TURLOCK, Calif. (AP) — California Gov. Gavin Newsom has proposed a $322 billion deficit-free budget, a welcome change after two years of significant budget deficits in the country’s most populous state.
But the budget announced Monday by Newsom is largely a placeholder as California waits to see whether modern President Donald Trump follows through on his threats to strip billions of federal dollars, which could force lawmakers to make painful cuts to key programs. About a third of California’s budget depends on federal funding, including tens of billions of dollars to provide health care services. Trump takes office on January 20 and Newsom must sign the final budget by the end of June.
California lawmakers have already opened a special session to consider giving Attorney General Rob Bonta an additional $25 million to defend against or take on possible legal challenges from the Trump administration. Disputes over climate policy and immigrant rights are likely to arise between California and Washington, DC. State senators have also proposed additional funding to provide free legal services to immigrant communities.
Finding a way to balance the budget amid possible losses in federal funding will be a major challenge for Newsom, who is entering the final two years of his final term and remains considered a future presidential candidate.
One project that could be at risk is the state’s high-speed rail project, which would ultimately carry passengers between Los Angeles and San Francisco, but is woefully underfunded and behind schedule. Trump cut nearly $1 billion in federal funding during his first term in 2019, and several Republican members of Congress are already targeting the project more than the cost. President Joe Biden later restored federal dollars allocated to him.
Perhaps anticipating a challenge, Newsom also traveled to a project site on Monday to discuss progress, including obtaining all environmental permits required for construction.
“This is not just a transportation project. “This is a transformational project,” Newsom said. “To the cynics who are full of cynicism, who stand on the sidelines and don’t get involved: We are here to make it work.”
On the budget, Newsom gave few details about proposed spending but boasted of progress on issues where the state has faced criticism, including investments in education and infrastructure and efforts to address the homelessness crisis. The Democratic governor said he remains positive about the state’s future despite the uncertainties ahead.
“We are also running into headwinds, a completely different moment in U.S. history,” he said. “We have to be prepared.”
Newsom’s administration plans to provide more details on the budget proposal before Friday’s deadline to submit it to lawmakers. Newsom announced the numbers early before leaving the state to attend former President Jimmy Carter’s funeral.
Newsom said he was proposing little modern spending, but the budget would allow the state to fully implement the nation’s first universal transitional kindergarten program, making such schooling free for about 400,000 4-year-olds across California. Newsom has been committed to this since 2021. His plan also includes increasing the state’s film and television tax credit to $750 million a year to bring back Hollywood jobs that went to New York and Georgia.
He said good planning in the last budget allowed the state to avoid a larger deficit this year.
“Last year we tried to make this year’s budget a non-event,” he said.
The governor’s office also estimates tax revenues for this year will be $16.5 billion above projections, driven by the booming stock market and rapid income growth among high-income Californians.
This has helped the state weather a sluggish economy with restricted job growth and continued faint consumer spending.
California’s economy is the fifth largest in the world. The state had an estimated budget deficit of $46.8 billion last year and a budget deficit of $32 billion the year before. The state also saved $1.2 billion over two years by eliminating about 6,500 state department vacancies and another $3.5 billion by cutting travel budgets and modernizing IT systems, said Newsom.
Still, such shortfalls have forced the state to scale back or postpone some of its progressive policies, fueled by record-breaking surpluses during the COVID-19 pandemic.
Unlike most states, California taxes capital gains — primarily money from investments and stocks — at the same rate as money from wages and salaries. The result is that nearly half of the state’s income tax revenue comes from just 1% of the population. This has led to unpredictable, immense fluctuations in revenue in California’s budget.
Republican Sen. Roger Niello, who sits on the Budget Committee, said the governor had failed to provide a plan to deal with future budget deficits. In November, the nonpartisan Legislative Analyst’s Office warned that the state faces double-digit deficits in the next few years.
“We’re looking at $20 billion to $30 billion in deficits, and if we don’t do something about it now, it’s going to be very difficult,” Niello said in an interview.
Newsom said Monday that he supports efforts to expand the state’s rainy day fund but acknowledged it would be a “Herculean effort.”
