Cuts now except for AI bust

from Yue Stella YuCalMatters

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Gov. Gavin Newsom is proposing further budget cuts and expanding state reserves despite a recent surge in tax revenue — an attempt to balance the books in anticipation of a looming long-term deficit in the coming years, he said.

In a presentation filled with criticism of the Trump administration and featuring memes, including a depiction of President Donald Trump and Treasury Secretary Scott Bessant as “dumb and dumber,” Newsom released his latest budget plan as governor on Thursday.

He proposed a $350 billion spending plan that would cut the state’s budget deficit over two years and cut long-term budget holes in half. Newsom had promised not to leave his successor with a huge structural deficit.

“I’m not trying to get out of Dodge,” Newsome said. “This is a structurally balanced budget for the next 18 months after I’m gone.”

He proposed cutting general fund spending by $1.8 billion, primarily through additional retrenchment Medi-Calincluding by raising monthly premiums for undocumented immigrant adults by $20 and restoring Medi-Cal asset tests.

Although Newsom wants the state to continue drawing $7 billion from state reserves this year, his proposal would also shore up the rainy day fund by transferring $3.6 billion to the account and earmarking nearly $10 billion more for the 2027-28 fiscal year.

The governor’s presentation is an updated outlook on the state’s finances from January, when the Newsom administration projected “modest deficit” of $2.9 billion, which will grow to a $22 billion deficit in fiscal year 2027-28.

Since then, the state’s tax revenue has grown faster than expected, thanks to a robust stock market and California’s robust AI-driven tech sector. Newsom predicted the state would receive $16.5 billion more in revenue over a three-year budget window than expected in January.

But Newsom said the state’s financial outlook remains grim, attributing much of the uncertainty to Trump’s policies, including a spending plan the president calls his “one, big beautiful bill.” She can take off her clothes 2 million low-income Californians of health insurance and the Iran war it sent gas prices skyrocketed across the country.

“We have a president who … doesn’t really care about the financial situation of the average American,” Newsom said.

It’s unclear how long California’s revenue growth will last. The recent surge in tax collection suggests the stock market is reaching “bubble territory” and could be headed for a “potential crash,” said the nonpartisan Legislative Analyst’s Office, which advises the state Legislature. “The state must be prepared for one or two years of revenue being tens of billions lower.

Spending in California continues to outpace revenue growth. Since fiscal year 2019-20, spending has increased by more than $100 billion, mainly from maintaining and expanding K-14 education, according to LAO.

“We have to tighten our belts and we have to focus on results,” he said.
But Newsom is proposing new spending in some areas, including 300 million dollars to subsidize private health care for low-income and middle-class Californians, as well as money to offer paid pregnancy leave for TK-12 and community college employees, and to cut filing fees in half for about 250,000 new businesses.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.