Gov. Gavin Newsom released his revised state budget this month, and it reflects a bleaker outlook than his January spending plan.
The updated California budget projects a $12 billion deficit, driven by rising health care costs, drops in international tourism and what Newsom called the “Trump sump,” the economic fallout from President Donald Trump’s chaotic tariff policy.
“California is under assault, the United States of America in many respects is under assault, because we have a president that’s been reckless in terms of assaulting those growth engines and has created a climate of deep uncertainty,” Newsom told reporters.
Despite the downturn, the revised budget reverses some cuts to universities and adds money for universal transitional kindergarten and other education programs.
What’s changed in the updated budget? Newsom released his January plan with the promise of a balanced budget and a slight surplus of $363 million. Since then, Medi-Cal spending estimates have ballooned and Trump’s on-again-off-again trade war has thrown revenue projections into doubt.
“Washington’s imposition of tariffs has driven a downgrade in both the economic and revenue forecasts,” the budget summary states. Because of that volatility and rising healthcare costs, “the state must now close an estimated shortfall of $12 billion to balance the budget.”
Since January, projected U.S. gross domestic product growth and job growth were downgraded, while unemployment rates are expected to rise, the budget report stated. Slower growth means less tax revenue for the state.
While growth is lagging, some spending has risen. Medi-Cal costs have soared in recent years, driven by COVID-19 and the expansion of Medi-Cal to all eligible Californians, regardless of immigration status. Costs for the program more than doubled from $17.1 billion to $37.6 billion over the last decade, according to the budget report.
To control costs, Newsom plans to reduce coverage of weight loss drugs, impose premiums and freeze enrollment for undocumented immigrants starting in 2026, to save $5 billion. Those already on Medi-Cal would get to keep their coverage.
He also eliminated funding for the state Homeless Housing, Assistance and Prevention grant program, or HHAP. It’s a mainstay of local homelessness efforts. Newsom’s proposal to slash that last year prompted a backlash from city and county leaders who eventually pressured him to fund the program.
The updated budget also restores or increases some spending. Newsom peeled back some part of the cuts he planned to make to higher education. In January, he stated that he planned to trim almost 8 percent from the University of California and Cal State systems. Under his revised budget, those cuts will be about 3 percent.
UC San Diego had anticipated losing up to $500 million between state and federal funding cuts, while San Diego State expected a potential $44 million deficit over the next three years. The UC system as a whole is now slated for a reduction of about $130 million instead of an initial $400 million proposed reduction , (although federal cuts could still gut UCSD research programs.) The Cal State system is now bracing for cuts of about $144 million, down from $375 million.
The budget also keeps in place funds to offer transitional kindergarten for all 4 year olds, reduce class sizes for the youngest students and offer more summer school and after-school programs. And it would add $200 million for early literacy programs, to help students with fundamental reading skills.
San Diego leaders’ reactions: Several San Diego lawmakers expressed support for the budget changes.
“Despite the challenges posed by the Trump administration’s harmful economic policies, I commend Gov. Newsom for his steadfast commitment to defending California’s values,” Assemblymember Chris Ward wrote.
State Sen. Catherine Blakespear said she agreed with Newsom’s proposal to pare back Medi-Cal spending, stating: “This portion of our state budget is nearly three times what it was projected to be, and we need urgent and immediate cost containment.”
Blakespear applauded Newsom’s decision to back off higher education cuts, and his commitment to funding K-12 education. But she criticized his plan to eliminate homelessness grants and slash other healthcare funding.
And she opposed slashing 200 positions from the state Department of Fish and Wildlife, warning against “haphazard” staffing cuts: “We’ve seen the harmful impacts of this from the federal government.”
State Senate Minority Leader Brian Jones said Newsom was right to limit Medi-Cal enrollment for undocumented immigrants, but argued that he shouldn’t have expanded eligibility to begin with.
“With a massive deficit largely driven by this policy, our focus should be on preserving Medi-Cal for those it was originally designed to serve,” he wrote.
Not everyone was happy; the League of California Cities and the California State Association of Counties protested cuts to homelessness programs.
Graham Knaus, CEO for the counties’ association, said Newsom “evaded accountability” for previous years’ spending decisions and passed the buck on homelessness, “leaving local governments with no ongoing support to sustain these vital programs.”
California Journalism Plan Gets Funding Cut
Plans for state funds to help struggling news organizations got their own cuts recently. Last year, an ambitious plan to make social media and search engine companies pay for their use of news content got pared down to a starter fund that would distribute grants to California newsrooms.
The California Journalism Preservation Act, sponsored by Assemblymember Buffy Wicks, would have required Google and Meta to compensate publishers for revenue they generate by reposting news articles. As a compromise measure, the state and tech giants promised to pony up $175 million for local journalism across California over five years. But that’s already being whittled down.
This year Google will pay $10 million to fund local news, instead of the $15 million it pledged.
Last week, Newsom proposed cutting the state’s share of the first-year commitment from $30 million down to $10 million.
Bills I’m Watching
Ward’s bill to prevent surveillance pricing is moving onto the state Senate. The bill would ban companies from setting prices based on “personally identifiable information or gathered through electronic surveillance technology.”
Jones’ public safety bill, known as Mary Bella’s Law, got sidelined in the suspense file, a sort of legislative holding ground in the Senate Appropriations Committee. The bill would have closed a loophole in California’s Elderly Parole program that allows violent sex offenders to be released early.
The Sacramento Report runs every Friday. Do you have tips, ideas or questions? Send them to me at [email protected].
