Fact-Checking the May Budget Revision
After six years of budget shortfalls, rising homelessness, and an exodus of residents and businesses, Gov. Gavin Newsom unveiled his $321.9 billion May Revision to California’s 2025–26 state budget on Wednesday — which he acknowledged is upside down by roughly $12 billion. Now, with just weeks until the June 15th deadline, he must work with the Legislature to balance the final spending plan. If adopted, Newsom’s proposal would represent more than $100 billion in budget growth since he took office — up from just under $215 billion in 2019–20.
Newsom used his press conference this week to blame President Donald Trump for the state’s fiscal uncertainty, while pivoting sharply to the center on key issues as he navigates toward a likely presidential bid. One of his more surprising admissions was the growing strain Medi-Cal faces from the state’s expansion of benefits to illegal immigrants. Another shift: Newsom called for modest reforms to the California Environmental Quality Act (CEQA) to attempt to rein in skyrocketing housing costs.
The political calculus was unmistakable: Newsom is scrambling to look like a centrist problem-solver while constantly deflecting responsibility for the mess his own policies helped create.
To help you sift through the spin, here’s a snapshot of what the Governor pitched — and CPC’s “fact check” on the reality behind the rollout.
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GOVERNOR’S SPIN: “California is an Economic Powerhouse”
Newsom opened by touting California’s economic strength, pointing out that the Golden State is number one in the nation for manufacturing output, agricultural output, innovation, Fortune 500 companies, and the start of new businesses. He also said that 18 percent of the world’s research and development comes from California, and that the state’s total output amounts to $4.1 trillion annually.
FACT CHECK: Indeed, California is a superpower not only among the states, but globally. But many of the companies behind those numbers are long-established businesses and major tech companies that were thriving well before Newsom took office. California’s economic strength is also rooted in its natural advantages — its position along the Pacific Rim and optimal weather to grow crops year-round. Under Newsom’s leadership, the high cost of doing business — compounded by layers of regulation and the lasting fallout from some of the nation’s strictest COVID shutdowns — has driven a steady exodus of employers and entrepreneurs from the state.
GOVERNOR’S SPIN: “Trump’s Tariffs are to Blame for California’s Revenue Declines”
A significant portion of Newsom’s presentation revolved around the challenge of economic uncertainty, which he tied to President Trump’s tariff policies. California is once again grappling with a budget deficit, now totaling $12 billion. The governor says that uncertainty caused by the Trump administration is the reason California leaders anticipate a $16 billion decline in revenue over the next two fiscal years.
FACT CHECK: If the final budget bill is close to Newsom’s $321.9 billion revised proposal, this would constitute budget growth of over $100 billion since the 2019-20 budget at the beginning of his term. That’s not a tariff problem — it’s the result of years of runaway spending, lost revenue from companies fleeing the state, unrealistic promises to public-sector unions, and a failure to seriously prepare for economic downturns.
GOVERNOR’S SPIN: “We’re Putting a Freeze on Medi-Cal to Save Costs”
To address the budget problem, Newsom proposed a $5 billion freeze on Medi-Cal expansion, particularly for undocumented immigrants, acknowledging that 1.6 million are now enrolled — a “significantly larger [number] than we anticipated,” Newsom said.
FACT CHECK: This freeze marks one of the biggest surprises in Newsom’s budget revision — an admission that the state’s Medi-Cal expansion, particularly for illegal immigrants, has become a serious financial strain. For a governor who once touted this as a cornerstone of California’s progressive identity, pulling back is no small shift. But even the proposed modest rollbacks may not be enough to shield the state from billions in potential federal funding cuts.
GOVERNOR’S SPIN: “I Support Small Business and Entrepreneurship”
Newsom described himself as a strong supporter of entrepreneurship, while claiming the Trump administration has harmed the entrepreneurial spirit in California.
FACT CHECK: Newsom called himself a champion of entrepreneurism, but failed to mention that he signed AB 5, which put tens of thousands of independent contractors out of work, and the $20 fast food minimum wage law, which is forcing layoffs at franchises often run by immigrant entrepreneurs. If anything has hurt small business in California, it’s Newsom’s own policies.
GOVERNOR’S SPIN: “We’re Finally Reforming CEQA”
In another big surprise, Newsom unironically embraced modest CEQA reform — a move lawmakers, economists, policy experts, and developers have pushed for decades. The governor admitted that California faces sky-high housing costs and that housing demand exceeds supply. He hopes 42 bills that were passed by the legislature this session to “streamline” CEQA will help.
“I’m talking about our own ability to get out of our own way. We’re as dumb as we want to be when it comes to the issue of housing,” Newsom remarked. “We need to support a bond to address the issues of housing affordability, but also infrastructure.”
FACT CHECK: Long used by the environmentalist lobby to block new development, CEQA has played a central role in driving up costs and fueling California’s housing affordability crisis. Newsom’s sudden embrace of reform, after years of inaction, feels more like political cover than conviction.
Real CEQA reform remains elusive because influential groups in Sacramento — including environmental organizations, labor unions and NIMBY activists — continue to block even modest changes. These groups rely on CEQA’s ambiguous standards and use the constant threat of lawsuits to control development decisions. As CPC VP Lance Christensen recently observed, “Even minor attempts to simplify CEQA are treated as mortal affronts to environmental integrity. The majority party risks alienating powerful allies if they support reform.”
Until lawmakers are willing to take on these entrenched interests, California won’t just remain stuck in a housing crisis — it will continue to stall on building the infrastructure needed to support California communities and a modern economy.
GOVERNOR’S SPIN: “$60 Billion in Utility Rebates for Consumers”
Newsom announced “$60 billion in… rebates that will go back to taxpayers related to utility use,” but was short on details. Senate Republicans noted that the rebate “would be issued via the California Climate Credit… The Climate Credit is simply a rebate of money paid by those customers to help offset the additional costs they are paying. The Climate Credit does nothing to address the expensive energy rates caused by California’s climate policies.”
FACT CHECK: Californians pay some of the highest electricity rates in the nation and it’s a direct result of 20 years of unrestrained climate legislation that puts all the costs — and none of the benefits — on the backs of California taxpayers. These rebates aren’t real relief — they’re a gimmick, a temporary credit meant to distract from the permanent cost drivers caused by Newsom’s aggressive climate mandates and his war on natural gas, which remains the state’s largest single energy source.
GOVERNOR’S SPIN: “We’re Tackling Homelessness — But Local Leaders Are Holding Us Back”
Newsom painted himself as a champion of communities struggling with homeless encampments, taking credit for the clearing of over 16,000 encampments. But instead of owning the state’s failed strategy on homelessness, he turned his fire on local governments, accusing some of being “the obstacle” by refusing to cooperate with the state.
“We need to have that same kind of intentionality with every jurisdiction in the state of California,” Newsom said. “We have done everything to remove as many obstacles as possible,” referring to conservatorship programs and CARE court, and projects Homekey and Roomkey (taxpayer-funded programs to provide housing and develop new permanent and interim housing).
Newsom also emphasized the state’s massive spending on behavioral health services, and 214 new facilities being built to provide more beds for those needing behavioral health treatment. Last year, California voters passed a whopping $6.38 billion bond for behavioral health facilities and services.
FACT CHECK: Clearing encampments is one step, but California has the highest number of homeless individuals in the nation — around 187,000 as of 2024, a record high for the state. Instead of abdicating his responsibility on the issue and pointing fingers at local governments, Newsom should cut through the bureaucracy and ensure measurable outcomes for the billions of dollars in continued homelessness spending.
GOVERNOR’S SPIN: “We’re Investing More in Education — and It’s Paying Off”
Gov. Newsom touted increased education spending in his budget revision, highlighting $25,176 in per-pupil funding — up from roughly $24,300 last year. He praised California students for now scoring “about average” nationally, an improvement compared to where they were several years ago. The Governor also celebrated the existence of 2,484 new “community schools” in California — funded at a cost of $4.6 billion.
FACT CHECK: California’s public school enrollment has dropped dramatically since the pandemic, so what Newsom is proposing is more money for fewer students. But California already spends far more per pupil than most states. Despite that, less than half of students met state reading standards last year, and only 35.5% met math standards — worse outcomes than when Newsom signed his first budget in 2019.
As for community schools, they’re a long-time priority of California’s powerful teachers union — a model that expands the role of schools to include health care, mental health and “family services.” It’s a strategy that gives government and unions deeper influence over students and families, especially those in low-income communities, and an excuse to get more funding despite dismal student performance outcomes.
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Newsom’s May Revision is less a course correction than a carefully staged performance — one that tries to rebrand failure as progress while shifting blame to everyone but the man in charge. From eleventh-hour policy pivots to recycled promises and relentless finger-pointing, the governor’s message is clear: trust the same people who created the crisis to solve it.
Californians deserve better.
— The breakdown above is based on research and budget analysis by CPC Research Manager Sheridan Karras. You can read her article here.