Gavin Newsom proposes $350 Billion California budget

California Gov. Gavin Newsom unveiled a record-high $350 billion state budget Friday that makes “historic” investments in areas like education — but kicks the can on paying down federal debt, foisting costs onto struggling employers.

Newsom’s budget incorporates a $43 billion windfall tied to the stock market that he touted in his State of the State speech Thursday, bringing his office’s estimated deficit down to $3 billion — the state’s fourth deficit in a row. The budget plows billions into maintaining education, health care, and other programs but ignores a $20 billion federal loan for Covid unemployment payments — a situation one legislator called “alarming.”

Ignoring the loan means small businesses are on the hook for the state’s debt, said state Sen. Roger Niello of Fair Oaks.

“We already have the highest unemployment in the nation and we’re putting this additional burden on our employers. It makes absolutely no sense,” Niello said.

The budget includes $662.2 million in mandatory interest payments, but there is no money going towards the principal.

Since July, the total balance has ballooned to $21.3 billion, and private employers in California pick up the tab under federal rules. Employers pay an $42 extra per employee this year and growing, per KCRA

Every state expect California has paid off the Covid-era loans.

“That is an alarming thing because [Newsom is] basically saying that businesses and employment are not a priority to him and that’s troubling,” Niello added.

At 5.5%, California’s unemployment rate was the highest in the country as of November.

Newsom’s $350 billion budget proposal is about $30 billion higher than this year’s budget, thanks largely to federal healthcare cuts that forced costs onto the state and mandatory set-asides in areas like education.

At a budget briefing Friday, Newsom’s finance director Joe Stephenshaw highlighted record spending on education— amounting to a record $27,418 per K-12 student, $5.3 billion for the University of California system, $15.4 billion to community colleges, and $1 billion to needy schools — along with $500 million towards local homelessness prevention, $195 million in new public safety spending, $3 billion for the state’s rainy day fund and $4 billion for school reserve funds.

The budget includes some cuts to climate-related spending and housing and homelessness, per Calmatters. And it does not include any direct funding for Prop. 36, the anti-crime measure supported by nearly 70% of voters in 2024 — a move Republicans blasted.

But even with Newsom’s unexpected windfall, analysts expect deficits to grow to as high as $35 billion in the coming years as expenditures outpace even optimistic revenue projections.

Newsom and the state Legislative Analyst create separate budget projections, and the governor’s has historically been far rosier on the revenue side. The legislative analyst projected a $18 billion deficit in the coming fiscal year, while the governor calculated $3 billion.

Under Newsom, the state’s general fund spending has increased by 77% partly owing to new programs spun up when the state was flush with cash, according to Republican legislators.

Newsom’s $350 billion budget — the last before he leaves office next year — does little to confront ballooning expenses, dumping the problem on the future governor and Legislature, according to Senate Minority Leader Brian Jones.

“This is more of the same from a lame-duck governor content on leaving the rest of us to pick up the financial pieces when he leaves office,” Jones said in a statement.  

Democrats in the legislature were more measured in their responses.

“During these times of uncertainty, we must craft a responsible budget that prioritizes the safety and fiscal stability of California families,” said State Senate Leader Monique Limón in a statement.

Newsom and legislators will refine the budget in the coming months towards a final proposal in May.

One major unknown is how California will handle a loss of about $1.4 billion in funding due toTrump administration changes to low-income health care and food programs.

Last year, Newsom was force to scale back a controversial plan to provide Medicaid coverage for illegal immigrants after costs spiked, forcing California was forced to borrow $3.4 billion, Politico reported.

Newsom’s budget didn’t fully explain what would happen to immigrant health care under federal cuts, and Stephenshaw struggled to answer detailed questions from reporters — saying Newsom’s office was still awaiting guidance from the feds.

“As we work through the May revision, this is something we’ll be well aware of and we’ll make those decision at that time,” he said.