Newsom’s New Budget Proposal $7 Billion Short, According to LAO

By: Georgia | Published: May 28, 2024

California Governor Gavin Newsom’s May budget revision reveals a $7 billion gap from a balanced fiscal plan for 2024-2025. 

Despite this shortfall, it’s an improvement from previous, steeper deficit forecasts. “The May Revision puts the state on better fiscal footing,” noted the LAO in their report.

Trimming the Fat: Budget Cuts and Pauses

Newsom’s proposal outlines $15.2 billion in cuts and a strategic pause on $14.8 billion in program expansions. 

Governor Gavin Newsom standing at a podium with a digital display showing "Governor's Budget May Revision 2024-25" in the background, in a formal setting with the California state seal visible

Source: CAgovernor/X

These adjustments aim to create a more manageable deficit, refining the state’s fiscal outlook significantly from earlier projections.


Using the Reserves: A Contingency Plan

To help close the fiscal gap, the plan includes using $4.2 billion of California’s reserves. 

The California state flag, featuring the bear and red stripe, hanging inside a building with ornate architectural details

Source: Wikimedia Commons

However, relying too heavily on these funds could spell trouble down the line, especially in more financially turbulent times.

Borrowing and Beyond: Finding Fiscal Balance

The budget proposal also seeks $7.5 billion through borrowing and non-tax revenues. 

Governor Newsom speaking at a podium in a conference room with digital screens showing financial charts

Source: CAgovernor/X

These efforts combine to project a hopeful $3.4 billion surplus, a stark contrast to the LAO’s more cautious $7 billion deficit warning.

Legislative Challenges Ahead

“The Legislature would need to take $7 billion in additional budget actions to balance the budget,” the LAO asserts

Governor Gavin Newsom speaking at a podium with the flags of the United States and California on either side

Source: Wikimedia Commons

This sets the stage for potentially tough decisions in the state legislature to meet fiscal goals.

Future Fiscal Forecasts

Projections for 2026-2027 suggest that maintaining a balanced budget will require revenues to exceed current forecasts significantly. 

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The state’s financial health seems stable for now, but future uncertainties loom large.


Taxation Trepidation: No New Taxes Promised

Governor Newsom has promised no new taxes to address the deficit.

Governor Gavin Newsom speaking emphatically at a podium in a crowded conference room

Source: Wikimedia Commons

This complicates efforts to raise additional funds through conventional means, and highlights political challenges ahead.


Ballot Battles: The TPA and Fiscal Policy

The LAO hints at potential complications from the Taxpayer Protection and Government Accountability Act (TPA), a measure Newsom and other Democrats are actively opposing as it heads to the November ballot.

Governor Gavin Newsom giving a speech outdoors with a rainbow in the background

Source: Wikimedia Commons

This act, if passed, would add new complexities to California’s tax regulation landscape.


Closing Loopholes: The TPA’s Tight Grip

The TPA, if voters approve it, would require a two-thirds majority in the legislature for any new statewide tax increases.

Close-up of a glowing neon sign with the word "TAX" in red, highlighting the letters in a dark setting

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This is a stringent condition aimed at closing current loopholes that facilitate easier tax approvals at the local level.


Dueling Measures: Democrats' Counter Strategies

Facing the TPA, California Democrats propose two measures, ACA 1 and ACA 13.

A person sitting at a desk, writing or signing documents with a pen, focused on the paperwork

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The aim is to lower voting thresholds for new taxes and debts, setting up a significant fiscal showdown this November.


Electoral Impact: November's Decisive Moment

The November elections will be critical in shaping California’s fiscal policy. 

A voting sign that reads "VOTE HERE VOTE AQUI" with the American flag design, placed in a residential area with houses in the background

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The outcomes will determine the future of the TPA and other measures, directly influencing how the state manages its financial health.


Looking Ahead

As California addresses these fiscal challenges, the choices made today will deeply affect its economic stability.

Front view of the California State Capitol building in Sacramento

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The mixture of budget adjustments, legislative actions, and voter decisions will define the financial future of the state for years to come.