Newsom Proposes Final Term Budget as California Faces $2.9 Billion Deficit

SACRAMENTO, Calif. — Gov. Gavin Newsom on Friday proposed a $349 billion state budget for the upcoming fiscal year, projecting a $2.9 billion deficit that is significantly lower than figures previously forecast by legislative analysts.

The proposal marks the fourth consecutive year that the nation’s most populous state has grappled with a multi-billion dollar budget gap. Newsom, now in the final year of his term, focused the plan on existing commitments rather than launching major new programs.

State lawmakers and the governor will negotiate specific spending priorities and cuts over the next several months. The budget must be finalized before the new fiscal year begins in July.

California also faces a $1.4 billion loss in federal funding for health and food assistance programs. Newsom’s current proposal does not fully account for that shortfall.

Public education remains a priority in the proposal, which includes full funding for transitional kindergarten and $1 billion for high-need schools.

However, the budget offers no new funding for local governments to address the state's homelessness crisis. Newsom also recommended depositing $3 billion into the state’s reserve fund.

Governor Gavin Newsom’s latest budget proposal is a high-stakes fiscal balancing act, crafted with one eye on his final year in Sacramento and the other on a potential future presidential run. By projecting a $2.9 billion deficit—strikingly lower than the $18 billion shortfall forecasted by the nonpartisan Legislative Analyst’s Office (LAO)—the Governor is signaling an aggressive, perhaps overly optimistic, financial outlook. This discrepancy sets the stage for a friction-filled negotiation with the state legislature over the underlying revenue assumptions.

The narrow deficit figure, however, masks deepening structural vulnerabilities. California is now staring down its fourth consecutive year of deficits, a troubling trend that persists even as the state benefits from stock market volatility and a surge in AI-driven wealth. It suggests that California’s long-term spending commitments have fundamentally decoupled from its sustainable revenue capacity.

On the policy front, Newsom’s decision to deny local governments additional funding for homelessness marks a significant pivot. Despite the Governor’s recent praise for marginal improvements in statewide homelessness data, the funding freeze reflects the hard reality of fiscal austerity. This move is certain to draw intense fire from mayors and county boards who are struggling to maintain frontline services.

Most notably, the budget functions as a manifesto for California’s role as the vanguard of the anti-Trump resistance. By earmarking funds for the state Department of Justice to litigate against the federal agenda and proposing state-level electric vehicle rebates to offset anticipated federal rollbacks, Newsom is doing more than just balancing the books. He is leveraging the state’s fiscal power to cement his position as the de facto leader of the national opposition.

California’s budget decisions carry heavy weight for the nation’s largest Vietnamese-American community. With the state unable to offset a $1.4 billion cut in federal funding for healthcare and food assistance, low-income families and seniors in our community face a significant burden. Small business owners—the backbone of the community, spanning thousands of nail salons and phở restaurants—are increasingly worried about a tightening economy and the loss of state support initiatives. On a brighter note, Governor Newsom’s commitment to education, including $1 billion earmarked for high-need schools, stands to benefit districts with large Vietnamese student populations. Conversely, the lack of new funding to address homelessness remains a point of frustration for business owners in areas like Little Saigon, where concerns over safety and sanitation continue to impact local commerce.