Newsom proposes plan to fix California’s $38 billion budget deficit

California Gov. Gavin Newsom (D) has proposed dipping into state reserves and cutting some spending, with the goal of narrowing an anticipated $37.86 billion budget deficit in the coming year.

“Our state is in a strong position to close this shortfall while protecting key priorities and programs that millions of Californians rely on,” the governor said in a Wednesday statement.

Earlier in the day, Newsom presented his $291.5 billion state budget proposal for the fiscal 2024, which begins on July 1. 

Within that proposal is a $37.86 billion deficit that is higher than last year’s $32 billion but lower than the $68 billion predicted for 2024 by the legislative analyst’s office last month.

“I value their work,” Newsom said, referring to the December assessment. “We just are a little less pessimistic than they are about the next year.”

The governor began his presentation by introducing its narrative as “a story of correction, a story of normalization, after a period of [a] tremendous amount of distortion.”

“That distortion has been represented in the revenue collection in this state,” he said.

The governor’s plan to close the deficit includes withdrawing $13.1 billion from the state’s reserves, while leaving behind a “substantial” $18.4 billion in this stockpile.

Newsom produced spending cuts that add up to about $8.5 billion, including $2.9 billion in the climate sector and $1.2 billion in housing programs.

The budget would also delay $5.1 billion across multiple categories including $1 billion for the state’s transit and intercity rail program.

The governor also suggested deferring $2.1 billion to fiscal 2025, including $499 million in funding for the University of California and California State University.

To help bridge the gap, Newsom proposed $5.7 billion in internal borrowing from special funds, which would help support tax increases for health care organizations. 

The precise details of the governor’s initial proposal are by no means final, as the budget tends to undergo several modifications between January and July.

In May — what Newsom described as the budget’s “prime time” — his office issues a revision, while a final version must be passed by lawmakers in the summer.

“I don’t live in a bubble. I live in reality. I’ve been out there, as you know, making a case for this economy,” the governor said.

“We’re just a little more optimistic than all the naysayers,” he added.