In presenting the May revision of his final budget as governor, Gavin Newsom proposed ways to fix California’s $35 billion multi-year budget deficit.
The likely presidential hopeful’s attempt to solve the state’s budget woes depends on estimated general fund revenue sources from personal income taxes, corporate taxes, and sales and use taxes. The Democratic governor projected the revenues would run $16.5 billion higher than what his initial budget projected in January. That budget initially proposed revenue numbers that left the general fund with $232.3 billion. The new budget puts the revenue total at $248.8 billion.
“It’s a responsible budget, from our perspective, and one that represents, broadly, our values,” Newsom said at a Capitol press conference announcing his revised budget. “This is a balanced budget we’re submitting in ’26-27 and ’27-28. This is a balanced budget, structurally, for the next 18 months after I’m gone.”
Approximately $3.6 billion in revenue in 2026-27 can be generated from limiting business credit use, taxing software and taxing managed care organizations, according to the revised budget proposal. That is expected to grow to $5.1 billion in 2027-28. A number of spending reductions were proposed in the budget, namely $411 million in limiting Medi-Cal asset spending and increasing monthly premiums for adults with unsatisfactory immigration status.
The budget proposed that reducing spending on both programs would result in savings of $711.9 million by 2029-30.
Notably absent from the revised budget was funding for Proposition 36, the public safety measure Californian voters overwhelmingly approved in 2024. The measure aimed to make certain drug-related misdemeanor crimes a felony, and it created mandated treatment programs for those convicted of felony drug charges. Newsom opposed the measure and initially did not propose funding to implementing Prop. 36 in his 2025-26 budget last year. Ultimately, roughly $100 million was allocated to Prop. 36 that fiscal year.
