California Builders Alliance 02.21.2026 CA Capitol weekend update
Friday was the deadline for introducing bills in the 2026 CA Legislative Session. Between the two houses, there were just shy of 1,800 bills introduced, with nearly 600 (33%) of them being placeholder bills (spot or intent). There are 550 fewer bills this year than last year, a 23% reduction. This bill introduction number is the lowest number in the past twenty years. There were 1,100 bills introduced this final week (i.e., these past four days). Friday there were 390 ABs and 158 SBs introduced. 200 spot bills were introduced Friday, plus 55 intent bills, so 255 placeholders were put in just yesterday (or 43% of the total number of placeholder bills introduced). As a result, we'll be seeing amendments to nearly 600 bills over the next five weeks as these placeholder bills are filled with substantive language.
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From Jason Sisney (state budget for Speaker Rivas):
LAO Revenue Estimates Upgraded. The Legislative Analyst’s Office (LAO) upgraded its near-term state revenue outlook significantly today (online here). While noting the broad uncertainty inherent in California state revenue forecasting, the LAO said it anticipated state General Fund tax revenues might be $8.1 billion higher than the Governor’s January 9 estimates for 2025-26 and $3.4 billion lower than those January 9 estimates for 2026-27, for a net revenue gain of about $5 billion over those two fiscal years (known as the “budget window”). As LAO describes in an accompanying post, that $5 billion net revenue gain would reduce projected near-term deficits by about $2.5 billion.
My Opinion: Revenues Likely Will Be Much Higher in Near Term. I think the LAO’s revenue estimates likely are too low for 2025-26 and 2026-27. No one counsels humility about revenue projections more than me, but I think the odds are that General Fund revenues for the budget window will be somewhere between $15 billion and $40 billion above the Governor’s January 9 projections. (Those outcomes are roughly within the range of possible outcomes identifed by LAO and colored in green in the figure of its online post.)
Strong Recent Tax Collections. LAO notes that major General Fund tax revenues came in about $6 billion ahead of the Governor’s projections for just the two months of December and January, as I noted on February 4. LAO also notes that “given the recent forecasting differences between our office and the administration, there is a good chance the administration’s revenue upgrade at May Revision will be larger than our current estimate.”
“Should Be Viewed As a One-Time Windfall.” The LAO prudently notes that these additional resources—of whatever amount—”should be viewed as a one-time windfall.” LAO recommends using this windfall to “reduce reliance on reserves and borrowing.”
Big Caveats About Any Near-Term Revenue Gains. In earlier posts, I noted the following about any near-term revenue overages, which I am happy to reiterate:
- A large chunk of any tax revenue overage, relative to the Governor’s forecast, would be obligated to fund schools and reserves pursuant to constitutional requirements. That’s why LAO notes that a $5 billion near-term revenue gain would improve the “bottom line” of this year’s state budget picture by around $2.5 billion, with the rest required to be spent on schools and reserves.
- Outyear deficit projections likely would persist to some degree due to troubling state cost trends and declining federal support, which collectively are likely to cause spending to outpace future revenue growth.
- Neither administration nor LAO revenue forecasts account for the likelihood of a major drop in revenue accompanying any future bursting or subsidence of the possible investment bubble related to the so-called artificial intelligence industry. As LAO notes today, “We continue to think the risk of a revenue downturn starting in the next year or so is too great to ignore.”
- Neither administration nor LAO revenue forecasts seem to account for a recent reported increase in high-income taxpayers shielding wealth and, likely, income from California state taxation due to the proposed “billionaire tax.” Increased taxpayer migration to other states is one method reportedly being used to reduce California state taxation. These reports raise the possibility that the base of the existing state income tax will be impaired somewhat in the coming years.
- Tax increases passed under current constitutional guidelines may go to reduce future deficits and fund schools and reserves, leaving little or none available to restore programs above levels funded in the Governor’s budget plan.
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U.S. economic growth slowed sharply at end of 2025, dragging down the year
The U.S. economy cooled sharply at the end of 2025, with growth slowing to an annual rate of 1.4 percent, as tariffs and a weeks-long government shutdown sapped its earlier momentum.
Overall, the economy expanded by 2.2 percent last year, lower than the 2.8 percent growth the year before, according to new datafrom the Bureau of Economic Analysis.
The latest gross domestic product report — which sums up the goods and services produced in the United States — reflects rising imports and a widening trade gap, despite President Donald Trump’s push to revive U.S. manufacturing. Federal spending also fell sharply, in part, because of the longest government shutdown in history, which began Oct. 1, 2025, and lasted 43 days.
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MARK SMITH
Smith Policy Group
1001 K Street, 6th Floor
Sacramento, CA 95814
(916) 335-5072