Budget Bloat and Blame Games: Inside Newsom’s May Revision
On Wednesday, Gov. Gavin Newsom released his May budget revision, proposing $321.9 in total spending for the next fiscal year. Now he must work with the legislature to pass a budget bill by the June 15th deadline. In a press conference outlining his budget to reporters, Newsom focused on blaming the Trump administration for California’s fiscal challenges, and acknowledged the growing strain that Medi-Cal is placing on the state budget.
Casting Blame
Newsom opened his presentation 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 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 per year. Newsom also highlighted his meetings with foreign officials — part of his ongoing effort to position California as economically independent from Trump.
Indeed, California is a superpower not only among the states, but globally. Natural resource abundance, optimal weather, and well-situated trade ports provide unique advantages that turned California into the populous, economically diverse economy it is today. California has a strong competitive edge as the home to major technology, biotech, military, defense, and entertainment companies. But under Newsom’s leadership, the high cost of living and doing business has driven a steady exodus of employers, entrepreneurs, and families from the state.
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 said uncertainty caused by the Trump administration is the reason California anticipates a $16 billion decline in revenue over the next two fiscal years.
Newsom presented a chart depicting revenue volatility to emphasize his point that President Trump is to blame for unpredictable and possibly weak revenue — but the chart shows data going back to 1999, with sharp volatility for the entirety of the time span. In reality, 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.
Rather than passing the buck, Newsom should consider how years of runaway spending is responsible for ongoing budget trouble.
Walking it back: Medi-Cal Expansion, CEQA, and utility costs
To address the budget problem, Newsom’s May budget revision includes a $5 billion freeze on Medi-Cal expansion, especially for undocumented immigrants. Newsom acknowledged there are 1.6 million undocumented immigrants on Medi-Cal — a “significantly larger [number] than we anticipated,” Newsom said.
His admission that the Medi-Cal expansion to undocumented immigrants has proven too costly marks a major shift for Newsom; he made universal healthcare “regardless of immigration status” a cornerstone of his progressive agenda from the beginning of his career.
Gov. Newsom described himself as a strong supporter of entrepreneurism, while arguing the Trump administration has harmed the entrepreneurial spirit in California. He conveniently skipped over how California’s own mass of overregulation bogs down economic opportunity. Examples include AB 5, a law Newsom signed which put 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 progressive agenda.
Newsom also championed reforms to the California Environmental Quality Act (CEQA), a move lawmakers, economists, policy experts, and business owners have sought for decades. The governor acknowledged the problem of sky-high housing costs and demand for affordable housing that exceeds supply, and said he hopes that 42 bills that were passed by the state legislature 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. 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.
As California Policy Vice President Lance Christensen recently observed, “CEQA reform remains elusive because influential groups in Sacramento — environmental organizations, labor unions, and NIMBY activists — block even modest changes. These groups rely on CEQA’s ambiguous standards and litigation threats to control development decisions. 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.”
Newsom’s sudden embrace of reform, after years of inaction, feels more like political cover than conviction. Never one to shy away from more debt for taxpayers, Newsom added, “We need to support a bond to address the issues of housing affordability, but also infrastructure.”
In addition, Newsom announced “$60 billion in… rebates that will go back to taxpayers related to utility use,” but did not explain the details further. California 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.”
Californians pay some of the highest utility rates in the nation, driven by climate policies and layers of regulation that pass costs to ratepayers. These rebates aren’t real relief — they’re theater to distract from the permanent cost drivers caused by Newsom’s aggressive climate mandates and his war on natural gas.
California’s chronic homelessness problem
Newsom also painted himself as a champion of communities struggling with homeless encampments, taking credit for the clearing of over 16,000 encampments.
“We need to have that same kind of intentionality with every jurisdiction in the state of California,” Newsom said, accusing some localities of being “the obstacle” by refusing to cooperate with the state. “We have done everything to remove as many obstacles as possible,” he said, 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 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.
Clearing encampments is one step, but California still has the highest number of homeless individuals in the nation — around 187,000 as of 2024, a record high for the state. Instead of pointing fingers at local governments, Newsom should cut through the bureaucracy and ensure measurable outcomes for the billions of dollars in continued homelessness spending.
Education: Spending Grows, Performance Stagnates
Regarding education, Gov. Newsom said that his budget revision includes $25,176 per public school student in California, an increase from about $24,300 last year. He celebrated that California students score “about average” nationally, compared to where they were several years ago.
Responding to the education proposals in the budget, Christensen said Newsom is “proposing more money for fewer public school students with poorer academic outcomes than when he signed his first budget as governor in 2019.”
Last school year, less than half of California students met state reading standards, and 35.5 percent met state math standards.
The Governor celebrated 2,484 new community schools in California at the cost of $4.6 billion. These are schools that include health care, mental health services, and “family services.” He also praised “longer school days” consisting of before- and after-school care and summer school, as well as the universal implementation of public Transitional Kindergarten. Translation: Newsom is excited that his government is more involved than ever in raising kids.
Rather than throw billions of taxpayer dollars at these overreaching schools, California’s education system should return to what it used to do best: teach kids to read, write, and do math. Missing from Newsom’s presentation is justification for why schools should be taking on health care and other services, when the system is widely failing its original mission.
As the governor approaches the end of his term, he is no doubt considering his future career aspirations. Voters may wonder if Newsom’s vision offers meaningful reform, or just an eleventh-hour attempt to rewrite the narrative before leaving office.
Either way, taxpayers should ask themselves whether the state is delivering the opportunities and results commensurate with the budget’s ever-growing price tag.
Sheridan Karras is the research manager at California Policy Center.