Newsom faces another multibillion-dollar budget shortfall in his last year as California governor
Jan 9, 2026, 10:13 AM
Gov. Gavin Newsom gives his State of the State address at the State Capitol on Thursday, Jan. 8, 2026, in Sacramento, Calif. (Hector Amezcua/The Sacramento Bee via AP, Pool)
Credit: ASSOCIATED PRESS
(Hector Amezcua/The Sacramento Bee via AP, Pool)
SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom’s office said the state faces a $2.9 billion budget deficit this year, an amount significantly lower than what legislative budget analysts projected.
The deficit, though small, could still require cuts and means the Democratic governor doesn’t have money to advance new programs during his last year in office.
It’s the fourth year in a row that the nation’s most populous state faces a multibillion-dollar budget deficit. This year’s shortfall comes despite growing revenues fueled by stock market gains and investments in artificial intelligence.
Newsom’s office outlined a behemoth $349 billion budget, though his proposal for how to spend all of that money is far from final. Lawmakers and the Democratic governor will spend the next several months fighting and negotiating over priorities — and cuts. Last year Democrats had to roll back their ambitious program to provide free health care to immigrants without legal status in the face of a $12 billion deficit.
This year, they will also face a $1.3 billion loss in federal funding after new federal policy changes to health care and food assistance programs for low-income people. Lawmakers have said repeatedly California is in no position to backfill that money.
Newsom will try to safeguard some of the progressive policies that have defined his tenure as he considers a presidential run. But lawmakers have to consider the looming structural deficit that could climb to $22 billion the following year. Newsom can’t seek a third term and will leave office in January.
The nonpartisan Legislative Analyst’s Office in November projected California to face a $18 billion shortfall next year. Their estimate and Newsom’s sometimes differ.
Newsom’s administration said some of the deficit was offset recently after the state racked in billion of dollars more in revenues than expected.
Still, State Controller Malia Cohen this week warned lawmakers that the state is already spending nearly $6 billion more than expected six months into the fiscal year. She urged them to take “a disciplined approach.”
Republican lawmakers said the problem is nothing new. They have little say in the budget process because Democrats hold supermajorities in both chambers.
“We don’t have a revenue problem in California, we have a spending problem,” state Sen. Suzette Martinez-Valladares said in an interview ahead of the budget presentation.
Newsom on Thursday during his State of the State address said his budget will include “the most significant investments” in public education.
He plans to fully fund transitional kindergarten programs for all students, spend more than $27,000 per student next year and provide $1 billion to high-need schools. Based on a complex set of formulas, roughly 40% of the state’s budget is required by California law to go to schools every year.
Newsom also proposed to move the Department of Education into the executive branch. The state superintendent of public instruction is an elected position, and it’s not immediately clear whether Newsom will ask voters to approve the change.
Newsom signaled this week he’ll support legislation to go after large investors buying up affordable homes.
