Newsom offers early peek at rosy budget projections

SACRAMENTO — Hours before Gov. Gavin Newsom is expected to present his budget plan on Thursday, his office released new projections of a $16.5-billion state revenue windfall over three years and offered a rosy outlook on California’s fiscal position during his final year in office and the year after.

Newsom’s office provided few details about his plan to reduce spending or other adjustments that he would need to propose in combination with the increase in revenue to eliminate projected deficits from 2026-27 through 2027-28.

The unusual early look at his budget proposal comes as Newsom begins to wind down his time at the state Capitol and considers a run for president in 2028.

Two weeks ago, the Legislative Analyst’s Office issued an analysis of state spending that said California could not, in the long term, afford to pay for existing services and the new programs that Newsom and Democratic lawmakers have enacted since he took office in 2019. State spending has outpaced California’s strong revenue growth by about 10%, creating a perennial budget shortfall, defined as a structural deficit.

California’s spending problem threatens to define Newsom’s fiscal legacy and could provide ripe fodder for his critics. If projections of the unexpected tax windfall, which analysts attribute to stock market interest in artificial intelligence companies, bear out, the upswing could mark a lucky break for Newsom.

The governor has largely resisted adopting new across-the-board tax increases or sharply curtailing his expensive policy proposals in order to align state spending with revenue.

His budget proposal includes a call to increase taxes on corporations by limiting state tax credits to no more than $5 million, or 50% of a company’s tax liability, beginning in the tax year 2027. No estimates were offered to explain how much revenue the new cap would bring in to support the state budget.

The preview of his budget has several new spending proposals, including providing $300 million to help low-income Californians keep $0 monthly premiums on healthcare coverage through the Affordable Care Act in response to cuts by the federal government, as well as $100 million to help wildfire victims afford construction loans to rebuild their homes. Two days before Mother’s Day, Newsom also introduced a plan to provide 400 free diapers for every California newborn at select hospitals beginning this summer.

Newsom is expected to present his budget in more detail late Thursday morning in Sacramento.