Newsom, lawmakers differ on fixing the state’s budget deficit

from Dan WaltersCalMatters

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Gavin Newsom is officially a lame-duck governor, and his final year in office looks increasingly focused on a near-certain campaign for the White House.

In the meantime, however, he must spend at least part of his time governing California and dealing with a legislature dominated by his fellow Democrats, but increasingly less willing to pander to his whims.

Newsom’s relationship with lawmakers has always been more transactional than collaborative. He has even used the annual budget process to to force them to accept major policy changes with little or no control. Lawmakers often grumbled about being pressured by Newsom, but they felt compelled — not always but most of the time – let’s go together.

However, their irritation is becoming more public, as indicated during legislative hearings on his final budget last week.

Newsom’s original budget was $349 billion for the 2026-27 fiscal year is, administration officials acknowledge, merely a placeholder. It continues the current budget with a few tweaks, but won’t be finalized until May, just a month before the June 15 constitutional deadline.

This year, the squeeze is particularly worrisome because the Legislature’s budget adviser, Gabe Petek, and Treasury officials are both warning that the state is facing large and growing budget deficits after Newsom leaves.

The frustration was evident last week introductory hearings for budget committees. Lawmakers heard Petek’s advice to tackle the projected deficit sooner rather than later and discussed measures ranging from sharp spending cuts to sharp tax increases.

But in the absence of details from Newsom, they could only speculate.

Newsom stubbornly opposed large tax increases, even though they were his administration’s huge error in revenue forecasts four years ago, it helped create what officials call a “structural deficit,” meaning the revenue system can’t generate enough money to pay for all the programs and services now offered.

The administration’s blunder in the 2022 revenue forecast of $165 billion over four years led to Newsom’s announcement of a $98 billion budget surplus and a sharp increase in spending, particularly for social services. As an ideological principle, Democratic lawmakers don’t like cutting those improvements to balance the budget, which is why tax increases were mentioned repeatedly during hearings last week.

The state senator’s comments. Caroline MenjivarDemocrat from Van Nuys, epitomizes the tension that Democratic lawmakers are feeling. She called one of Newsom’s health care proposals, reducing Med-Cal benefits for undocumented immigrants“barbaric”.

“I’m disappointed that there’s no proposal to change the way our revenue comes in,” Menjivar said. “We can’t just walk away from it. I think there has to be a mix of cuts, being strategic about how we use our dollars, but also looking to change our revenue streams.”

While the anxiety over the budget is palpable, cuts in federal support for expensive health and welfare programs imposed by President Donald Trump and the Republican-controlled Congress raise the stakes even further. If they wanted, some Democrats would not only raise taxes to cover the state’s structural deficit, but supported cuts in federal aid.

Meanwhile, public employee unions and their allies are proposing two measures on the November ballot to raise revenue: one-time wealth tax for the state billionaires and an extension of temporary additional tax on high-income taxpayers, which was imposed in 2012 to close a budget deficit and later extended until 2030.

The situation raises more questions than answers.

Will Newsom follow through on his promise to close this year’s deficit and those projected for the future?

With a likely presidential campaign ahead, will he maintain his stance against tax increases?

Will Democratic lawmakers push for tax increases to balance the budget without major spending cuts?

In an eye-to-eye scenario, we’ll see who blinks first.

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