Newsom Admin Was Aware Of $2B Calif. Budget Mistake For Months: Report

California Democrats are facing renewed scrutiny after a newly surfaced report revealed that state leaders were aware for months of a massive budgeting discrepancy—estimated at roughly $2 billion—while publicly projecting a far smaller shortfall.

The issue centers on the state’s public pension system, the California Public Employees’ Retirement System, and could significantly alter the size of the deficit initially presented in January by Gavin Newsom’s administration. At the time, Newsom projected a deficit of approximately $3 billion for the upcoming fiscal year. However, fiscal analysts warn that even correcting the error does little to address California’s deeper financial instability, with long-term deficits projected to range between $20 billion and $35 billion annually.

According to a memo first reported by KCRA 3, legislative leaders were quietly informed of the discrepancy as early as February after it was flagged by the state’s nonpartisan Legislative Analyst’s Office. Despite the significance of the issue, it was not disclosed to the public until April, raising concerns about transparency and accountability.

The Legislative Analyst’s Office determined that the administration had double-counted certain retirement contribution rates, resulting in a $1.6 billion miscalculation. An additional $450 million error stemmed from incorrect projections of future contributions—bringing the total discrepancy to roughly $2 billion.

“Given the size and complexity of California’s budget, it is not uncommon that we come across errors stemming from calculation mistakes or formula errors etc.,” Legislative Analyst Gabe Petek said in a statement to KCRA 3. “Indeed, part of the role of our office is to serve as a check on the administration’s budget calculations.”

Petek noted that the issue is expected to be addressed in the governor’s revised May budget proposal. However, Newsom’s administration has pushed back on the characterization of the situation as an outright error.

“This isn’t a calculation error. It’s a revision to better estimate how these payments are made,” Department of Finance spokesman H.D. Palmer told the outlet.

Still, the delayed disclosure has sparked criticism, particularly as lawmakers were publicly sounding alarms about budget shortfalls while the discrepancy remained behind closed doors.

Earlier this year, the Legislative Analyst’s Office warned that Newsom’s budget proposal was only “roughly balanced,” relying heavily on optimistic revenue projections. Analysts also cautioned that a downturn in the stock market could sharply reduce income tax revenue—one of California’s primary funding sources—further worsening the state’s fiscal outlook.

The office described the state’s long-term deficits as “alarming,” highlighting serious concerns about California’s financial sustainability amid persistent overspending and economic uncertainty.

At the same time, the Golden State continues to grapple with an exodus of residents, many citing soaring living costs and burdensome regulations imposed under one-party Democratic control. Critics argue that these policies are accelerating the erosion of the state’s tax base while compounding its fiscal challenges.

The controversy comes as Newsom weighs his political future. The governor recently acknowledged he is considering a run for president in 2028, though he has not formally declared his candidacy.

“Yeah, I’d be lying otherwise,” Newsom said during an interview on “CBS News Sunday Morning” when asked about his presidential ambitions. “I’d just be lying. And I’m not — I can’t do that.”

In recent months, Newsom has ramped up his national profile—visiting early primary states like South Carolina, launching a podcast, and engaging critics online in an apparent effort to position himself for a national campaign.

With term limits preventing him from seeking reelection, Newsom is set to leave office at the conclusion of his current term next year. Despite mounting fiscal concerns in California, some political observers continue to view him as a leading contender in a future Democratic primary.