California’s political landscape is about to look considerably different. The Nov. 3 election delivered a sweeping victory for Democrats at both the state and national levels and set the stage for a new administration under Governor-elect Xavier Becerra.
But beyond the election results, the bigger questions may be what comes next—and how the changes will affect California’s economy, business environment, tax policy and professional landscape.
During CalCPA’s special election-focused Capital Beat, Jason Fox, CalCPA’s vice president of advocacy and public affairs, and Missy Johnson, director of government affairs at Nielsen Merksamer, examined the election results and discussed the issues likely to dominate the legislative agenda in 2027.
For CPAs and finance professionals, several developments deserve close attention.
A New Political Dynamic in Washington and Sacramento
Democrats made significant gains nationwide, taking control of both the House and Senate. And the results reinforced Democratic dominance in the California Legislature, where the party is positioned to expand its already substantial supermajorities.
Several traditionally Republican districts appear to have shifted, potentially costing Republicans as many as seven Assembly seats and three Senate seats.
While a stronger Democratic majority could make it easier to advance legislation, it also raises questions about the role of moderate Democrats. Historically, moderate lawmakers have sometimes partnered with Republicans to negotiate amendments and influence legislation. With fewer Republicans in the room, those relationships and negotiating dynamics could change.
As Johnson observed, “One-party rule is not good.” For businesses and professional organizations, maintaining a meaningful balance of perspectives can be important to developing practical, workable policy.
A Different Approach to Governing?
California’s next governor, Xavier Becerra, brings a different background and governing style than Newsom. A former state assemblymember, congressman, California attorney general and U.S. secretary of Health and Human Services, Becerra has spent much of his career in public service.
Johnson described the governorship as his long-standing ambition and suggested his approach could bring a different tone to Sacramento.
She characterized Becerra as more deliberate and detail-oriented, with an emphasis on collaboration and communication. He has already begun meeting with legislative caucuses and outlining his intention to build more productive working relationships.
However, his specific policy priorities remain largely unknown. His positions on the budget, taxes, health care, business regulation and technology will become clearer as he prepares to take office.
For California’s business community, the transition offers both uncertainty and opportunity. A more collaborative administration could create opportunities for engagement, but policy direction will depend on how Becerra balances competing interests and the state’s growing financial obligations.
Tax Policy and the State Budget: More Questions Ahead
One of the more closely watched ballot measures was Proposition 40, the proposed wealth tax. Johnson said the measure’s defeat was not particularly surprising, given that polling showed it losing support as the campaign progressed.
Propositions 41 and 42, which were designed to counter aspects of the wealth tax proposal, also produced mixed results. While the broader effort to prevent a wealth tax appears to have succeeded, the discussion surrounding how California taxes wealth and income is unlikely to disappear.
And that conversation could become especially relevant as the state confronts a challenging budget outlook.
Although current tax revenues are coming in somewhat above projections, the longer-term picture is less encouraging. Federal funding reductions included in H.R. 1 are expected to begin having a greater effect on states in 2027. California also faces an ongoing structural budget deficit.
Johnson expects state leaders to delay difficult decisions as long as revenues remain relatively stable. When those pressures become harder to ignore, however, tax increases could become an early consideration before lawmakers turn to spending reductions.
Several proposals could resurface, including a potential “fair share tax” on employers whose compensation and benefits arrangements do not provide employees with health care coverage. A Department of Finance report examining the concept is due March 1. Other proposals involving Water’s Edge tax treatment and taxation of software sales could also return to the legislative discussion.
For CPAs advising businesses and individuals, these developments warrant attention. Changes to California’s tax structure, employer obligations and revenue policies could have meaningful implications for tax planning, compliance, and business decisions.
AI Regulation: Technology and the State’s Financial Interests
Artificial intelligence will be another major issue facing the incoming administration and Legislature.
California lawmakers have already begun examining AI-related risks, including automated decision-making systems, accountability and safeguards surrounding increasingly sophisticated technology. Additional legislation is expected, with technology companies likely to play an active role in shaping the debate.
But there is an important economic consideration. California’s technology sector contributes significantly to state revenues, particularly through major company valuations and public offerings.
As Johnson pointed out, the state’s current financial position is due in part to the success of technology companies. That creates a balancing act: lawmakers want to address legitimate concerns about AI while protecting an industry that contributes substantially to the state’s economy.
For accounting professionals, the outcome could influence how businesses adopt AI, manage risk, establish internal controls and address questions of accountability and assurance.
The Accounting Profession Faces Its Own Regulatory Changes
Beyond the broader political landscape, Fox highlighted several developments that could directly affect CPAs and accounting firms.
Nationally, regulators and professional organizations are examining ways to modernize the profession’s regulatory framework. Topics include continuing professional education requirements, the use of CPA titles, private equity investment in accounting firms and alternative practice structures.
The goal is to ensure that regulations keep pace with changes in how accounting firms operate while continuing to protect the public.
Fox noted that many of these discussions are moving beyond preliminary conversations, with more concrete proposals expected that could require legislative or regulatory action in California.
CalCPA will remain actively involved with the California Board of Accountancy, AICPA, NASBA and other state organizations as these issues develop.
Another important development is the implementation of AB 1175 and California’s new licensing model, expected to take effect in January 2027, pending final regulatory approval. CalCPA is providing resources and monthly Licensure Lounges to help students, candidates, academics, and firms understand the changes.
Staying Engaged Will Matter More Than Ever
With a new governor, a significantly reshaped Legislature and major policy questions ahead, 2027 promises to be an active year in Sacramento.
For CPAs and finance professionals, staying informed is important, but participating in the conversation may be just as valuable.
As Johnson emphasized, legislators need to hear directly from the professionals who understand the practical implications of their decisions.
CalCPA's upcoming CPA Day in February will provide an opportunity for members to meet with legislators, establish relationships with newly elected officials and share their perspectives on issues affecting the profession.
The political landscape may be changing, but one thing remains constant: The accounting profession needs a seat at the table when decisions are made about its future.
