Gov. Newsom blames Trump policies for $12 billion California budget deficit
SACRAMENTO — Gov. Gavin Newsom on Wednesday announced his revised $332 billion state spending proposal, revealing that California is facing a $12 billion budget deficit.
Under the governor's revised proposal, California would scale back state Medi-Cal coverage for immigrants without legal status, fast-track a project to tunnel water from Northern to Southern California, eliminate coverage for certain weight loss drugs and use money from a key climate program to help fund state fire response.
Newsom, a Democrat, blamed President Donald Trump's tariff policies for the budget hole, a volatile stock market causing a decline in revenues from wealthy taxpayers, and a reduction in global tourism.
"California's fundamental values don't change just because the federal winds have shifted," Newsom said in a statement. "Even as the Trump Slump slows the economy and hits our revenues, we're delivering bold proposals to build more housing, lower costs for working families, and invest in our kids."
California is required by law to balance its budget every year. Newsom first unveiled a plan in January without a projected shortfall. His revised proposal now heads to state lawmakers, who have until mid-June to negotiate before a final budget act must be passed.
Here is a look at some of what Newsom is proposing:
Health care and human services
Under Newsom's plan, California would pause enrollment for low-income adult immigrants without legal status and, beginning in 2027, require eligible adults to pay a $100 monthly premium. Newsom estimated the changes would save the state $5.4 billion by the 2028-2029 fiscal year.
California would pause enrollment for low-income adult immigrants without legal status and, beginning in 2027, require eligible adults to pay a $100 monthly premium. Newsom estimated the changes would save the state $5.4 billion by the 2028-2029 fiscal year.
Newsom also wants to stop using revenues from a tobacco tax to pay dental, family planning and women's health providers. The revenues from the tax have declined close to 40% between 2017 and 2024 and can no longer make those payments without using the general fund, a state Department of Finance spokesperson said. The proposal would save at least $500 million a year.
But that would also cut California Planned Parenthood's budget by a third, the organization said. The group is heavily critical of the proposed cut.
"It's cruel, quite frankly, especially during this time that we're fighting at the federal level as well," said Jodi Hicks, president and CEO of Planned Parenthood Affiliates of California and a Newsom ally.
The governor also proposed eliminating state health care coverage for certain drugs used for weight loss beginning in January 2026, which would save an estimated $85 million for the upcoming fiscal year and $680 million by fiscal year 2028-2029.
The state would also delay the repayment of a $3.4 billion loan for state Medicaid providers under Newsom's plan.
Newsom plans to cut spending for a program providing in-home domestic and personal care services for some low-income residents and Californians with disabilities by capping workers' overtime and travel hours at 50 hours per week. The move would reduce spending by nearly $708 million for the upcoming fiscal year.
Environment
Gov. Newsom announced a plan to fast-track a project to create a massive underground tunnel to reroute a big part of the state's water supply.
The Delta Conveyance Project would tunnel water from the Sacramento-San Joaquin River Delta to Southern California. Newsom says the project, which has received pushback from the governor's own party, is essential to avoiding future water disasters.
The California Department of Water Resources says the project would provide clean and affordable water to 27 million people in the southern part of the state.
Newsom also wants to reauthorize the state's cap-and-trade program through 2045. The program aims to reduce emissions from industrial sources over time through market-based mechanisms, and it is set to expire in 2030.
Money generated through auctions of credits needed to pollute goes into a fund that lawmakers tap for climate-related spending and the state's high-speed rail project.
Newsom proposed tapping $1.5 billion from that fund for the state fire department. He said the shift would help ensure carbon emitters help pay for the state's response to fires intensified by climate change.
His proposal would also ensure $1 billion annually for the state's long-delayed high-speed rail project. The project now receives 25% of the cap-and-trade fund money, which ends up being a little more or a little less than a billion annually depending on the year.
Environmental groups called on Newsom to back proposals aimed at making fossil fuel companies pay the state for damages linked to climate change. The money would be used in part to support the state's response to climate-driven natural disasters.
Public Safety
Newsom proposed closing another state prison by October 2026 to save $150 million annually. Newsom has already approved the closure of three prisons since 2019. The state's prison population has declined over the years, even after voters last year passed a tough-on-crime ballot measure that could incarcerate more people, according to Newsom's budget plan. Newsom didn't specify which facility would shutter.
The budget proposal did not include funding to implement the voter-approved initiative that makes shoplifting a felony for repeat offenders again, increases penalties for some drug charges and gives judges the authority to order people with multiple drug charges to get treatment.
