Newsom to roll out new budget that is at least $10 billion in the red
California Governor Gavin Newsom is poised to release a revised budget proposal for the 2025-26 fiscal year, predicting a notable deficit between $10 billion and $30 billion. Initially, he had proposed a balanced budget earlier this year, but the state now faces serious financial challenges attributed to former President Donald Trump’s tariffs, which Newsom blames for economic damage in california. He claims these tariffs are responsible for projected losses of $25 billion to consumers and over 64,000 jobs in the state.
with California’s economy heavily reliant on the top earners, fluctuations tied to the stock market have made budget forecasting more tough, especially considering lower-than-expected tax revenues due to the tariffs. the revised budget is expected to reflect reduced growth in wages and income, increased unemployment, and rising healthcare costs. Additionally, the governor’s office indicated that the ongoing economic uncertainties complicate effective budgeting and planning for state services. Newsom’s comments about the budget woes, which he calls the “Trump slump,” highlight the intricate relationship between federal policies and state financial health.
Newsom to roll out revised budget that is at least $10 billion in the red
California Gov. Gavin Newsom is expected to shift the blame for his state’s massive budget woes onto President Donald Trump’s tariffs when he releases his revised 2025-26 budget proposal on Wednesday.
Newsom, a presumed contender for the Democratic presidential nomination in 2028, is expected to go from the roughly balanced budget he announced in January to one that is between $10 billion and $30 billion in the red.
Newsom teased his comments earlier this week, calling the broader economic damage to California the “Trump slump.” He is expected to continue to call out Trump and the harm to the state from his trade policies and public threats to withhold federal funding from California.
On Tuesday, Newsom and Attorney General Rob Bonta announced the state would file a new motion for a preliminary injunction to stop Trump’s tariffs as part of California’s lawsuit challenging the president’s use of emergency powers.
The governor’s office said the tariffs are projected to cost California consumers $25 billion and result in the loss of over 64,000 jobs, at a minimum. It added that the total cost of Trump’s tariffs is projected to be upwards of $40 billion.
“As the largest economy in the nation, California has the most to lose from President Trump’s weak and reckless policies,” Newsom said.
In the governor’s January proposal, Newsom flagged “uncertainty about federal policy” as the “most immediate risk to the forecast.”
Every state budget is built on forecasts of economic conditions, both at the federal and state levels, that affect tax revenues. California relies heavily on income tax from the top 1% of its residents, whose money is often tied to the stock market, which has been on a wild ride since Trump’s second term began. As a result, California is left in a vulnerable position and is looking at a multibillion-dollar deficit.
The state is expected to lose $7.8 billion in tax revenue from personal income tax, capital gains, and corporate revenue due to the effect of tariffs on California taxpayers, the governor’s office said Tuesday.
“This extraordinary loss of essential revenue is exacerbated by the unpredictable and chaotic approach to imposing tariffs, which has made it extremely difficult for California and its agencies to effectively budget, plan for the future, and properly serve Californians,” Newsom’s office said.
His office confirmed that California’s recently downgraded economic projection for the 2025-2026 governor’s budget would reflect the effects of the current tariffs and their uncertain nature.
“Specifically, this forecast projected increased unemployment and near-term inflation and considerably downgraded projected wage and business income growth, as well as job and personal income growth,” the office said. “These fiscal impacts from tariffs have immediate and devastating effects on California’s budget, which in turn could yield deep cuts to the state’s programs and services.”
The state also took a hit following the devastating wildfires that ravaged parts of Los Angeles and forced it to use almost all its emergency reserves. Residents affected by the fires were allowed to defer filing their taxes until October, putting a huge question mark on how much the state will have at its disposal. California is also facing a significant increase in healthcare costs, which will likely be reflected in the revised budget.
“We’re going to be trying to pass a shell of a budget,” one Sacramento lawmaker told Politico, referring to the deficit projections. “They’re just fake numbers, because we just don’t know.”
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