SACRAMENTO, Calif. — Gov. Gavin Newsom unveiled a $350 billion revised budget Thursday that wipes out a projected $2.9 billion deficit, banks $9.7 billion in reserves, and resists major cuts in what the term-limited governor calls a fiscally responsible final spending plan.
The plan for the 2026-27 fiscal year relies on a $16.5 billion revenue surge — mostly from capital‑gains taxes as California’s wealthy residents benefit from a booming stock market and the rise of artificial intelligence — to turn a January shortfall into a balanced budget, Newsom’s office said. The governor, who leaves office in January 2027, is widely seen as a likely candidate for the 2028 Democratic presidential nomination.
“We’re cutting deficits. But we’re not cutting corners,” Newsom said during a press conference in Sacramento.
Last year the state clawed back a promise to extend free healthcare to low-income immigrants without legal status, a painful cut Democrats hope to avoid this time. Newsom instead proposes to raise monthly premiums for undocumented adult immigrants in the state’s health plan from $30 to $50 and to help backfill federal subsidy losses with a $300 million outlay.
The governor wants to trim some corporate tax credits starting in 2027 and to impose a new sales tax on some digital software and cloud-based services, a move his office estimates will raise more than $1 billion in the first year. Those proposals face pushback from business groups, while Democrats in the Senate have already signaled they will resist the premium increase.
Republican leaders said Newsom’s final budget does not go far enough to head off what legislative analysts warn is a looming fiscal shock. Nonpartisan experts project budget holes exceeding $20 billion in each of the next several years, as the nation’s most populous state grapples with the end of pandemic‑era federal aid and the uncertain trajectory of the AI‑fueled IPO market.
“Governor Newsom appears to define fiscal success narrowly: if the budget doesn’t collapse on his watch, it’s a balanced one,” Assemblymember David Tangipa said in a statement.
Newsom used Thursday’s presentation to tie the state’s financial picture to national politics. A slide displayed President Donald Trump and Treasury Secretary Scott Bessent as characters from the film “Dumb and Dumber,” and Newsom said Trump “doesn’t particularly give a damn about the financial situation of the average American.”
The budget also includes $5 billion for teacher training, $100 million to help rebuild after last year’s Los Angeles‑area wildfires, and a $9.7 billion holding account to buffer future deficits. With California’s progressive income tax highly sensitive to the investment returns of the top 1%, the governor’s aides acknowledged the fiscal outlook could shift rapidly if the stock market or AI sector slows.