California Governor Gavin Newsom has proposed a $322 billion zero-deficit budget, a welcome change after two years of significant budget deficits in the nation’s most populous state.
But the budget Newsom announced Monday is largely a placeholder as California waits to see whether new President Donald Trump will follow through on threats to withdraw billions in federal dollars, which could force lawmakers to make painful cuts implement essential programs. About a third of California’s budget depends on funding from the federal government, including tens of billions for providing 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 donating $25 million to Attorney General Rob Bonta’s office to defend against or meet potential legal challenges from the Trump administration. There will likely be battles between California and Washington DC over climate policy and immigrant rights. Senators have also proposed additional funding to provide free legal services to immigrant communities.
Newsom’s administration plans to provide more details on the budget proposal on Friday, the deadline for presenting it to lawmakers. Newsom announced the numbers early before leaving the state for former President Jimmy Carter’s funeral services.
Newsom said he is proposing little new spending, but the budget does allow the state to fully implement the nation’s first universal transitional kindergarten program, which would make such school free for about 400,000 four-year-olds in California. That’s an effort Newsom has championed since 2021.
He said proper planning in the previous budget enabled the state to avoid a major deficit this year.
“Last year we tried to make this year’s budget a non-event,” Newsom said.
The governor’s office also estimates that tax revenues for this year will be $16.5 billion above expectations, thanks to the booming stock market and rapid income growth for high-income Californians.
That has helped the state weather a sluggish economy, with limited job growth and persistently weak consumer spending.
California’s economy is the fifth largest in the world. Last year the state faced a budget deficit of an estimated $46.8 billion and the year before that a budget deficit of $32 billion. Such shortages have forced the state to reverse or delay some of its progressive policies, which were fueled by record surpluses during the COVID-19 pandemic.
Unlike most states, California taxes capital gains – usually money earned from investments and stocks – at the same rate as money earned from wages and salaries. The result is that nearly half of the state’s income tax collections come from just 1% of the population. That has led to unpredictable, wide swings in revenue in California’s budget.
In November, the nonpartisan Legislative Analyst’s Office warned that the state will face double-digit deficits over the next five years. That could limit California’s ability to protect its programs from Trump’s attacks.
