Newsom's Budget Proposal: Rosier Than LAO, but Tenuous

Gov. Gavin Newsom’s budget proposal for the 2026-27 fiscal year walks on a tightrope.

On one side of that thin central line is some positivity: The budget is rosier than the Legislative Analyst’s Office suggested when it assessed California’s financial position in November. This year’s budget proposal is a small step up in total expenditures from last year, but nothing huge. It still includes major spending projects, including IT.

The topline numbers:

• $348.9 billion in total expenditures, up from $342.4 billion in 2025-26.
• The governor’s office faced a deficit of only $2.9 billion when constructing the budget, down significantly from LAO’s projected deficit of $17.7 billion.
• The governor assumed revenues $31.5 billion higher than LAO.

Then there are some warning signs: The governor’s financial forecasts don’t include many of the risks LAO builds into its own numbers, so any stock market downturn could worsen the picture. The state’s constitutionally required spending continues to tick upward.

While presenting the budget proposal, Department of Finance Director Joe Stephenshaw repeatedly stressed that it’s a starting point and any number of factors could lead to changes in the May Revision.

"It really is a workload budget and taking a very conservative approach to wait and see how things change in preparation for the May Revision," Stephenshaw said during the presentation.

Both Stephenshaw’s presentation and Newsom’s State of the State Address on Thursday emphasized education, including initiatives for free meals, transitional kindergarten and California’s push toward the Community Schools model. Newsom is also calling for oversight of the Department of Education to transfer from the state superintendent to the Board of Education.

The governor’s budget summary noted continued investment in major projects:

• $145.5 million for EDDNext (Employment Development Department)
• $101.6 million in 2026-27, 2027-28 and ongoing funding for EDR2 (Franchise Tax Board)
• $94.1 million for the Digital eXperience Platform Project (Department of Motor Vehicles)
• $41 million for the Common Cloud Data Platform (California Community Colleges)
• An estimated $25 million in IT resources for the State to State Verification System Project (DMV)
• $11.2 million for the Firearms IT Systems Modernization Project (Department of Justice)

Along with the budget proposal, the Department of Finance has also begun publishing agency budget change proposals (BCPs), which request funding for specific projects. As of Friday, the BCP portal listed 345 such requests.

In the coming days, Industry Insider — California will compile IT-related BCPs into a searchable format.