California will face an additional $12 billion state budget shortage next year, largely due to overspending, and Gov. Gavin Newsom said President Trump's federal tariff policy has been worse.
"California was under attack," Newsom said. "In many ways, the United States of America was under attack because we had a reckless president."
Newsom released a forecast in a speech Wednesday that his $321.9 billion revised spending plan proposes going back to free health care for low-income undocumented immigrants to eliminate the Medi-Cal benefits of expensive weight loss treatments and reduce overtime for other Trims’ indoor support staff.
In addition to the $27.3 billion fiscal remedies, the new deficit includes $16.1 billion in cuts and $7.1 billion withdrawal from the state’s rainy day fund, which the lawmaker and governor have agreed to be carried out in 2025-26.
The overall $39 billion shortage marks the third consecutive year that Newsom and lawmakers have been forced to reduce funding for the state program, which has exceeded the more funds California can spend.
Among the new layoffs released on the table on Wednesday, there is a call for a cut to his signature policy to provide free medical insurance to undocumented immigrants who are eligible for income.
As of January 1, Newsom proposed to freeze new Medi-Cal enrollment for unlicensed adult immigrants and required people over 18 to pay a monthly premium of $100 to obtain medical insurance through Medi-Cal.
If some immigrants can’t afford new premiums, the cost share will reduce the state’s financial burden and can reduce the total number of healthcare plans. Freezing enrollment rates could prevent the program from continuing to the balloon, after more people signed up for the previous contract than the state expected.
These changes provide $116.5 million in small savings next year, growing to $5.4 billion in 2028-29.
The governor also followed federal leadership and cut $85 million in benefits for Ozempic and other popular weight loss pills from all Medi-Cal coverage programs, while saving $333.3 million by eliminating long-term care benefits for some participants.
According to his budget, Newsom hopes to work overtime for family support service workers to save $707.5 million next year.
The governor's budget includes a controversial proposal to obtain $1.3 billion from Proposal No. 35, a measure approved in November that paid revenue from taxes to managed care organizations, primarily paying for raising MEDI-CAL provider rates. The decision is expected to strike back from a coalition of doctors, clinics, hospitals and other medical groups supporting the claim, which the proposition is supported by nearly 68% of voters.
Under another cost-saving measure, the governor hopes to transfer $1.5 billion in Cal Fire funds from the general fund. Instead, Newsom hopes to provide $1.5 billion from the greenhouse gas reduction fund paid for next year's earnings from the state Cap and Trade program.
The governor’s budget proposes to expand caps and deal plans – a first initiative that sets restrictions on companies’ greenhouse gas emissions and allows them to buy additional points from state auctions, which he hopes to spend at least $1 billion a year on high-speed rail.
The budget marks the continuation of Newsom Administration's overspending in California.
In predicting huge surpluses in federal Covid-19 stimulus funding and economic growth three years ago, Democrats have not lowered their spending and cannot match the post-pandemic return to normal.
The deficit has been increased by the fact that the governor often views California as the world's fourth largest economy, poor projections, the intense costs of democratic policy commitments and the reluctance to make long-term large cuts.
Since April, state revenue has exceeded expectations, but so has state spending.
Despite the shortfall, California spends much more than it had in previous budgets in June, with governors and lawmakers still planning to earn $7.1 billion from the state’s rainy day fund to cover a total of 2025-26 deficit.
While the state’s personal income tax and corporate tax revenues were $6.8 billion higher than forecasts before April, Newsom predicts that overall revenue will be $16 billion lower than from January 2025 to June 2026 due to the economic impact of Trump tariffs.
The governor initially released new information, which his team called "Trump down" on the eve of his revised 2025-26 national budget plan, attempting to blame the president for the insufficient expected revenue in California.
Trump imposed higher taxes on all imported goods, products in Mexico, Canada and China, and imposed a series of tariffs on products and materials such as Autos and Aluminum in April. The president has backed down some tariffs, but Newsom claims policy and economic uncertainty will lead to higher unemployment, inflation, lower GDP forecasts and reduced capital income in California.
California filed a lawsuit last month that Trump lacked the power to impose tariffs himself. The state said Tuesday it would seek a preliminary injunction to freeze federal court tariffs.