2025. There was considerable room for growth in those numbers — a lot of room for growth!
Unfortunately for Governor Newsom, when he leaves office, he’s likely to leave his successor with a double-digit, billion-dollar structural budget deficit. The only way to avoid that fate would be to convince a Legislature dominated by progressive Democrats to enact major reductions in state spending — both now and in the future. That seems highly unlikely. Newsom is on track to go down as yet another governor who failed to manage the state’s finances without running massive budget deficits and increasing borrowing just to balance the books.
Where is Governor Jerry Brown when you really need him?
