On January 10, Governor Gavin Newsom of California submitted the balanced fiscal budget for 2025-2026 to the state legislature, with a total budget amounting to $322.3 billion. Joe Stephenshaw, the California State Controller, held a press briefing for about two hours to discuss the budget.
Just four days ago, Newsom outlined the key points of the budget at a press conference in the North San Joaquin Valley region, describing it as a “balanced spending plan that makes the government more efficient, enhances accountability, and improves the safety, health, and well-being of Californians.”
Newsom also touted California as a leader in the nation, paving the way for employment and the future of the U.S. economy, with each region having its own local economic plan. He emphasized that with a balanced budget and key investments in the upcoming fiscal year, California is fully capable of maintaining its momentum.
The budget for the fiscal year 2024-25 showed a deficit of several hundred billion dollars. Newsom had previously mentioned considering a two-year budget cycle rather than a one-year budget cycle. The combined deficit for the 2024-25 fiscal year was $276 billion, and for 2025-26, it was $284 billion, resulting in a total deficit of $560 billion over the next two fiscal years. However, the latest budget proposal does not show a deficit and does not mention repaying the nearly $20 billion debt incurred from federal relief funds during the pandemic.
Since Newsom took office as governor in 2019, annual budgets for California have been as follows: $215 billion for the 2020-2021 fiscal year, $227.2 billion for 2021-22, $286.4 billion for 2022-23, $306.5 billion for 2023-24, and a deficit for the 2024-25 fiscal year with a budget of $291.5 billion.
Stephenshaw explained that the budget was balanced through cuts, delayed budgets, and fund transfers. He mentioned that state revenue was affected by factors such as fluctuations in capital gains and delayed tax filings. The governor’s budget proposal includes a reform to establish a Budget Stability Account for depositing funds to profit from surges in capital gains and to address emergencies.
Out of the $322.3 billion budget, $228.9 billion comes from the State General Fund; reserves include nearly $17 billion, comprising $10.9 billion in the State Emergency Fund, $1.5 billion in the School Emergency Fund, and $4.5 billion in the Economic Uncertainty Special Fund.
Stephenshaw stated that general fund revenues increased by $16.5 billion. He mentioned, “Although the Legislative Analyst’s Office (LAO) updated revenues, we are $820 million higher than their estimate, accounting for 1.4% of total revenue.” Additionally, he noted, “In the 2024 budget, there is $363 million in State Fund for Economic Uncertainties (SFEU) free reserves, which is our largest difference from the LAO.” The LAO estimated a $2 billion deficit in the budget.
A press release from Newsom’s office mentioned savings of $1.2 billion over two years for taxpayers by eliminating 6,500 vacant government positions. Reductions in state travel expenses, printing costs, and upgrading IT systems will further cut expenditures by $3.5 billion.
Stephenshaw highlighted some aspects of the governor’s budget, including a significant increase in education funding over the years. The 2015-16 Proposition 98 brought $69.1 billion to schools, with a substantial growth in education funding a decade later: $119.2 billion in the 2025-26 fiscal year. He stated, “Considering the revenue fluctuations, we propose a reduction of $1.6 billion in education appropriations.”
In the education budget, $1.8 billion will be allocated for full implementation of universal and transitional kindergarten; $435 million for before, after, and summer programs; nearly $10 billion for school meals; $40 million for screening for reading difficulties from kindergarten to 2nd grade; a 2.43% cost-of-living adjustment totaling around $2.5 billion, of which $800 million is discretionary; $1.8 billion for rental subsidies; $500 million for literacy and math coaches; $3.786 billion for Black student reentry grants; $300 million for teacher recruitment.
Two bond measures were passed in the 2024 election – issuance of climate and education bonds totaling $10 billion each. The budget proposes using $2.7 billion from the climate funds for the annual budget, with $1.5 billion allocated for wildfire and forest restoration projects. For the education bonds, $1.5 billion will be used for TK-12 school modernization, new construction, and safety projects; $50 million for community college modernization, safety, and capacity expansion projects.
Stephenshaw noted that given the recent wildfires in Los Angeles County, policy adjustments are being sought for investments. The budget has allocated $2.5 billion to support wildfire recovery capacity; $1.5 billion from climate bonds will be invested; 16 new state-of-the-art helicopters and seven aerial refueling aircraft will be purchased to increase aerial capabilities; $1.3 billion will be invested in expanding firefighting capacity; 2,400 new firefighters will be recruited; $24 million will be invested in new technologies; satellite technology for real-time monitoring will also see an investment of $24 million.
The tax exemptions in the budget are expected to reduce California’s income. The film and television tax exemption will increase from $330 million to $750 million, with the highest exemption for veteran households at $20,000; it is anticipated to reduce annual revenue by $10 billion and an ongoing reduction of $85 million.
Other expenditures include a $60 million California Competition Grant, $25 million for supporting chip design and implementation, and providing three months’ supply of diapers to all newborns in the state. Stephenshaw mentioned that more details will be released later.