California Overestimated Deficits by $2 Billion and That’s Actually Good News
Last week, KCRA 3 in Sacramento reported that the Newsom administration’s January budget contained a roughly $2 billion accounting error tied to CalPERS pension contributions. The nonpartisan Legislative Analyst’s Office flagged the problem in February. Legislative leaders knew. The public didn’t find out until April.
The story is genuinely newsworthy, but not for the reason some Newsom critics are intimating.
The mistake — a $1.6 billion double-count of retirement contribution rates, plus another $450 million miscalculation on future contributions — caused the administration to overstate state costs. Correcting it means the projected deficit for 2026–27 is smaller than Newsom’s January budget claimed, not larger. California has more money than the administration said it did, not less. Even the Legislative Analyst’s Office made this plain: the miscalculation “overstated state costs by roughly $2 billion, making the deficit appear larger than it actually is.”
That is awkward news for the administration. It spent months warning about a $2.9 billion shortfall and debating painful cuts while knowing internally that a meaningful chunk of that number was phantom. Lawmakers who learned about it in February should have disclosed it. The lack of transparency deserves criticism, and the Department of Finance’s “it’s not an error, it’s a revision” line is dubious to say the least.
Subsequent events underscore the needlessness of the coverup. Revenues have been running ahead of the Governor’s January budget estimates ever since the budget was released: through March, the State Controller’s monthly cash statement reports fiscal year-to-date General Fund receipts $7.9 billion — or 4.8 percent — above the January forecast, with personal income tax alone $4.1 billion above. That pattern has continued into April, the state’s biggest revenue month; the Controller’s daily tracker shows April collections running significantly above the $20.66 billion the Governor’s budget projected. So the CalPERS restatement will be a relatively small part of a good news story when the May Budget revise appears.
Meanwhile, some conservative media outlets have been reporting the error in a misleading way.
One widely-circulated piece carries the headline “Sounds Like Omar’s Accountant: California Leaders Concealed $2 Billion Accounting Mistake For Months” — a comparison that only makes sense if you think Sacramento was hiding bad numbers, not good ones. The article never tells readers the error inflated the deficit rather than masking it.
A syndicated write-up reproduced across dozens of conservative sites frames it as “Newsom’s team hid a $2 billion CalPERS accounting error for months while California debated painful budget cuts.” The implied narrative — that leaders concealed a deficit they didn’t want voters to know about — is the reverse of the truth. They sat on information that undercut the case for cuts.
Elsewhere, an aggregator piece flatly headlines “Newsom Hid $2B California Budget Error for Months” with no mention anywhere in the piece that the correction shrinks the gap. Another calls it “cooking the books” and “fraud”, language that only works if the error made things look better than they were. It did the opposite.
None of this is to defend the delay in disclosure. Californians and legislators were debating cuts in March under numbers that state officials privately knew to be wrong. That is a real failure and a fair basis for criticism on transparency grounds. The administration should have corrected the record as soon as the LAO flagged it.