Newsom’s final budget proposal is in.
Gavin Newsom laid out his final state budget presentation yesterday, kicking off the start of the final month of budget negotiations with the Legislature. They must reach a deal by mid-June, in time for the start of the next fiscal year on July 1. Here are the major takeaways from Chronicle politics reporter Sophia Bollag.
California Gov. Gavin Newsom delivers his final state budget plan at the Capitol Annex Swing Space in Sacramento on Thursday. (Gabrielle Lurie/S.F. Chronicle)
The takeaways
We don’t know the actual deficit: Typically, the governor provides an updated surplus or deficit projection in May. But Newsom’s budget director, Joe Stephenshaw, said Thursday he could not provide an “apples to apples” comparison for that number.
Health care: Newsom is proposing $300 million in healthcare premium assistance, though that sum will not go far in addressing the billions in reductions to federal health spending. Healthcare groups criticized Newsom’s proposal for not doing enough to backfill federal cuts.
Housing: To reduce the cost of building new housing, Newsom also wants to prohibit cities and counties from charging affordable housing developers “impact fees” to fund infrastructure and schools if they are applying for state funding to help build the housing.
Corporate tax: Starting in 2027, Newsom is also proposing a cap on corporate tax credits of $5 million or 50% of a corporation’s tax liability — whichever is greater, which Newsom says will help balance future budgets. Newsom framed the proposal, which he estimates would generate $1.8 billion in 2029 when fully implemented, as a way to ensure corporations pay their fair share and to generate more tax revenue for the state. He pushed back on the idea that the proposal is his alternative to other corporate tax proposals or to the proposed billionaire’s tax, which Newsom has said he does not support.
The outlook from here
In her May report on the state’s spending and tax collection, Controller Malia Cohen announced that the state’s financial outlook had improved significantly since Newsom released his initial state budget plan in January. Since the January estimates, the state has collected $13 billion more in tax revenue and has spent $7 billion less than projected.
That’s good news for Newsom as he begins to negotiate his final state budget plan as governor.
California’s budget is heavily dependent on high taxes on its richest residents, whose incomes fluctuate dramatically based on the stock market, where they make much of their money. The Legislative Analyst’s Office, which advises the state Legislature on budget issues, has warned that the strong revenue trends recently are driven by a stock market buoyed by optimism over artificial intelligence. If it turns out the AI boom is a bubble, that could cause a stock market dip, which in turn could inflict major damage on the state’s finances.
What critics are saying
Republicans criticized Newsom’s plan, saying it spends too much on the wrong priorities and not enough on crime and wildfire prevention.
“Despite record revenues this year, California’s long-term fiscal outlook remains deeply concerning,” said Assembly Member David Tangipa, R-Fresno, the top Republican on the Assembly Budget Committee. “This budget reflects a pattern of deferred decision-making — kicking structural problems down the road for the next governor and legislature to inherit.”
What happens next
Newsom and state lawmakers must hash out the differences between their proposed budget frameworks.
State Senate President Pro Tem Monique Limon said that Newsom’s plan was a positive step, but “there are still some key points that need further negotiation.” She highlighted programs to fund affordable housing and homeownership and said “it is also critical that we delay the implementation of cuts to dental programs, clinics and Medi-Cal premiums.”
Lawmakers must pass a budget by June 15 in order to keep getting paid, but they typically navigate around this hurdle by passing a placeholder budget that gives them an extra week or two to hash out the final details. The budget goes into effect on July 1.
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