Gov. Gavin Newsom’s (D-CA) administration is set to climb out of a $2 billion deficit hole with the help of substantial government cuts and higher-than-projected revenue for the state.
The administration, with Newsom absent during the wildfire crisis, laid out the details of the governor’s 2025-2026 budget proposal on Friday.
The new proposal will give the state a $363 million budget surplus. The primary drivers of the newfound surplus were a $9.4 billion tax revenue windfall and an elimination of 6,500 vacant positions, saving $1.2 billion. It will not cut any major programs like Newsom’s free universal “transitional kindergarten.”
California Director of Finance Joe Stephenshaw blamed past inaccurate tax revenue projections on an IRS tax filing delay “which impacted our ability to accurately forecast and understand where revenues were headed.”
Stephenshaw insisted that there was little difference between state budget officials’ projection and the Legislative Analyst Office’s, which projected a $2 billion shortfall.
“We really went a long way in moving California back on onto some solid fiscal footing, and this budget reflects that,” Stephenshaw told reporters.
The position reduction across state government will not include public health and safety jobs like police and firefighters. Other cuts involve the state government’s operations, which include “a reduction in state travel budgets, printing, and IT system modernization that result in $3.5 billion in reduced taxpayer costs.”
Despite the added surplus, Newsom is adding a total of $17 billion to the state’s reserves in part because of the uncertainty a Trump administration presents for the state. California is anticipated to spend a significant amount on legal challenges to the Republican’s moves in office and is also preparing for a possible economic downturn from his tariff and trade policies.
“In the months ahead, California is facing a new federal administration that has expressed unreserved and uninformed hostility toward Californians, threatening the funding of essential services for political stunts,” Newsom said in a statement. “Continued global instability and the prospect of another downturn in the financial markets, as well as additional pressure on state expenditures, are warning signs to remain vigilant and prudent.”
Newsom’s proposed budget still has a long way to go. He sent the proposal to the state legislature, which will revise his budget in May and return it to him to sign.
The state will receive help from the federal government for the wildfire emergency, preventing a further budget shortfall with added expenditures. President Joe Biden previously said the federal government would cover 100% of the fires’ management and debris removal costs for 180 days.
The California Budget & Policy Center, a nonpartisan research and analysis nonprofit group, praised the state’s additional tax revenue though slammed the lack of added investment in the state.
“The modest surplus reflects a stronger-than-expected economy; however, not everyone has benefited from the bull market,” Executive Director Chris Hoene said in a statement. “State leaders should prioritize policies — and reasonably raise revenues — to help families make ends meet and empower them to thrive and fully share in the state’s prosperity.”
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
“Additional revenues would help curtail out-year deficits and hedge against emerging federal budget and policy challenges,” he added. “To further safeguard California’s future, we urge the governor to adopt more proactive revenue strategies to strengthen and protect essential services, including health care, affordable housing, poverty reduction programs, climate resilience, and public transportation, for the state’s growing population.”
Hoene criticized Newsom’s government for offering “wasteful tax breaks” instead of addressing “critical gaps” for certain communities across the state.
