Newsom Touts ‘Dominance’ of California in Final Budget Proposal

After eight years of wild swings between record surpluses and perilous shortfalls, Gov. Gavin Newsom touted a state of equilibrium on Thursday with his final budget proposal: a $350 billion, fully balanced spending plan that aims to backfill deep federal spending cuts but proposes no new programs and some spending reductions.

Newsom’s fiscal swan song comes as he gears up for a possible presidential run, as a crowded field of candidates jockey to succeed him and as the state weathers ongoing attacks from the Trump administration.

But those federal cuts are offset in part by state revenues that came in $16.5 billion higher than the governor’s office projected in January, when Newsom released his initial spending plan. Income tax revenue was higher than expected and Silicon Valley stocks showed a strong performance, driving projected surplus for the next two fiscal years.

That includes $4.5 billion in excess funds next year, as well as nearly $10 billion more Newsom wants to set aside in a savings account for use the following year.

“It shows the nature of the economy in the state, the nature of that growth engine,” he said, though he cautioned that the state’s revenue streams remain volatile. “It spikes from year to year, it collapses. When the nation gets a cold, we get the flu.”

In his revised proposal, Newsom unveiled new plans to help Californians facing higher Affordable Care Act premiums and Medi-Cal cuts, and to ease the tax burden on new businesses. He also proposed more money for K-12 education and universities, and a new $100 million fund to help homeowners rebuild after a natural disaster, including the January 2025 Los Angeles wildfires.

But Newsom resisted calls from fellow Democrats to raise taxes in order to offset federal cuts and rising health care costs, though he does want to cap the amount large corporations can claim on tax credits.

He used his opening remarks to attack the president’s agenda and to tout California’s economic strength in key economic areas, including manufacturing, agriculture, innovation and job creation.

“Dominance. That’s the way to describe, in one word, the state of California. We simply have no peers. We are the tentpole of the American economy,” Newsom said, before launching into a series of slides to back up his point, including one featuring a picture of Fox News host Sean Hannity with the words “California Derangement Syndrome” plastered below.

He went on to slam Trump’s “illegal” tariffs, the president’s deep cuts to science and medical research grants and the economic effects of his deportation push and the war in Iran. Then he showed an AI-generated image of Trump and Treasury Secretary Scott Bessent superimposed as the characters in the movie “Dumb and Dumber.”

“I think this captures in so many respects the remarkable, remarkable work that these two have done and the impacts had on American people and the economy since they got into office,” he said sarcastically.

Republican leaders in the Legislature, though, were quick to slam the governor’s spending priorities.

“If there is truly a budget surplus, priorities should focus on providing things like real cost-of-living relief for Californians, fully funding Proposition 36, and paying off the federal unemployment insurance debt so job creators are no longer stuck paying for Newsom’s lack of leadership,” said Sen. Tony Strickland, R-Huntington Beach.

Medi-Cal and health care

Spending on Medi-Cal, the state’s health care safety net, is declining by $3.7 billion compared to the previous state budget. That’s in part a result of Trump’s plan to impose work requirements on Medi-Cal recipients — a move expected to reduce enrollment — but also due to cuts Newsom is proposing.

Newsom is proposing to implement an asset limit for seniors and disabled adults on Medi-Cal and increase the monthly premiums for undocumented adults on Medi-Cal, from $30 to $50. The change will apply to residents between the ages of 19 and 59, effective in 2027.

Federal rule changes under Trump are forcing California to change how it insures undocumented immigrants.

“No one has done better to address their anxiety and needs,” Newsom said of the state’s undocumented population.

But immigrant advocates immediately lashed out. California Pan-Ethnic Health Network executive director Kiran Savage-Sangwan called the Medi-Cal changes for undocumented “devastatingly cruel,” especially when considered alongside last year’s elimination of dental care for undocumented Medi-Cal recipients, and other fees the state began imposing based on immigration status in order to close a shortfall last year.

“In light of the state’s surge of revenues, continuing to advance these brutal cuts, despite a nine-month delay, is further evidence that they aren’t a matter of math but a matter of values,” Savage-Sangwan said.

The federal health care changes, enacted in the One Big Beautiful Bill Act, created requirements for Medi-Cal recipients to prove they are working or volunteering. Newsom projects that change will result in 44,000 Californians losing coverage in the next fiscal year.

But the federal bill will also reduce some Medicaid payments to California and limit the state’s ability to raise health care dollars through a tax on health care providers.

In response, Democrats in the state Senate are advocating for a new tax on the largest 2% of corporations to close the Medi-Cal funding gap.

Newsom is pushing instead to limit the tax credits that businesses can claim to $5 million or 50% of the company’s tax liability — a move the administration projects will raise $850 million in the upcoming fiscal year and $1.7 billion the following year.

“I mean, some folks are never going to pay taxes for years and years and years, and they’re just hoarding these tax credits. So we’re going to put a little cap on that,” he said, adding that the change will affect large corporations, not small businesses.

In a separate health care move, Newsom is proposing to spend $300 million to cover health care premiums for low-income Californians to purchase health care through the Covered California exchange.

In December, Affordable Care Act subsidies expired for millions of Americans after Congress failed to reach a deal to extend the tax credits.

Taxes and fees

Other Newsom proposals echo calls from candidates in the wide-open race to succeed him as governor.

Newsom wants to cut in half the $800 minimum franchise tax that businesses pay each year, regardless of their profit. Steve Hilton, the leading Republican in the governor’s race, has called to eliminate the tax entirely.

The governor is also taking aim at the fees that local governments charge housing developers for their projects’ anticipated impact on roads and parks.

The fees have been a target of both Republicans and two moderate Democrats in the race: San José Mayor Matt Mahan and former Los Angeles Mayor Antonio Villaraigosa.

Newsom’s proposal would block local governments from charging impact fees on affordable housing developments that tap state funds.

The legislature will now hold hearings on Newsom’s budget plan and negotiate a final spending agreement with the administration before June 15.

Asked if he has any regrets in his final year in office, the governor hinted that he would have liked to move sooner on changes to expand the state’s rainy day fund.

In 2021 and 2022, Newsom touted budget surpluses of $75 billion and $97 billion — only to see those windfalls turn into deficits in subsequent years. The governor said he is still negotiating a deal with legislative leaders to potentially expand the rainy day fund.

But Newsom, who has studiously avoided weighing in on the messy race for governor, did make sure everyone knows he’s thinking about the next person in his seat.

“I am not just trying to get out of Dodge,” he said. “This is a balanced budget structurally for the next 18 months, after I am gone. I am not just planning for next fiscal year.”