News Summary

Governor Gavin Newsom has unveiled a $12 billion budget deficit as California grapples with a projected budget of $322 billion. Key contributors to the fiscal crisis include rising Medicaid costs and economic uncertainties. To manage the deficit, the proposed budget contains significant cuts to Medi-Cal, especially impacting low-income undocumented adults, and reductions in funding for higher education. The financial struggles have drawn criticism from Republican leaders and raised concerns among lawmakers about the state’s reliance on capital gains taxes. As the budget deadline approaches, urgent decisions are necessary to stabilize California’s finances.

California Governor Gavin Newsom has revealed a staggering $12 billion budget deficit as he prepares the state’s budget for the upcoming fiscal year, which is projected to be nearly $322 billion. The Governor cited escalating Medicaid spending and various economic uncertainties—including federal tariffs and fluctuations in the stock market—as key contributors to the state’s fiscal woes.

The budget laid out for the next year includes a significant enrollment freeze for Medi-Cal, the state’s Medicaid program. Starting in 2026, enrollment will be halted for low-income adults who do not have legal immigration status. However, current participants in the program will remain unaffected, and children are exempt from the freeze. For adults who have “unsatisfactory immigration status,” a new policy will require a $100 monthly premium beginning in 2027. These proposed changes aim to save the state approximately $5.4 billion by the fiscal year 2028-2029.

The financial strain on Medi-Cal is considerable, as costs for the program exceeded initial forecasts by $2.7 billion. Currently, over 1.6 million undocumented individuals are enrolled in Medi-Cal this fiscal year, marking a significant expenditure for the state. Democratic lawmakers, including State Senator Dave Cortese, have voiced opposition to the proposed cuts for low-status immigrants, reiterating California’s commitment to supporting its immigrant population.

In addition to healthcare adjustments, Newsom’s proposed budget includes cuts to funding for higher education. The proposed reductions for the University of California (UC) and California State University (CSU) systems have been scaled back, dropping from $397 million to $130 million for UC, and from $375 million to $144 million for CSU. These cuts represent a 3% reduction in funding, a move that comes amidst broader discussions regarding the financial landscape of educational institutions.

The budget challenges were further complicated by federal funding cuts that have affected state universities, leading to hiring freezes and deeper austerity measures within these institutions. Both the UC and CSU systems continue to advocate for additional funding to address rising operational costs and potential reductions in federal support.

Meanwhile, Republicans have criticized Newsom’s handling of the budget crisis, with Assembly Republican Leader Jamie Gallagher describing the Governor’s approach as mere “finger-pointing.” In his address, Newsom specifically called out the economic policies of President Donald Trump, suggesting they could potentially diminish state revenues by $16 billion in future years.

Amidst these troubling financial challenges, discussions are underway regarding potential new legislation, such as California Senate Bill 829, which aims to create a state scientific research institute. The objective is to enhance innovation and research capabilities within California despite ongoing fiscal constraints.

A final budget must be approved by June 30, 2025, indicating an urgent need for legislative decisions to stabilize the state’s finances. While Governor Newsom emphasized the impact of external economic factors beyond California’s control, the state’s reliance on capital gains taxes as a significant revenue source continues to leave it vulnerable to economic shifts.

UC President Michael V. Drake expressed relief at the improved budget outlook but underscored that challenges remain. Similarly, CSU Chancellor Mildred Garcia echoed this sentiment, calling attention to the pressing need for sustained funding to navigate the ongoing difficulties faced by higher education institutions in California.

As the state moves toward finalizing its budget, the implications of these proposals and their impact on healthcare and education funding will likely dominate discussions in the coming months.

California Faces $12 Billion Budget Deficit Amid Economic Challenges

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