Newsom blames Trump for tax revenue shortfall in revised budget reveal

SACRAMENTO, Calif. (CN) — Revealing his updated state budget on Wednesday, California Governor Gavin Newsom laid the blame squarely on the administration of President Donald Trump for lower-than-expected tax revenue.

Golden State officials now expect a $12 billion deficit for the 2025-26 fiscal year. The revised May budget calls for $321.9 billion in expenses, about $300 million less than the budget’s first version revealed in January.

Months ago, state revenues appeared on track to exceed expectations by almost $8 billion. However, the uncertainty of Trump’s tariffs, which has reduced volume at the state’s ports and disproportionately affected California, has led to lower revenues, Newsom said.

The governor must sign a budget by June 15.

“The best way to describe this is the Trump slump,” he said, adding later: “The economy of California was humming.”

Newsom noted the tariffs hit small businesses harder than others. Business owners question when to make purchases, as they attempt to navigate an ever-changing tariff landscape. Additionally, fewer tourists are visiting the state.

To bridge the financial gap, the budget calls for freezing enrollment in the Medi-Cal expansion for undocumented adults and implement a $100 monthly premium for enrollees over 19 years old. Pulling money from other agencies and shifting funds also helps fill the deficit.

“There’s no new taxes, as the vernacular is typically used,” Newsom said.

California Chief Justice Patricia Guerrero thanked Newsom in a statement for mitigating impacts to the state’s court system.

“We look forward to working with his administration and the Legislature to finalize the budget in the coming weeks,” the chief justice said.

Newsom’s political allies in the Legislature also assigned blame to Trump in a statement.

“We’ve been preparing for this challenging budget year for quite some time, which has been made even more difficult by an openly hostile federal administration that’s coming for many of the policies and programs that make California great," said Senate Pro Tempore Mike McGuire and state Senator Scott Wiener, a San Francisco Democrat. “The Senate will be presenting its version of the budget in the weeks to come, but one thing you can take to the bank today, is that we will never stop fighting for those who most need someone in their corner.

State Republicans derided Newsom, saying he was playing a blame game. Assembly Minority Leader James Gallagher of Yuba City called Newsom’s finger-pointing “the biggest load of crap I’ve ever seen from a politician.”

“Newsom needs to stop blaming everyone else and own up like a man," Gallagher said in a statement. “He promised free health care to illegal immigrants. California can’t afford it, so he’s backpedaling, but still charging taxpayers billions for it over the next year."

State Senator Tony Strickland, a Huntington Beach Republican, told Courthouse News that Newsom continually blames others for his own poor performance.

“It’s only in politics where you can do a poor job and try to blame somebody else,” he added.

However, Strickland also said he’s pleased that Newsom is looking at firefighter staffing levels and increasing water storage.

The state started out the year on much more solid financial footing — a sea change from the dire straits it faced in late 2023.

Delayed tax returns, among other reasons, led officials to estimate a budget gap between $38 billion to $73 billion as 2023 drew to a close. Newsom in 2024 said he’d fill budgetary gaps in the following two fiscal years.

That led in late 2024 to the state Legislative Analyst’s Office saying California’s financial footing had greatly improved, though little wiggle room existing for additional spending. It also anticipated deficits of $20 billion to $30 billion in future years.

State officials in January unveiled a vastly different fiscal year 2025-26 budget when compared to the prior year.

They estimated increased tax revenues, about $16.5 billion more than the past year. Officials also projected a modest surplus of $363 million. Both the governor’s office and state analyst deemed the budget essentially balanced.

The January budget, the public’s first glimpse at an ever-changing document, called for $322.2 billion in spending.

The Palisades and Eaton fires, which devasted Los Angeles County early this year, continued to rage when Newsom’s administration released its budget in January. Other problems soon arose as well.

Trump’s presidential win led Newsom to call a special legislative session. Two bills emerged from that session. The first allocated up to $25 million for the state Department of Justice in preparation of legal battles. The second earmarked another $25 million for local legal services.

Newsom signed both bills in February.

State officials have said that California’s coffers rely heavily on high-income earners and a strong stock market. Trump brings uncertainty about federal policy, as well as increased deportations, that latter of which could affect the state’s labor pool.