Moving forward into the New Year, many lawmakers and heads of state are trepidatious, at best, about the now imminent presidential term of Donald Trump. One such governor who has been especially combative with Trump in the past and continues to crusade against Trump’s policies on behalf of the residents of his state is California Gov. Gavin Newsom. To this end, Newsom has proposed a $322 billion budget without a deficit for the new year. This would be a welcome change after two years of significant budget shortfalls in the nation’s most populous state, but it remains to be seen if Newsom’s efforts will actually make a difference.
Newsom announced a new budget on Monday, but it is mostly a placeholder as California waits to see if incoming President Donald Trump will follow through on threats to revoke billions in federal dollars. Such cuts could force lawmakers to make painful reductions to essential programs. About a third of California’s budget relies on federal funding, including tens of billions of dollars for health care services. Trump takes office on Jan. 20, and Newsom must sign the final budget by the end of this coming June.
Special Session
California lawmakers have already opened a special session to consider giving $25 million to Attorney General Rob Bonta’s office to defend against or take on potential legal challenges from the Trump administration. Fights are likely between California and Washington, D.C., over climate policy and immigrant rights. State senators have also proposed additional funding to provide free legal services to immigrant communities.
Finding a way to balance the budget in the face of potential federal funding losses will be a major test for Newsom, who is entering the last two years of his final term and continues to be seen as a future presidential contender. One project that could be at risk is the state’s high-speed rail project, which would eventually carry passengers between Los Angeles and San Francisco but is woefully underfunded and behind schedule. Trump canceled nearly $1 billion in federal funding during his first term in 2019, and several Republican Congress members are already taking aim at the project over its costs. President Joe Biden later restored the federal dollars allotted to it.
Perhaps anticipating a challenge, Newsom also traveled Monday to a construction site for the project to highlight progress, including obtaining all environmental permits needed for construction. “This is not just a transportation project. This is a transformation project,” Newsom said. “To the cynics that are filled with cynicism, that stand on the sidelines and don’t engage, we’re here making this work.”
Progress on the Budget
On the budget, Newsom gave few details about the proposed spending but boasted of progress on issues where the state has faced criticism, including investment in education and infrastructure and efforts to solve the homelessness crisis. The Democratic governor said he’s optimistic about the state’s future despite the uncertainties ahead. “We’re also walking into headwinds, a radically different moment in U.S. history,” he said. “We need to be prepared.”
California’s economy is the fifth-largest in the world. Last year, the state faced an estimated budget deficit of $46.8 billion and, in the previous year, a budget shortfall of $32 billion. Newsom said that the state also saved $1.2 billion over two years by eliminating roughly 6,500 vacant positions in state departments and another $3.5 billion from cutting travel budgets and modernizing IT systems.
Unlike most states, California taxes capital gains (which are mostly money made from investments and stocks) at the same rate as wages and salaries. The result is nearly half of the state’s income tax collections come from only 1% of the population. That has led to unpredictable, large swings in revenue in California’s budget.
Murky Waters Ahead
Republican state Sen. Roger Niello, who sits on the budget committee, said the governor failed to provide a plan to help address future budget deficits. In November, the nonpartisan Legislative Analyst’s Office warned the state could face double-digit shortfalls in the next few years. “We’re looking at $20 to $30 billion deficits, and unless we start doing something to address that now, it’s going to become very difficult,” Niello said in an interview.
Newsom said on Monday during the announcement of the budget that he also supports efforts to grow the state’s rainy day fund, especially in light of the uncertainty and tumultuousness that the next four years may bring. However, he also acknowledged that to do so efficiently would be a “herculean effort.”
