Newsom reveals priorities ahead of May budget revise

SACRAMENTO, Calif. (CN) — California Governor Gavin Newsom on Tuesday teased major moves in advance of his revised May budget that he said would affect prescription drug prices and reproductive freedom.

The governor will reveal the latest version of his fiscal year 2025-26 budget — a highly anticipated document, as the political and financial landscape has shifted significantly since he presented the budget in January — on Wednesday.

On Tuesday, Newsom said his budget would tackle pharmacy benefit managers and expand California’s access to medication abortion.

“Prescription drug prices are out of control and we’re shining a light on hidden costs while also giving CalRx more tools to respond to supply chain disruptions, market manipulation or politically motivated abortion restrictions,” Newsom said in a statement.

The governor argued that pharmacy benefit managers are middlemen and increase the cost of prescription drugs. His proposal would require them to become licensed and regulated by the state Department of Managed Health Care and report operational and financial details, along with detailed drug pricing information.

The department would review manager contracts, perform audits and have power to penalize violators.

Additionally, Newsom said his budget proposes widening the power of CalRx to buy brand-name drugs. This change would better enable California to handle supply chain issues, market manipulation or political maneuvering that seeks to hamper access to medication, including drugs used for abortion.

CalRx — the California Affordable Drug Manufacturing Act of 2020 — gives the state power to develop, create and distribute generic drugs, selling them at lower prices. The focus is on prescription drugs with prices the traditional market hasn’t addressed.

Under Newsom’s plan, the state could acquire generic and name-brand drugs, keep uninterrupted access to medications facing shortfalls or hostile politics, and heighten California’s ability to maintain reproductive health care choices, like the drug mifepristone, which has come under fire in other states.

State Senator Scott Wiener, a San Francisco Democrat, praised Newsom’s announcement in a statement. He pointed to one of his bills, Senate Bill 41, which mirrors one aspect of the governor’s proposal — that pharmacy benefit managers receive licenses from the state.

“Licensure will finally give state regulators a tool to rein in the abusive behavior by PBMs that drive costs up for families,” Wiener said. “To fully address PBMs’ effect on rising costs, however, we must go further by enacting clear rules governing their behavior. PBMs should not pocket rebates they negotiate on behalf of consumers, they shouldn’t steer patients toward more expensive drugs and their affiliated pharmacies in pursuit of profit, and they should compensate pharmacies and doctors fairly.”

California’s fiscal state has been on a rollercoaster for the past 18 months, though the track seemed to level out earlier this year.

Delayed tax returns led to the revelation in late 2023 that the state faced a massive budget shortfall. The Legislative Analyst’s Office at one point estimated it at over $70 billion, though Newsom said it was much lower.

The governor and Legislature balanced the budget for fiscal year 2024-25. However, Newsom emphasized that he’d also ensure the 2025-26 fiscal year budget — which lawmakers currently are debating — would also pencil out.

That forethought appeared to have worked in January, when Newsom’s office revealed the upcoming budget’s first incarnation.

In that first budget, which called for for $322.2 billion in spending, Newsom said state revenues were trending up. Officials expected about $16.5 billion more in collections. While the legislative analyst anticipated a deficit of around $2 billion, Newsom’s administration projected a modest surplus of $363 million. Both offices called the budget essentially balanced.

Minority Leader James Gallagher blasted Newsom’s proposed budget in a statement to Courthouse News.

“If Gavin Newsom’s budget reflects his values, then his values are deficits, deception, and delusion," the Yuba City Republican said. “He took a $100 billion surplus and lit it on fire. We’re expecting more gimmicks, more excuses, and zero accountability. Californians deserve the truth. They’re not going to get it in the May revise.”

Newsom’s administration boasted of a nearly $100 billion surplus in 2022.

The revised May budget, which comes out each year after the state receives its tax collections, will be released Wednesday. It could bring significant changes to what officials estimated in January.