Governor Proposes to Overcome $45 billion Budget Deficit

California Government Update

California Governor Gavin Newsom released the “May Revision” to the state budget on Friday. The May Revision, or “May Revise,” takes into account actual state revenues collected through April.

Newsom estimates the state is facing a $44.6 billion deficit over two years, with $27.6 billion of it being addressed in his May Revise after he and legislative leaders agreed to a $17.3 billion “early action” plan in April, which included a spending freeze, drawdown of some cash reserves, spending deferrals, fund shifts and internal borrowing.

Newsom is proposing to address the entire $27.6 billion gap; he believes doing so is a “balanced” approach that will result in “positive operating reserves in the 2024-25 and 2025-26” fiscal years. To do this, Newsom proposes:

  • Saving nearly $5 billion over three years by suspending the state’s net operating loss corporation tax, subject to reinstatement based on improved state revenues.
  • Increasing the managed care organization tax to achieve nearly $3 billion in additional state general fund benefit over the next three budget years.
  • Shifting $1.7 billion dollars in general fund commitments to be covered by the state’s cap and trade funds.
  • Reducing about $1 billion in state general fund support previously committed to middle class scholarships and early education programs.
  • Reducing general fund support by over $400 million for the Children and Youth Behavioral Health Initiative.
  • Delaying $200 million in support for the Broadband Last Mile initiative and deferring his January proposal to spend another $1.5 billion needed for completion of Broadband Middle Mile construction by making it contingent on the availability of state funds at a future date.
  • Drawing $80.6 million in general fund support from the reduced corrections costs.
  • Reducing overall state operations costs by nearly 8% beginning in 2024–2025.

The Governor’s decision not to defer or delay significant health program improvements or climate action reduction costs may come as a surprise to some, but protecting both from budget cuts is a reflection of the Governor’s and the Democrat-controlled Legislature’s continued commitment to providing universal access to healthcare and prioritizing climate action.

Next Steps: Both houses of the Legislature will begin public hearings on the Governor’s May Revise this week, and the Senate and Assembly are expected to arrive at a joint proposal before the end of the month, followed by negotiations between legislative leaders and the Governor.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved