At $246 billion, Newsom boasts balanced budget for this fiscal year and next

SACRAMENTO, Calif. (CN) — California Governor Gavin Newsom on Thursday revealed his updated budget, calling for $246.6 billion in spending for fiscal year 2026-27.

The annual unveiling of the updated budget, called the May Revise, happens about a month before the Legislature must pass a version of it.

The view from 30,000 feet shows around a $1.8 billion drop in general fund spending from Newsom’s January budget — $246.6 billion now versus $248.3 billion in January. Constitutionally required spending for public schools and community colleges is much of the reason for a $10 billion increase over last year’s budget.

Newsom’s office emphasized an expected $3 billion deficit is bridged. No deficit exists in the upcoming budget as well as the 2027-28 budget. Also, the state has some $30 billion in reserves.

The governor praised the work done to create the budget, noting the state has kept some positions vacant. It’s avoided putting more dollars in new programs, saying California can’t afford it.

Like with most things circulating the Capitol, the devil — and politics — are in the details.

“We’re maintaining our values and we’re doing so in a bold way,” Newsom said, adding later: “It’s a responsible budget from our perspective.”

Funding for Proposition 36, the 2024 ballot measure that undid a 10-year old proposition that reduced penalties for many theft and drug crimes, is a priority for Republicans. Cuts to the state’s In-Home Support Services program — which allows people with disabilities to remain in their homes rather than in a care facility — has drawn ire from both sides of the aisle.

A plan from the state Senate calls for $100 million to fund Proposition 36. That plan also calls for $323 million for IHSS above Newsom’s original proffer.

Lawmakers on both sides of the aisle this week called for Newsom to reinstate the IHSS cuts.

The cuts — which the Legislative Analyst’s Office has called a response to a projected, multi-year deficit — would make changes to IHSS, like altering eligibility timelines and shifting the state’s share of IHSS hours-per-case growth onto counties.

Program costs have grown significantly over the past two decades, the analyst has said. The Legislature is pushing back against millions of dollars in cuts.

“We cannot balance the budget on the backs of vulnerable residents,” said Assemblymember Patrick Ahrens, a Silicon Valley Democrat, at a press conference earlier this week.

Assembly leaders in a statement said the state’s income taxes, through April 30, have exceeded January’s prediction by almost $11 billion.

California’s tax revenues heavily rely on the state’s top earners, meaning the state reaps the benefits of a strong stock market and suffers lean years when it falters. The top 1% of earners pay around 50% of personal income taxes.

Some $5.3 billion of those dollars will fund the state’s Judicial Branch for fiscal year 2026-27. About $3 billion of that is for trial court operations.

“As the state faces significant budget challenges, I appreciate Governor Newsom’s continued support of the judicial branch to protect access to justice for all,” Chief Justice Patricia Guerrero said in a statement. “This includes increased funding for operational costs, court interpreters, and court-appointed counsel. We look forward to working with the Governor’s administration and the Legislature to finalize the budget in the coming weeks.”

Despite the optimism expressed by Newsom, the Legislative Analyst’s Office has been sending warning signals over the budget for the past few years. California has faced four years of projected deficits, despite growth in the state’s economy and revenue. That makes the financial problem structural and raise growing concern about the state’s fiscal sustainability.

Lawmakers must pass a budget by June 15 and the governor must sign it before the new fiscal year begins July 1. Legislative leaders and Newsom will now work on reaching a budget lawmakers can pass and the governor will sign by mid-June.

However, lawmakers and the governor regularly tinker with the budget once the deadline passes, as only a version of the budget must pass by mid-June.