Sacramento – Hours before Gov. Gavin Newsom is expected to unveil his budget plan Thursday, his office released new estimates of a $16.5 billion state revenue windfall over three years and offered a rosy outlook on California’s fiscal position during his final year in office and the year after.
Newsom’s office provided few details about his plan for spending reductions or other adjustments that he would need to propose along with the increase in revenues to eliminate the projected deficit from 2026–27 to 2027–28.
The unusual early look at his budget proposal comes as Newsom begins to wind down his time at the state Capitol and considers a run for the presidency in 2028.
Two weeks ago, the Legislative Analyst’s Office released analysis of state expenditure He said California, in the long term, cannot pay for the existing services and new programs that Newsom and Democratic lawmakers have implemented since he took office in 2019. State spending has outpaced California’s strong revenue growth by nearly 10%, creating a perennial budget shortfall, defined as a structural deficit.
California’s spending problems threaten to define Newsom’s fiscal legacy and could provide ripe fodder for his critics. If projections of a windfall tax windfall, which analysts attribute to the stock market’s interest in artificial intelligence companies, prove true, the surge could signal a lucky break for Newsom.
The governor has resisted adopting massive new tax increases or sharply cutting his costly policy proposals to align state spending with revenues.
His budget proposal includes a call to increase taxes on corporations by limiting state tax credits to no more than $5 million, or 50% of a company’s tax liability, starting in tax year 2027. No estimates were offered to explain how much revenue the new limit would bring in to support the state budget.
His budget preview includes several new spending proposals, including providing $300 million to help low-income Californians keep $0 monthly premiums on health care coverage through the Affordable Care Act in response to cuts by the federal government, as well as providing $100 million to help wildfire victims afford construction loans to rebuild their homes. Two days before Mother’s Day, Newsom also introduced a plan to provide 400 free diapers to select hospitals for every newborn in California beginning this summer.
Newsom is expected to present his budget in more detail late Thursday morning in Sacramento.
