SACRAMENTO, Calif. (CN) — Saying he wants to protect California’s core services while making tough choices for other parts of state government, Governor Gavin Newsom on Friday revealed a $288.1 billion budget.
The May revise, the phrase coined for the governor’s proposed budget that’s released after April’s tax receipts, calls for filling a $27.6 billion deficit. That’s a change from his January estimate of a $38 billion shortfall.
Newsom on Friday pointed to that shortfall climbing by $7 billion, with $17.3 billion in “early action” maneuvers — which include shifting dollars and pulling back one-time spending — reducing the figure to $27.6 billion.
In contrast, the state Legislative Analyst’s Office has said the deficit is closer to $73 billion.
“We have to be responsible,” Newsom said. “We have to be accountable. We have to balance the budget.”
California has what Newsom called a “progressive” tax structure. Much of the state’s tax revenues come from capital gains taxes, which can bring significant volatility depending on the state of the economy.
That led Newsom on Friday to detail his proposal to, as he called it, maintain core services. His solutions involve using reserves, improving efficiencies, reducing program funding, pausing the expansion of existing programs, and pulling from revenue and borrowing.
Some $762.5 million in savings would come leaving about 10,000 state jobs unfilled.
“There are no furloughs,” the governor said. “There are no layoffs.”
The new budget proposal also calls for $260 million in cuts to the state’s homeless housing assistance and prevention program.
That latter program has been called critical by local government officials, saying its flexibility has enabled different cities to achieve different goals, like increase nightly shelter beds or housing stock.
Newsom emphasized that governments which rely on progressive tax systems need to plan for more than one budget year. His proposal addresses both the 2024-25 and 2025-26 fiscal year deficits. He expected a shortfall of $28.4 billion for 2025-26.
According to Newsom, the May revise cuts one-time expenses by $19.1 billion and ongoing spending by $13.7 billion through 2025-26. Those cuts include the 10,000 unfilled state jobs, as well as efficiency improvements and spending reductions.
The governor highlighted two program expansions that will pause: the state’s food assistance and child care programs. These programs won’t end, though their planned expansions are halted.
“We don’t want to cut programs,” Newsom said. “We want to hold the line.”
The governor pushed back on questions of new taxes, saying none are part of the budget and he has no plans for them.
Newsom also spoke about the ongoing rulemaking process at the state Department of Insurance, saying he wants that hastened. Insurance Commissioner Ricardo Lara has set December as the end date for the process.
“We need to stabilize this market,” Newsom said. “We need to move. We need to move.”
The rulemaking is an attempt to address the state’s insurance crisis. One aspect of it is shortening the time it takes for an insurer to apply for a rate change.
State Democratic leaders hailed Friday’s budget update.
“We are encouraged that the governor’s May revision improves budget prospects for future years and saves rainy-day reserves,” said Assembly Speaker Robert Rivas, a Salinas Democrat, and Assemblymember Jesse Gabriel, an Encino Democrat and chair of his chamber’s Budget Committee, in a statement. “Nobody knows what challenges California may face, so we must always stay prepared.”
Some Republicans chided Newsom on social media.
“We swung from a $100 billion surplus to a $45 billion deficit and (Newsom) wouldn’t change a thing,” Assemblymember James Gallagher, the minority leader from Yuba City, posted on X, formerly Twitter. “Unbelievable.”
State officials first revealed the significant budget problems late last year.
The Legislative Analyst’s Office realized around November that last year’s tax returns weren’t hitting the necessary goalposts. The delay in that realization came because most Californians didn’t have to file their taxes until months after the usual April deadline due to relentless and damaging winter storms that tore up the Golden State last winter.
Other issues, like a slowing economy, also contributed to the downturn in tax revenue.
The state analyst’s office didn’t see better times ahead. Its initial deficit estimate grew from $58 billion to $73 billion. Newsom, calling himself optimistic, issued his own deficit forecast of around $38 billion in January.