Newsom Proposes Budget Cuts as State Faces $22B Deficit 

Gov. Gavin Newsom unveiled a slimmed-down, $297 billion statewide budget with several billion less in spending proposals than last year.

After a record-setting budget in 2022, California is heading toward a $22.5 billion budget shortfall this year that may require significant cuts to avoid touching the state's rainy day reserves, Newsom said at a press conference on Tuesday.

“We have a wait-and-see approach to this budget,” Newsom said. “We are in a very volatile moment.”

Newsom said while $5.7 billion will be cut directly, he hopes to balance the rest of the budget by delaying funding for capital projects, identifying federal funds for climate and transit projects, shifting funds from bonds to cash and $1.2 billion in borrowing to avoid using the state’s $35 billion in reserves.

Last year’s budget brought a windfall of cash to the state—but nearly all of it went to one-time programs, a strategy Newsom lauded to avoid further cuts this year.

“It was crystal clear where things were going even last year,” Newsom said. “What is consistent is the inconsistency of our tax structure.”

Newsom plans to break last year’s record school spending, proposing $109 billion in education spending at around $23,000 per pupil. The cost-of-living adjustment for educators will be just over 8%, relative to last year’s 6.5%. He said he is focused on funding students from their early years, with the goal of supporting debt-free college with programs like child college savings accounts and zero-cost textbooks. 

Newsom also said that homelessness funding with remain intact, totaling $15.3 billion in this budget proposal, including $1 billion for local governments. He called out the state’s elevated housing goals this year, saying he’s focused on investing in streamlining new housing and accountability. 

“But we want more accountability,” Newsom said. “People have just had it. We want to see these encampments cleaned up. We want it put to good use.”

After historic investments in the past in mitigating wildfires, Newsom is proposing similar numbers to years past for forest resilience and water and drought. As the state gets slammed by storms, Newsom highlighted $202 million for new investments in flood resilience like levees. 

Other major investments include $97 million in additional money to combat the opioid and fentanyl crisis, including $79 million for the distribution of naloxone, commonly known as Narcan, and more for education and recovery, test strips and $3.5 million to provide overdose medication to all middle and high schools.

“This is a top priority,” Newsom said. “There is not a parent out there who doesn't understand the significance of this fentanyl crisis.”

Finally, Newsom called out $4.2 billion for small business relief grants, around $13 billion in transportation funding, $215 million to CARE court and around $2 billion more to retirement liabilities this year despite the shortfall.

State officials are planning another press conference this afternoon to further detail Newsom’s budget proposals for housing and homelessness, two key priorities for the Bay Area. 

“We’re here for the long haul, not just the short run,” Newsom said.