# California Update: New Year, “New” Newsom . . . Same Old Problems? Source: https://www.youtube.com/watch?v=qyTLwZILKSA Recap page: https://rapidrecap.app/video/qyTLwZILKSA Generated: 2026-01-16T18:03:56.939+00:00 --- ## Quick Overview Governor Newsom's second term in California faces significant financial hurdles, as evidenced by the Legislative Analyst Office's projection of a $35.9 billion deficit for the next fiscal year, forcing difficult decisions on spending and potentially requiring cuts to popular programs like housing and AI-related initiatives, despite Newsom's initial $100 billion surplus just a few years prior. **Key Points:** - The Legislative Analyst Office (LAO) projects a $35.9 billion deficit for California's next fiscal year, contrasting sharply with the $100 billion surplus just three years earlier. - Governor Newsom is expected to address this budget shortfall in his upcoming State of the State address, likely by proposing spending cuts or revenue enhancements. - Key areas facing potential cuts or reductions include high-speed rail funding, housing programs (which are already expensive), and AI-related spending. - The LAO analysis suggests that current spending priorities, particularly costly housing initiatives, are unsustainable given the revenue decline. - Newsom's administration is unlikely to seek new taxes or major ballot measures to address the deficit, preferring to cut existing programs or rely on one-time funds. - The discussion touches on the complexity of California's budget, which is heavily reliant on volatile income tax revenues, particularly from the wealthiest residents and the tech sector. - The hosts note that Newsom's aggressive spending and policy focus over the past four years have created issues that are now harder to reverse. ![Screenshot at 00:04: The title screen for the podcast episode 'California Update: New Year, “New” Newsom . . . Same Old Problems?' featuring Hoover Institution fellows Lee Ohanian and Bill Whalen, setting the stage for a discussion on the state's fiscal challenges.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-00-04.jpg) **Context:** This discussion from the Hoover Institution's 'Matters of Policy and Politics' podcast, recorded shortly after January 15th, 2026, centers on an update regarding California's fiscal situation under Governor Gavin Newsom at the start of his second term. The conversation focuses on the stark contrast between California's recent massive budget surplus and the current projected deficit, forcing the administration to re-evaluate spending priorities across various sectors like housing, infrastructure, and education. ## Detailed Analysis The discussion begins with the host noting Governor Newsom's return to the Capitol for his first State of the State address of his second term, framed around the question of whether California faces the same old problems despite a new year. Bill Whalen highlights that Newsom is returning to a vastly different fiscal reality than when he took office in 2019, referencing a previous discussion where the state had an enormous surplus, which has now evaporated. Whalen points to the LAO's projection of a $35.9 billion deficit for the upcoming fiscal year, up from the $2.9 billion shortfall projected just a few months prior. This deficit is driven by a significant decline in personal income tax collections from high-income earners and tech profits, coupled with high spending commitments. Lee Ohanian notes that the proposed spending on items like high-speed rail and housing is inherently expensive, and that the state's organizational structure, which favors Democrats, makes cutting these popular programs politically difficult. Whalen mentions that Newsom's previous policies, such as large spending on housing (where a 1,000 sq ft unit costs nearly $1 million to build) and other state programs, are now proving unsustainable. The discussion turns to the political difficulty of reversing course, citing Newsom's history of aggressively pursuing progressive agendas, which now results in tough choices regarding the budget. Whalen suggests that Newsom's administration is unlikely to seek new taxes or place a measure on the ballot to fix the deficit, instead opting for cuts or maneuvers like using the state reserve fund, which is now depleted. Ohanian points out that Newsom is already running a narrative where he blames outside forces (like the Iranian regime's actions or tech layoffs) rather than internal policy decisions for the fiscal trouble. The conversation concludes that the structural problems remain, and the state's reliance on volatile high-income tax revenue makes consistent budgeting difficult, suggesting the 'new' Newsom approach might quickly revert to the 'same old problems.' ### Fiscal Reality Check - LAO projects a $35.9 billion deficit for the next fiscal year - Contrast with Newsom's initial $100 billion surplus - Deficit driven by falling income tax revenue from high-earners and tech sector slowdown ### Spending Commitments Under Scrutiny - Housing costs remain prohibitively high ($1 million/1000 sq ft) - High-speed rail and other expensive programs are now targets for cuts - Newsom's administration faces difficulty reversing expansionist spending policies ### Political Maneuvering - Newsom avoids popular measures like new taxes; relies on budget maneuvers - LAO report suggests Newsom's policies are politically accountable for the fiscal woes - Newsom frames issues as external (Iran, tech layoffs) rather than self-inflicted ### Future Outlook - The structural issues of California's revenue base remain - The state may face prolonged, difficult budget negotiations in the legislature - The talk concludes that the fundamental problems persist despite the 'new' year/term ![Screenshot at 00:04: The title screen for the podcast episode 'California Update: New Year, “New” Newsom . . . Same Old Problems?' featuring Hoover Institution fellows Lee Ohanian and Bill Whalen.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-00-04.jpg) ![Screenshot at 01:00: Bill Whalen citing Newsom's State of the State address where he floated measures like high-speed rail and housing funding.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-01-00.jpg) ![Screenshot at 02:59: Lee Ohanian expressing cynicism about Newsom's political maneuvering, suggesting he is avoiding accountability for the state's fiscal situation.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-02-59.jpg) ![Screenshot at 04:04: Bill Whalen noting that Newsom seems sincere about addressing issues like homelessness but is living in a 'court of reality' regarding his policy outcomes.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-04-04.jpg) ![Screenshot at 05:56: Lee Ohanian pointing out the difficulty in reversing Newsom's policies, referencing the massive spending during the surplus years.](https://ss.rapidrecap.app/screens/qyTLwZILKSA/00-05-56.jpg)