Economy

AI boom helps California shrink budget deficit

Rising tech worker salaries are fueling a boom in tax collections.
Gov. Gavin Newsom greets legislators as he arrives at the State Capitol to give his State of the State address on Thursday, Jan. 8, 2026, in Sacramento, Calif. (Hector Amezcua/The Sacramento Bee via AP, Pool)

California Democratic Gov. Gavin Newsom plans to spend $348.9 billion to run state services next fiscal year, an 8.7% increase as soaring income tax collections shrink the state’s projected deficit, his budget director said Friday. 

But almost all the new spending will be swallowed up by constitutionally required increases to education funding and to state reserves, as well as by the growing cost of providing services such as health care.

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