Citing ‘Trump Slump,’ Newsom Unveils Budget Gap, Aims to Cap Undocumented Health Care

Updated 3:35 p.m. Wednesday

California’s fiscal outlook has taken a turn for the worse, Gov. Gavin Newsom said as he unveiled an updated 2025–26 state budget plan on Wednesday with a projected $11.9 billion shortfall.

The governor said President Donald Trump’s tariffs and market volatility, combined with rising state health care costs, have derailed what appeared to be a relatively healthy budget just a few months ago. In response, he is proposing cuts that include scaling back the state’s offer of health insurance to low-income undocumented immigrants.

And he pledged to continue pushing back against the president’s agenda in court. California has already filed more than a dozen lawsuits against this Trump administration, including one last month targeting the tariffs.

“California is under assault,” Newsom said, arguing that the uncertainty caused by the tariffs, in particular, has made it difficult to plan ahead. “The impacts of these tariffs … are being felt disproportionately in the fourth-largest economy in the world that has so much goods, volume and trade.”

Newsom’s proposal kicks off a month of high-stakes negotiations with leaders of the state Legislature, which must pass a budget plan by June 15. In a statement, Assembly Speaker Robert Rivas echoed the governor’s blame of Trump for revenue shortfalls.

“The Assembly will thoroughly review the Governor’s May budget revision during public hearings, and we will continue to stand up to the chaotic actions of Trump and his Republican allies,” Rivas said.

Under the governor’s plan, Medi-Cal, the state’s Medicaid program for Californians with low incomes or disabilities, will stop enrolling new undocumented adults beginning on Jan. 1. Californians without legal status currently on the program will maintain coverage, but beginning in 2027, enrollees older than 18 will be charged a $100 monthly premium.

“We believe that people should have some skin in the game as it relates to contributions,” Newsom said.

The changes will save the state an estimated $5.4 billion by 2028–29,  but advocates for immigrants are already warning that they will result in hundreds of thousands of Californians losing health care coverage.

“We are outraged,” said Joshua Stehlik, policy director for the California Immigrant Policy Center. “We feel like the governor is abandoning his legacy with this proposed rollback.”

“It feels like a particularly difficult moment to target vulnerable immigrants when they’re under such relentless attacks by the Trump administration,” Stehlik added.

Republicans in the state legislature said Newsom should have acted earlier to rein in healthcare spending on undocumented Californians.

“I urged the governor to immediately freeze his reckless Medi-Cal expansion for illegal immigrants a year and a half ago, before it buried our healthcare system and bankrupted the state,” said Senate Republican Leader Brian Jones in a statement. “Had he listened, we wouldn’t be in this crisis — breaking promises, scrambling for loans, and cutting services for legal Californians just to keep this broken program afloat.”

Newsom blamed Trump’s increased tariffs for what he dubbed a “Trump Slump” in the stock market. California’s progressive tax system leaves the state’s revenue heavily reliant on high-income earners and especially vulnerable to dips in the market.

The governor said Trump’s protectionist policies have led to an estimated $16 billion decline in state revenues through the next fiscal year — $10 billion of it from losses in expected capital gains tax. And he cited declines in tourism and port activity as further evidence of how the president’s trade policy is hurting the Golden State.

As Trump has eased the tariffs he announced in early April, major stock indexes have recovered their losses, with the S&P 500 returning to positive territory for the year this week.

Before the April downturn, an extended surge in the stock market had filled California’s budget coffers. Newsom’s initial January spending plan projected a modest $363 million surplus and no spending cuts — although the governor proposed using $7.1 billion from the state’s rainy day reserve fund.

During a two-hour press conference announcing his spending plan, Newsom pinned responsibility for revenue declines on Trump’s trade agenda, but maintained he was “not blaming the president for the deficit.”

“I certainly am attaching those revenue concerns directly to the activities of the administration, unquestionable,” Newsom said. “But not the totality of the deficit.”

Despite the downturn in revenues, Newsom labeled the current deficit “pretty mild,” as it accounts for just 5.8% of the total $226 billion general fund budget.

But the budget picture could get worse.

Republicans in Congress are considering a budget bill that cuts funding to programs such as Medicaid, which is paid for jointly by the federal government and states. Those cuts could require Newsom and legislative leaders to amend their spending plan later this year.

“I wouldn’t be surprised if we’re talking about significant revisions to the state budget in August,” said Chris Hoene, executive director of the California Budget & Policy Center.

One proposal in the current House spending plan would reduce federal Medicaid funding to states, such as California, that provide health coverage to undocumented immigrants. That change could cost California $27 billion between 2028 and 2034, according to an estimate from the Center on Budget and Policy Priorities.

As governor, Newsom has pushed the expansion of Medi-Cal to cover California residents regardless of legal status. He has championed the initiative as a way to save the state money in the long run, but the program’s full rollout has cost $2.7 billion more than his administration expected.

“No state has done more than the state of California, no state will continue to do more than the state of California, by a long shot,” Newsom said about the undocumented health care program. “That’s a point of pride and it’s a point of privilege to be [a] governor that’s been part of that effort.”

In addition to the changes to undocumented health care, Newsom is proposing to close the shortfall by shifting more than $5 billion in from special funds, capping overtime for in-home supportive service workers and paying for $1.7 billion in state firefighting costs with revenue raised from polluters through the state’s cap-and-trade program — which he proposed extending through 2045.

KQED’s Tyche Hendricks contributed to this report.