Aaaaaand they’re back!
Monday, January 5 marked the first day of year two in the 2025–2026 California Legislative Session. Lawmakers return to Sacramento facing a packed agenda and a growing sense of urgency. Major debates this year will center on the state’s $18 billion budget deficit, ongoing efforts to make California more affordable, and the rapidly approaching 2026 primary elections.
A Budget Picture Overshadowed by Uncertainty
Governor Gavin Newsom begins his final year in office under the shadow of a daunting fiscal outlook. The nonpartisan Legislative Analyst’s Office (LAO) projects an $18 billion shortfall, with warnings that the deficit could swell to $38 billion by 2027–2028 if leaders do not take meaningful corrective action.
The deficit stems from a combination of higher‑than‑expected spending and volatile federal funding streams. Despite significant economic activity fueled by the AI sector, the state continues to feel the effects of fluctuating federal support and structural spending pressures.
Lawmakers are expected to explore multiple avenues for closing the gap. In prior downturns, California has considered or implemented reductions to Medi‑Cal benefits, a move likely to resurface in discussions this year. With anticipated changes to federal funding for Medi‑Cal, the state will also need to determine how to backfill any losses to prevent residents from losing coverage.
Governor Newsom will deliver his final State of the State address on Thursday, January 8 at 10:30 a.m.
Looking Ahead to the 2026 Elections
The 2026 election cycle is already coming into focus, with early fundraising totals offering a preview of the competitive landscape.
- Former Congresswoman Katie Porter leads with $3 million raised.
- Riverside County Sheriff Chad Bianco, a republican, has brought in $1.6 million.
- East Bay Congressman Eric Swalwell also reported $3 million raised during his brief time in the race.
With the June 2 primary still months away, more candidate reshuffling is expected—either dropping out or shifting to less crowded contests.
Adding to the unpredictability is the recent passage of California’s Proposition 50, approved by voters in November. The measure reshaped the political makeup of several congressional districts, making it significantly easier for Democrats in lower‑level offices to compete in districts previously held by Republicans. As a result, the 2026 landscape—across both state and federal races—is more fluid and open than it has been in years.