Newsom Offers Multiyear Balanced Budget Plan to Legislature

The financial rollercoaster that is California’s yearly budget process inched a little closer to a conclusion this week as Gov. Gavin Newsom unveiled an adjusted fiscal proposal — known colloquially as the May Revise.

This budget cycle has been full of ups and downs that started with a deficit somewhere between $2.9 billion and $17.7 billion, then a technically balanced budget with ongoing structural deficits, and now a $349.9 billion balanced budget plan that will extend into 2028 and a nearly $40 billion surplus.

“This is a balanced budget, structurally, for the next 18 months after I’m gone,” Newsom said.

He began his address swinging on the Trump administration and likening federal cuts, the impacts of H.R. 1, and international tariffs to a “wrecking ball,” before turning to his own familiar talking points about the strength of the state’s economy and highlighting the improved fiscal position.

That rosier-than-expected position, he said, was aided by $16.5 billion more in revenue than the administration had projected in January, and $53.6 billion more than the Legislative Analyst’s Office projected in November.

“My friends at the LAO,” Newsom jabbed later in the presentation. “I like the LAO, I like that they were off by $53 billion.”

However, the origins of that revenue are far from guaranteed in the longer term and are susceptible to the effects of broader economic pressures.

Newsom noted the volatility of the state’s “Big Three” revenue streams — personal income tax, corporate tax and sales and use tax — adding that the state needs to double the 10 percent set-asides outlined in Proposition 2.

“When the nation gets a cold, we get the flu,” he said, calling the change “long overdue.”

With regard to reserves/rainy-day funds, Newsom said total reserves stand at nearly $30 billion, with just under $10 billion in surplus.

Newsom addressed his plans to target corporate taxes by capping tax credits and plans to add a digital software sales tax on downloads of pre-written applications. He noted that around 75 percent of those transactions are business-to-business and would generate around $900 million for the state and $1.1 billion for cities and counties.

Where reductions are concerned, the governor said the state is cutting operating expenses by $1.5 billion on an ongoing basis, as well as to some public-facing programmatic cuts. Additionally, more than 6,000 vacant positions have been eliminated at a cost savings of $487 million.

The state will continue to focus on civil service modernization; digitizing services; cuts to travel, printing and operations; the implementation of AI tools; and procurement acceleration.

Future efforts the governor highlighted include DMV modernization; streamlined procurement assisted by AI; hiring reforms; enhanced IT project delivery; and modernized grant applications, among others.

Asked by reporters in the room what his position was on state workers returning to the office four days a week, Newsom said he supported the return and that it was time to “get it done.” The return-to-office debate has been a point of contention between state workers, some lawmakers and the administration since last year.

While this budget presentation was a far cry from its gloomier predecessor, there is still a long road ahead before a final budget act is signed. The governor and Legislature will need to hash out the finer points of the plan by mid-June.

State agencies also submitted more than 80 new Budget Change Proposals with the May Revise. In the coming days, Industry Insider — California will highlight any IT-related requests and add them to its BCP table.