Newsom’s final budget proposal, outlined Thursday in Sacramento, would steer California through the end of his term and into the next fiscal year without a projected deficit, at the same time he tries to preserve programs that defined his time in office. The plan sets total spending at $350 billion and is being positioned as fiscally responsible even as Democrats in the Legislature prepare to negotiate a final spending package by the end of June.
Newsom said his administration is “cutting deficits” while “not cutting corners,” and he tied the plan’s balance to a revenue picture that has improved since January. His office said revenues are $16.5 billion higher than projections in January, a shift intended to prevent the $2.9 billion deficit that had been projected, guarantee no budget shortfall the next year, and cut the following year’s projected gap in half.
In addition to the near-term balance, the proposal calls for setting aside $9.7 billion in a holding account intended to help the state meet future budget needs. The budget language also reflects the political context of Newsom’s departure: he cannot seek a third term and is scheduled to leave office in January.
The budget comes after California faced repeated deficits in recent years that led to painful cuts, including last year’s rollback of a promise to provide free healthcare for low-income immigrants without legal status. Nonpartisan budget analysts had previously projected California would see budget holes topping $20 billion each year in the next few years, and the AP report said Newsom and analysts sometimes diverge on those estimates.
Democrats are also preparing for the possibility of federal funding cuts, including in healthcare, and for the knock-on effects of high costs tied to the war in Iran. State officials have repeatedly said California cannot backfill all federal dollars, leaving the budget outcome tied to federal decisions alongside the state’s own revenue trends.
Newsom’s proposal also reflects a tax-and-fee strategy that would generate more money while avoiding broad increases. It would cut fees for new small businesses, limit some tax credits beginning in 2027, and impose a sales tax on some digital software and cloud-based services, which Newsom’s office estimated could generate more than $1 billion in the first year of implementation. Newsom is also against a ballot initiative for a one-time tax on billionaires that is expected to go before voters in November.
Healthcare changes are among the biggest policy items described in the plan. Newsom proposed increasing the monthly premiums for adult patients without legal status in the state-funded healthcare program up to $50 from $30; the report said the premiums are part of last year’s budget and are set to take effect in July for adults under 60 years old, and Democrats in the Senate have already signaled they plan to fight the proposal.
The AP report said California’s progressive tax system depends heavily on high earners, with about half of revenues coming from the top 1% of the population. That structure can amplify swings when the economy improves—such as during periods of strong market performance and growth tied to the artificial intelligence industry—or when it weakens, since revenues can drop quickly, and analysts warn an “AI bubble” could worsen finances.
In political reaction, Republican lawmakers said Newsom’s plan did not go far enough to address future budget problems, with Assemblymember David Tangipa saying in a statement that Newsom “appears to define fiscal success narrowly: if the budget doesn’t collapse on his watch, it’s a balanced one.” The report also said the proposal included a sharp attack on President Donald Trump and his policies, including a photo in the budget presentation depicting Trump and Treasury Secretary Scott Bessent as characters from the movie “Dumb and Dumber,” and Newsom said Trump “doesn’t particularly give a damn about the financial situation of the average American.”
Alongside the fiscal and tax measures, Newsom’s proposal included funding items described as targeted backfills and additions, including a $300 million plan to replace some government-sponsored health subsidies lost at the federal level. It also called for a $5 billion education grant for teacher training and $100 million to help Los Angeles-area homeowners rebuild after last year’s devastating wildfires, setting up the remaining negotiations in the final stretch of the legislative session.