California Gov. Gavin Newsom is waking up to a $18 billion budget hangover — and fixing it won’t be pretty. After years of surpluses, the Golden State is facing staggering deficits that could balloon to $35 billion in the coming years, according to the state’s Legislative Analyst, after a years-long spending spree combined with federal funding cuts and a struggling economy.
Newsom — who’s expected to launch a 2028 presidential bid — unveils his plan to stanch the bleeding in a major speech Thursday. In it, he’ll posture as presidentialwhile aiming to reassure cash-strapped Californians that he’s leaving leave the state in tiptop shape in his final year in office.
Critics doubt it will be enough. “Governor Newsom’s speech will highlight a lot of claimed wins, but Californians see the lack of results every day,” said Senate Republican Leader Brian Jones of San Diego in a statement. “Year after year, his policies have pushed opportunity out of state while driving the cost of living to ever new heights for working families,” Jones continued. Only about four years ago, California was flush with cash — with a jaw-dropping surplus of $100 billion, thanks to a rollicking stock market and Covid-era cash infusions from the federal government. Since then, revenues — driven by capital gains taxes on the rich — shrunk as the economy took a nosedive.
California’s unemployment rate was the highest in the nation as of September as everyday residents feel the pinch from high prices on food, housing and gasoline driven by a mix of federal and state policies.
The Trump administration and Republicans in Congress have pushed through sweeping cuts to everything from transportation dollars and healthcare funding to Supplemental Nutrition Assistance (SNAP). Just this week, Trump froze billions in childcare and social services funding over claims of fraud — potentially further draining California’s piggy bank.
Thanks to extensive earmarks in areas like education, homelessness and housing, much of the state’s dwindling cash is spoken for, explained Lanhee Chen, Stanford public policy expert. But that hasn’t restrained Newsom and Democrats from an “insatiable appetite for spending,” he said.
“There’s been a whole slew of spending on programs and there’s never really been an effort to account for whether that spending has been successful or not,” Chen said.
Scathing reports from the State Auditor have found a lack of outcomes in $24 billion of homelessness spending along with more than $30 billion in fraudulent unemployment payments.
“In some ways we’re recovering from the spending spree we went on in the Covid and post-Covid era,” Chen said.
Newsom and legislators kept pushing money out the door in recent years, ramping up government hiring and expanding programs that already cost the state billions in recent years.
The governor tapped reserves last year to balance a budget that was packed with roughly $570 million in new discretionary spending, including some $1.8 billion in grants to schools, $500 million for literacy and math coaches, and an expansion of a college volunteer corps.
California was forced to borrow $3.4 billion to help provide Medicaid coverage for illegal immigrants, Politico reported, after the progressive program wound up costing far more than expected. (Newsom later scaled back the program.)
Since taking office in January 2019, Newsom has increased government staffing by 21% and compensation by 48% — even as the state’s population shrunk and private sector employees lost jobs, according to David Crane of Govern for California, an advocacy group. The state employs approximately 436,000 people — with personnel costs making up nearly half of state operations spending.
Meanwhile, state legislators jammed in $415 million worth of pork-barrel projects like an LGBTQ+ venue in San Francisco, a private day school in Southern California and a North Coast farm-animal rescue facility last year, CalMatters reported.
Republicans in the Legislature have accused Newsom of papering over the state’s problems and dipping into reserves to fund unsustainable spending. “This is the third year in the row of projected deficits,” said Assemblymember David Tangipa, who represents the Fresno area. “And he’s going to talk about how we’re talking action against Trump and the federal administration, but [Californians] want to know how their lives are getting better, and I don’t know if i’m going to hear that,” he said.
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