Newsom tries to fix $35 billion multi-year budget deficit
By Madeline Shannon
The Center Square
In presenting the May revision of his final budget as governor, Gavin Newsom proposed ways to fix California’s $35 billion multi-year budget deficit.
The likely presidential hopeful’s attempt to solve the state’s budget woes depends on estimated general fund revenue sources from personal income taxes, corporate taxes, and sales and use taxes. The Democratic governor projected the revenues would run $16.5 billion higher than what his initial budget projected in January. That budget initially proposed revenue numbers that left the general fund with $232.3 billion. The new budget puts the revenue total at $248.8 billion.
“It’s a responsible budget, from our perspective, and one that represents, broadly, our values,” Newsom said at a Capitol press conference announcing his revised budget. “This is a balanced budget we’re submitting in '26-27 and '27-28. This is a balanced budget, structurally, for the next 18 months after I’m gone.”
Approximately $3.6 billion in revenue in 2026-27 can be generated from limiting business credit use, taxing software and taxing managed care organizations, according to the revised budget proposal. That is expected to grow to $5.1 billion in 2027-28. A number of spending reductions were proposed in the budget, namely $411 million in limiting Medi-Cal asset spending and increasing monthly premiums for adults with unsatisfactory immigration status.
The budget proposed that reducing spending on both programs would result in savings of $711.9 million by 2029-30.
Notably absent from the revised budget was funding for Proposition 36, the public safety measure Californian voters overwhelmingly approved in 2024. The measure aimed to make certain drug-related misdemeanor crimes a felony, and it created mandated treatment programs for those convicted of felony drug charges. Newsom opposed the measure and initially did not propose funding to implementing Prop. 36 in his 2025-26 budget last year. Ultimately, roughly $100 million was allocated to Prop. 36 that fiscal year.
Newsom did not propose new funding for Prop. 36 in his initial January budget. Instead the revised budget proposed that money left over from implementing Proposition 47, a 2014 soft-on-crime measure, could be used to pay for court-ordered treatment programs.
“Prop. 36 still has money from the $100 million from a few years ago,” Newsom said. “It still has some money from Prop. 47. We’ve been talking about this enough, and those resources still exist.”
Republican lawmakers who spoke to The Center Square on Thursday said they want to see more funding for Prop. 36 from the governor’s budget.
“I would like to see that fully funded,” Sen. Tony Strickland, R-Huntington Beach, told The Center Square on Thursday. “Fully funded is $400 million a year moving forward.”
The $100 million already allocated to Prop. 36 from last year’s budget is not adequate, Sen. Roger Niello, R-Fair Oaks, said at the governor’s budget press conference.
“Even my friends on the other side of the aisle will tell you that’s not enough,” Niello said. “We need at least $300 million, $400 million. The really expensive part of Proposition 36 is drug treatment.”
Newsom previously projected that the state faced a $2.9 billion budget deficit, much lower than the $18 billion deficit initially projected by the Legislative Analyst’s Office in November 2025. The rosy budget projection was based on a boost in tax revenues based on big technology companies’ high corporate valuations from the boom in artificial intelligence technology.