California Governor Gavin Newsom is entering his final year in office facing a significant challenge: an $18 billion budget deficit. This marks a stark contrast to the $21.4 billion surplus he inherited in 2019. Newsom’s initial years saw ambitious investments in affordable housing, child care, and health care, but the state’s fast-growing spending and federal funding cuts have contributed to the current deficit. According to CalMatters, the deficit could grow to $35 billion annually if long-term solutions aren’t found.
The Legislative Analyst’s Office (LAO) suggests that sustainable revenue increases or spending cuts are necessary, but both options are politically challenging. Newsom and state leaders have been reluctant to raise taxes or cut spending, especially with upcoming elections. The state’s reserve fund has dwindled to $14 billion, half its peak balance, after years of withdrawals and borrowing, leaving California less prepared for economic downturns.
The deficit is partly due to increased costs in Medi-Cal, the state’s primary health insurance program for low-income residents. Last year, the state froze new Medi-Cal enrollment for undocumented immigrants and charged a $30 monthly premium. This year, the Trump administration’s budget reduced federal funding for Medi-Cal, requiring California to pay more to maintain benefits. The Los Angeles Times reports that the state could spend at least $1.3 billion more due to these changes.
Newsom’s handling of the deficit will have implications for his expected presidential bid. State Republicans have criticized his management, with Assemblymember David Tangipa calling a potential Newsom presidency a “fiscal and governance disaster.” As Newsom prepares to release his proposed budget, he faces pressure to find solutions that balance the budget without sacrificing key social services.
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