Newsom’s final – California Gov. Gavin Newsom unveiled a revised budget for his last year in office and the next, aiming for no deficit while presenting a $350 billion spending plan. The proposal leans on stronger-than-expected revenues, adds selected new commitments, and head
When California Gov.. Gavin Newsom stepped to the microphone Thursday. he framed the moment as both a finish line and a foundation—his last budget as governor. built to avoid deficits at a time when lawmakers are bracing for federal cutbacks and California’s own finances have repeatedly come under strain.
Newsom proposed a revised budget without a deficit for his last year of office and the next. laying out a $350 billion spending plan that includes little new spending but also avoids major cuts.. He said he is eager to protect programs that have defined his tenure in the nation’s most populous state and one of the world’s largest economies. and he cast the plan as fiscally responsible while pushing California’s “rainy day funds.”
“We’re cutting deficits. But we’re not cutting corners,” Newsom said.
The governor is also barred from seeking a third term and will leave office in January.. With a possible presidential run in 2028 already in view. Newsom is selling the proposal as a rebuttal to critics who say California spends more than it has. noting that state spending has grown more than $100 billion since 2020. according to legislative budget analysts.
The budget’s math depends heavily on the rebound in revenues.. Newsom’s office said revenues are $16.5 billion higher than projections made in January. driven mostly by a booming stock market and the artificial intelligence industry.. Those gains. his office said. will help the state avoid a $2.9 billion deficit projected in January. guarantee no budget hole next year. and cut the shortfall the following year in half.
Newsom also wants to set aside $9.7 billion in a holding account to help balance future budgets.
For years, California has been forced into painful resets when deficits returned.. The state faced tens of billions of dollars in budget deficits several years in a row. and Newsom’s budget included last year’s rollback on a promise to provide free healthcare to low-income immigrants without legal status.. Nonpartisan budget analysts previously projected the state will see budget holes upward of $20 billion each year in the next few years.. Newsom and the analysts sometimes differ in their estimations.
Still, the governor’s promise of balance lands as lawmakers look toward federal uncertainty.. Democrats are bracing for federal funding cuts in healthcare and for the broader impacts of high costs on everything from gas to energy because of the war in Iran.. State officials have repeatedly said California cannot backfill all the federal dollars.
Within the Legislature. Republican lawmakers are pushing back that Newsom’s plan doesn’t go far enough to address future budget problems.. Assemblymember David Tangipa said in a statement: “Governor Newsom appears to define fiscal success narrowly: if the budget doesn’t collapse on his watch. it’s a balanced one.” Republicans are also largely excluded from budget negotiations because Democrats have supermajorities in both chambers.
Newsom’s pitch also carried a sharp message at the federal level.. He blasted President Donald Trump and his policies. including in his budget presentation a photo depicting Trump and Treasury Secretary Scott Bessent as characters in the movie “Dumb and Dumber.” Newsom said. “Trump doesn’t particularly give a damn about the financial situation of the average American. ” adding to the sense that state budgeting is being shaped not just by local choices but by Washington’s stance.
The proposal will officially kick off the final stretch of negotiations between Newsom and Democrats in the Legislature, which must pass a budget by the end of June.
A central dispute in the coming talks is how to raise or adjust revenues.. State lawmakers this year are considering several proposals to increase taxes on corporations to help address budget problems.. Newsom has largely avoided raising taxes to boost revenues in past years. but his new plan instead includes a set of targeted changes: cutting fees for new small businesses. limiting some tax credits starting in 2027. and imposing a sales tax on some digital software and cloud-based services.. The two tax measures, his office said, could generate more than $1 billion the first year of implementation.. Newsom also said he is against a ballot initiative for a one-time tax on billionaires that will likely go before voters in November.
Newsom’s healthcare changes are also tied to budget tradeoffs that lawmakers may resist.. He proposed to increase the monthly premiums for adult patients without legal status in the state-funded healthcare program—from $30 to $50.. The premiums were part of last year’s budget and are set to take effect in July for adults under 60 years old.. Democrats in the Senate already signaled they will fight the plan.
California’s tax structure adds another layer to the risk.. The state has a progressive tax system that relies on rich people. meaning it gets about half its revenues from just 1% of the population.. When the economy is good. rich people pay more and revenues can soar quickly; when the economy is bad. they pay less and revenues can drop just as fast.. Budget experts have also warned that while the state could see a revenue boost from expected upcoming initial public offerings by several major artificial intelligence companies—expected to be the largest IPOs in history—the state could also be hit by a potential AI bubble that could worsen finances.
Thursday’s budget proposal also includes concrete spending commitments: a $300 million plan to backfill some of the loss of government-sponsored health subsidies. a $5 billion education grant for teacher training. and $100 million to help Los Angeles-area homeowners rebuild after the devastating wildfires last year.
The thread running through Newsom’s proposal is the sequence of relief and restraint—higher-than-expected revenues of $16.5 billion to avert the $2.9 billion deficit projected in January. a $9.7 billion holding account intended to support future balances. and a list of targeted moves like limiting some tax credits starting in 2027 and setting premiums up to $50—alongside spending items such as $300 million for health subsidies. $5 billion for teacher training. and $100 million for wildfire rebuilding.
The fight now shifts to the Legislature. where Democrats with supermajorities must finalize negotiations and pass a budget by the end of June. with Republicans criticizing the long-term risk they say remains and Democrats in the Senate already signaling resistance to parts of the healthcare premium increase.
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