California Governor Gavin Newsom’s Strategy to Tackle a $12 Billion Budget Deficit

California’s Budget Proposal: An Overview

SACRAMENTO, Calif. (AP) – Governor Gavin Newsom unveiled a $322 billion budget proposal that includes significant adjustments to California’s Medicaid program and other health services, aiming to close a projected $12 billion budget shortfall. The governor attributes this shortfall to changes in federal economic policies, fluctuations in the stock market impacting revenues from affluent taxpayers, and a downturn in global tourism.

“California’s fundamental values don’t change just because the federal winds have shifted,” Newsom stated. “Even as the Trump Slump slows the economy and hits our revenues, we’re delivering bold proposals to build more housing, lower costs for working families, and invest in our kids.”

The state of California is legally required to balance its budget annually. Initially, Newsom introduced a budget plan in January that did not predict a shortfall. His revised proposal now moves forward to the state legislature, which has until mid-June to negotiate and finalize the budget.

Health Care and Human Services Adjustments

Among the proposed changes, Newsom plans to suspend enrollment for low-income adult immigrants without legal status. Additionally, the proposal would impose a $100 monthly premium on eligible adults, which he claims will lead to a savings of $5.4 billion by the fiscal year 2028-2029.

Moreover, Newsom intends to halt the use of tobacco tax revenues intended for dental, family planning, and women’s health providers. Due to a near 40% decline in revenues from this tax between 2017 and 2024, the state can no longer support these payments without tapping into the general fund, according to a spokesperson from the state Department of Finance. This modification is expected to save at least $500 million annually.

However, eliminating this funding would significantly impact the budget of California Planned Parenthood, reducing it by one-third. The organization has expressed strong opposition to the proposed cut, stating that it would be “cruel” during a time when they are already facing significant challenges at the federal level.

Additionally, the governor has proposed discontinuing state healthcare coverage for certain weight loss drugs starting in January 2026, projecting a savings of approximately $85 million for the upcoming fiscal year and $680 million by the fiscal year 2028-2029. The proposal would also include a delay in repaying a $3.4 billion loan to state Medicaid providers.

In another cost-saving measure, Newsom aims to reduce funding for a program that provides in-home domestic and personal care services to low-income residents and individuals with disabilities by capping workers’ overtime and travel hours to a maximum of 50 hours per week. This adjustment is anticipated to decrease spending by nearly $708 million in the upcoming fiscal year.

Environmental Initiatives

On the environmental front, Newsom is advocating for the reauthorization of California’s cap-and-trade program through 2045. This initiative, aimed at reducing emissions from industrial sources, is currently set to expire in 2030. The funds generated from credit auctions needed for polluting will continue to be utilized for climate-related projects and the state’s high-speed rail endeavor.

A notable aspect of Newsom’s proposal is the plan to allocate $1.5 billion from the cap-and-trade fund to the state fire department. This funding shift aims to ensure that carbon emitters contribute to the state’s fire response efforts, particularly as climate change exacerbates wildfire conditions.

Additionally, Newsom’s plan would guarantee that at least $1 billion annually is directed towards the long-delayed high-speed rail project. The project currently receives a variable funding allocation of about 25% of the cap-and-trade money, approximately equating to $1 billion each year.

Environmental advocates are pushing Newsom to support measures that would require fossil fuel companies to compensate the state for damages associated with climate change. This revenue could be utilized to enhance the state’s response to natural disasters driven by climate change.

In another significant move, the governor announced plans to streamline a project for constructing a massive underground tunnel designed to reroute a substantial portion of California’s water supply.

Public Safety Reforms

In the realm of public safety, Newsom has proposed the closure of another state prison by October 2026, which is expected to save approximately $150 million annually. Since 2019, he has already approved the closure of three prisons. The state’s prison population has been declining, even in the wake of the voter-approved crime measure aimed at stricter penalties, according to the budget plan. However, the specific facility earmarked for closure has not yet been disclosed.

It is noteworthy that the budget proposal does not allocate funding to implement the voter-approved initiative that designates shoplifting as a felony for repeat offenders and increases penalties for certain drug offenses while giving judges the discretion to mandate treatment for individuals with multiple drug charges.