Newsom announces $45B deficit in downsized budget proposal

California Gov. Gavin Newsom (D) on Friday announced a $44.9 billion deficit in his revised proposal for the 2024-2025 state budget, while proposing a series of cuts to close the spending gap.

The shortfall includes $27.6 billion detailed in his proposal, plus $17.3 billion in cuts that the State Legislature proactively instituted a few weeks ago.

The governor proposed a $288.1 billion topline budget figure, down from Newsom’s initial January proposal for a $291.5 billion budget. Although the total $44.9 billion deficit is higher than the $37.9 figure projected in January, Newsom’s revision involves withdrawing $4.2 billion from the state's reserves — down from the $13.1 billion he initially recommended. 

Newsom's revised proposal seeks to close the spending gap through a series of cuts, including $15.2 billion in spending reductions and $14.8 billion by pausing planned program expansion. It would also slash $3 billion to improve efficiencies and borrow $7.5 billion.

Efficiencies would largely focus on creating a "leaner state government," such as eliminating vacant positions, removing landlines, evaluating state printing needs, investing in technologies and increasing competition in procurement.

"We want to do what all of you are doing your personal lives, all the businesses out there are doing in their professional lives," Newsom said. "And we think we can do that and still achieve outstanding outcomes."

The reductions would include $12.7 billion in one-time streamlining efforts — in workforce, broadband, child behavioral health and water storage sectors — and $2.5 billion in ongoing savings in prison bed deactivations, middle class scholarship program.

Among the pauses would be $146 million for the California Food Assistance Program's expansion, as well as $1.4 billion in childcare scale-up.

This is California's second year in a row grappling with a deficit — a development that followed three years of consecutive surpluses. On Friday, Newsom in large part attributed the shortfalls to tax system unpredictabilities.

"In January, we were very clear that was a lot of volatility, a lot of questions as it relates to tax collections," he said, praising the legislature for taking "early action" with its preemptive cuts.

Going forward, the governor also promoted a new strategy of taking a holistic look at the current budget year together with "budget year plus one." For 2025-2026, he estimated a budget deficit of $28.4 billion.

"Fundamentally, the approach that we'll be taking today is a little bit different than the approach we've taken in the past," Newsom said. "We are not looking at the budget year alone. We are looking at the budget year plus one."

Newsom noted that if legislators agree to move forward with his proposal, the state could function with an operating surplus of $4 billion for 2024-2025 and $650 million for 2025-2026. Such action, he explained, would enable a shift "from two years of deficits to two years of operating surpluses."

"Why are we confident we can achieve this? Because it's solvable — we've done it before," the governor said. "This is just a reminder of the totality of the challenges in the past, again on the basis of the volatility of our tax structure."

Newsom said that regardless of certain setbacks, California and its residents remain strong — noting that the state gets “first round draft choices” of people from all over the world.  

"Our values continue to allow us to thrive, and those values, I believe, are foundational intact, despite some tough choices that we are making," he added. 

California's State Legislature must approve a budget by June 15, while Newsom then has to finalize the details by July 1 — the beginning of the new fiscal year.