During a morning press conference, the governor wasted no time singing the praises of the state’s overall economic performance while simultaneously calling out the Trump administration’s tariff policies for creating what he called “deep uncertainty.”
The governor labeled the impacts on the state’s industries as an “assault,” one he said has disproportionately impacted direct trade with partners like Canada, China and Mexico. At the same time, Newsom admitted the state has a spending problem that needs to be addressed in both the near and long terms.
Estimates from earlier this year put the state on solid financial ground with a projected $363 million surplus, and revenues from January through April exceeded that figure by nearly $8 billion. That positive projection, however, is now much bleaker, standing at around $16 billion in lost revenues in the fiscal year plus one, the governor told members of the press.
The sour economic news will come with what the governor cited as necessary “early actions” in the form of $5 billion in program reductions, including an enrollment freeze on Medi-Cal for undocumented residents and an increase in premiums, among others.
Agencies will also see General Fund reductions from the 2024-25 fiscal year, with the exceptions of transportation, health and human services, and higher education. The Government Operations Agency, which is the umbrella agency that includes the California Department of Technology (CDT), will see a proposed $1.07 billion reduction from the previous fiscal year, according to the budget document.
While the news set fiscal expectations lower than it might have in surplus years, not everything about the proposed budget is bad news for technology providers and vendors. Several projects were highlighted for additional funds, including $19.1 million for the modernization of the Department of Industrial Relations’ (DIR) Public Works Information Technology System; $8 million for a one-time Internal Departmental Quality Improvement Account for CDT to support data gathering related to generative AI projects; and $3.2 million in 2025-26 and $1.6 million in 2026-27 for the enhancements to the California Law Enforcement Telecommunications System (CLETS) within the Department of Motor Vehicles (DMV).
DMV will also see a $53 million increase to complete the motor vehicle registration phase of its ongoing Digital eXperience Platform (DXP) project.
Interestingly, the proposed budget also includes the creation of a new agency, the new Business and Consumer Services Agency (BCSA), meant to provide “dedicated leadership and oversight across a wide range of industries.” The plan would split the existing Business, Consumer Services and Housing Agency in two, creating the BCSA and a Housing and Homelessness Agency.
“Creating this [BCSA] agency will improve regulatory efficiency with a focus on harmonizing standards and best practices for licensing, enforcement, education, and professional conduct across its member departments. A centralized agency will modernize operations by updating systems and processes, making licensing renewals and other services more efficient for consumers and licensees," the summary reads.
BCSA would include the following agencies:
- Department of Alcoholic Beverage Control
- Alcoholic Beverage Control Appeals Board
- Department of Cannabis Control
- Cannabis Control Appeal Panel
- Department of Consumer Affairs
- Department of Financial Protection and Innovation
- California Horse Racing Board
- Department of Real Estate
This is hardly the full picture of the 2025-26 proposed budget and its impacts. The document goes on to detail the possible implications of a “growth recession,” or lower than expected growth with increasing unemployment, and the other scenarios that could put a dent in the state’s fiscal plans.
The governor’s budget summary is available here. Industry Insider — California will continue to cover the evolving budget’s impacts to state IT as it makes its way through the Legislature toward final approval this summer.
