Despite the increase in sales, Newsom plans to draw on California’s rainy day reserves

Gov. Gavin Newsom announced higher-than-expected tax revenues and a “modest surplus” in an unconventional preview of his $322.2 billion spending proposal for the coming fiscal year, but his office said he still plans to borrow money to pay for it Drawing on the state’s reserves for bad times for political priorities.

The Democratic governor gave a selective presentation of his original 2025-26 budget at Cal State Stanislaus on Monday, largely praising the state’s economic condition under his leadership and making it difficult to understand the full scope of his spending plan. Newsom said details would be announced later this week.

The early, incomplete look at his proposal shows Newsom’s annual spending plan increased by $24 billion compared to the current budget passed in July. The governor announced a forecast of $16.5 billion in additional tax revenue, above his administration’s previous estimates, spread over three years, according to the Treasury Department.

“The top lines include a balanced budget, no deficits,” Newsom said.

The proposal kicks off the annual six-month process in which the governor and lawmakers negotiate a final spending plan, scheduled for approval in late June. Newsom’s presentation at a college campus in the Central Valley town of Turlock was an unusual twist on ritual, prompted by Newsom’s decision to travel to Washington, D.C., for former President Carter’s funeral later this week.

Because he presented the budget several days earlier than originally planned, Monday’s release did not include the detailed budget document that typically accompanies the governor’s presentation.

Newsom described his proposal as a “significant commitment to accountability, transparency and results” and “maintaining fiscal discipline at a time of great uncertainty.”

Despite the increase in sales, the costs of providing health insurance to seniors and more undocumented immigrants, providing pre-kindergarten to all 4-year-olds, have increased, creating a new life $420 million in tax relief for Hollywood film studios and funding other key Newsom policies poses a spending problem for California.

Newsom’s office said he plans to withdraw an additional $7.1 billion from California’s rainy day reserves in the coming fiscal year after declaring a budget emergency last year, adding $5.1 billion to balance the current budget and more To withdraw $900 million from a safety net reserve.

The decision to tap the state savings account was part of an agreement reached last year with lawmakers to also delay programs, cut spending and occasionally rely on accounting tricks to narrow a $46.8 billion deficit. dollars to fix. California leaders were forced to close a $31.7 billion deficit last year.

Senate President Mike McGuire (D-Healdsburg) said these difficult decisions have put California in a better financial position today.

“We look forward to taking a close look at the governor’s full proposal later this week,” McGuire said in a statement. “The big work will take place in the coming months as we get to work crafting a responsible and balanced budget that will help make California more livable and affordable.”

Rep. Carl DeMaio, a Republican elected in November to represent inland San Diego County, called the governor’s proposal “negligent” before Newsom even made his presentation.

“Gavin Newsom is in over his head and hopes no one notices — but no amount of Enron-style accounting will change the alarming reality that Gavin Newsom caused a financial crisis,” DeMaio said in a statement, urging his fellow lawmakers to echo the governor’s proposal refuse.

Analysts warn that the financial outlook will worsen in the future and that there could be even greater economic turmoil under the new Trump administration.

The California Legislative Analyst’s Office in November forecast a broadly balanced budget for 2025-26 with a $2 billion deficit, while it expected a deficit of about $20 billion for 2026-27 and an even larger deficit for 2028-29 expected to be around $30 billion.

The LAO reported that California’s economy has been in a gradual slowdown over the past two years, with about 25% more unemployment overall and declining trends in consumer spending.

Newsom did not provide a deficit forecast for the coming years and said he would share more when he presents his revised budget proposal in May.

Corrin Rankin, vice chair of the California Republican Party, criticized the governor for not doing enough to help regular Californians.

“Giving Hollywood tax breaks and spending on AI is great for the state’s billionaires,” Rankin said in response to Newsom’s presentation. “However, the rest of us feel like we are drowning in rising costs and our lives have not been improved.”

Assembly Speaker Robert Rivas (D-Hollister) agreed that the state needs to address cost of living issues.

“We must also prepare for the challenges ahead and show restraint in spending,” Rivas said in a statement. “I am committed to working with the governor and my colleagues on a budget that protects essential services and makes life more affordable.”

The Newsom administration has said President-elect Trump’s plan for international tariffs, uncertainty over federal medical funding and threats to withhold disaster funding raise the likelihood of even greater fiscal uncertainty in the coming years.

“We really need to see what kind of fire and anger Trump is putting out in the next few weeks and really get a feel for it,” Newsom said.

The governor is expected to head to Carter’s funeral after spending time with President Biden in California on Tuesday to celebrate the new Chuckwalla National Monument near Joshua Tree and Sáttítla National Monument near the Oregon border.

Joe Stephenshaw, director of the California Department of Finance, will formally present the budget to lawmakers and answer questions on Friday.

Newsom plans to leave the state on Saturday to vacation with his family.