Newsom faces another multibillion-dollar budget shortfall in his last year as California governor

SACRAMENTO, Calif. — California Gov. Gavin Newsom's office said the state faces a $2.9 billion budget deficit this year, an amount significantly lower than what legislative budget analysts projected.

The deficit, though small, could still require cuts and means the Democratic governor doesn't have money to advance new programs during his last year in office.

It's the fourth year in a row that the nation's most populous state faces a multibillion-dollar budget deficit. This year's shortfall comes despite growing revenues fueled by stock market gains and investments in artificial intelligence.

Newsom's office outlined a behemoth $349 billion budget, though his proposal for how to spend all of that money is far from final. Lawmakers and the Democratic governor will spend the next several months fighting and negotiating over priorities — and cuts. Last year Democrats had to roll back their ambitious program to provide free health care to immigrants without legal status in the face of a $12 billion deficit.

''This budget really is about an eye towards ensuring that we have a sustainable fiscal plan going forward,'' Finance Director Joe Stephenshaw said during a Friday briefing.

This year, they will also face a $1.4 billion loss in federal funding after new federal policy changes to health care and food assistance programs for low-income people. Lawmakers have said repeatedly California is in no position to backfill that money. The budget doesn't fully address the federal funding loss.

Newsom will try to safeguard some of the progressive policies that have defined his tenure as he considers a presidential run. But lawmakers have to consider the looming structural deficit that could climb to $22 billion the following year. Newsom can't seek a third term and will leave office in January.

The nonpartisan Legislative Analyst's Office in November projected California to face a $18 billion shortfall this year. Their estimate and Newsom's sometimes differ.

Newsom's administration said some of the deficit was offset recently after the state racked in billion of dollars more in revenues than expected.

Still, State Controller Malia Cohen this week warned lawmakers that the state is already spending nearly $6 billion more than expected six months into the fiscal year. She urged them to take ''a disciplined approach.''

Republican lawmakers said the problem is nothing new. They have little say in the budget process because Democrats hold supermajorities in both chambers.

''California families have to balance their budgets and make tough choices. The state government should be held to the same standards,'' Republican state Sen. Tony Strickland said.

"During these times of uncertainty, we must craft a responsible budget that prioritizes the safety and fiscal stability of California families,'' state Senate President Pro Tempore Monique Limón said in a statement.

Education

Newsom on Thursday during his State of the State address said his budget will include ''the most significant investments'' in public education.

He plans to fully fund transitional kindergarten programs for all students, spend more than $27,000 per student next year and provide $1 billion to high-need schools. Based on a complex set of formulas, roughly 40% of the state's budget is required by California law to go to schools every year.

Newsom also proposed to move the Department of Education into the executive branch. The state superintendent of public instruction is an elected position, and it's not immediately clear whether Newsom will ask voters to approve the change.

He doesn't propose any new funding to local governments to address homelessness. Last year, Newsom and lawmakers agreed to set aside $500 million for the local programs but it's not guaranteed.

County officials worry the lack of new funding will hurt efforts to reduce homelessness. The programs are working, California State Association of Counties CEO Graham Knaus said, pointing to a 9% drop in unsheltered homelessness that Newsom touted earlier this week.

''It would make no sense to then stop the most successful program that is doing that,'' he said Friday.

Reserves

Newsom also calls for the state to rebuild its reserves after withdrawing roughly $12 billion in the last two years to solve budget problems.

He also wants the state to use $3 billion to pay down debt.

Other proposals

The budget proposal includes $200 million to create a rebate program to make buying an electric car more affordable.

The money comes from revenues generated by the state's cap-and-trade program and an air pollution regulation fund. The goal is to backfill federal tax incentives for electric vehicles that were slashed by Trump's massive tax and spending cut bill.

Newsom also wants to give more money to the state's Department of Justice to help the state fight the Trump administration's agenda. California has sued the administration more than 50 times since last year.