Governor Newsom released his proposed budget on January 10, 2025. Prior to the start of the COVID-19 pandemic, California was experiencing the longest economic expansion since WWII (began following the Great Recession in 2009). The state had large surpluses in 2021 and 2022 due to higher-than-expected revenue and federal COVID relief funds. However, the state has faced deficits each year beginning in 2023-24. The 2024-25 budget agreement included provisions to reduce the projected deficit in 2025-26, leading the Governor’s proposed budget roughly balanced. However, the state would face a deficit of $19.5 billion if the proposals in the May revised budget were not adopted.

The LAO predicts that General Fund revenues in 2025-26 will be $11 billion lower than forecasted in the January budget, reflecting diminished expectations for both the personal income tax and the corporation tax revenue.

Unemployment: Prior to the pandemic, the unemployment rate in California was at a historic low of 3.5%—about one-third the Great Recession peak of 12.3%. Following the onset of the COVID-19 pandemic, the California unemployment rate reached a record 16.4% in April and May 2020 (the U.S. unemployment rate peaked at 14.7% in April 2020). The California unemployment rate was 5.4% as of February 2022 and 4.3% in February 2023. The unemployment rate is 5.5% as of March 2025.

Personal Income: Total personal income in California increased by 1.3% from Q3 2024 to Q4 2024. U.S. personal income increased by 4.6% (or $281.8 billion) over the same time period, according to the U.S. Bureau for Economic Analysis.