Delivering his final State of the State Address on Thursday morning, Governor Gavin Newsom called California a “a beacon” of inspiration and counterweight to an “unrecognizable” federal government that continues to assault the state and its progressive values.
Newsom touted California’s social and economic achievements and condemned the Trump administration for “attacking marginalized communities, rewriting history, censoring historical facts.”
“In California, we’re not silent. You’re not silent,” Newsom said. “You’re not hunkering down. We are not retreating. We are a beacon. This state is providing a different narrative. An operational model, a policy blueprint for others to follow.”
Newsom, who is termed out at the end of this year, spoke at the State Capitol in Sacramento before a joint session of the State Legislature. His speech comes as California wrestles with a massive budget deficit — estimated at $18 billion by the non-partisan Legislative Analyst’s Office — and braces for massive funding cuts by the Trump administration.
Those include billions of dollars frozen this week for state childcare services and transportation projects following fraud allegations by the federal government.
The governor also cited some unexpected positive news for the state, noting it saw its first drop in homelessness last year in nearly two decades and that state coffers brought in more than $42 billion more in tax revenue than expected amid a severe budget crunch.
This was Newsom’s first State of the State Address held at the Capitol since 2020. And it will be his last before the governor potentially runs for president — as he is widely expected to do.
Following the speech, Newsom’s critics said they live in a very different California than the one Newsom touted — and aren’t seeing conditions improve.
“Governor Newsom told Californians that homelessness is down, crime is at record lows, schools are improving, and Los Angeles is recovering after the Palisades fires,” California Republican Party Chairwoman Corrin Rankin said in a statement. “Governor Newsom painted a picture of a California that exists in his imagination.”
Newsom on California’s budget crunch
Newsom acknowledged a difficult budget year ahead but argued the state’s economy is still generating strong revenue. He said the budget he will submit Friday is backed by a $248.3 billion General Fund and includes revenues that are $42.3 billion higher than forecast last year. He also said the state will add $7.3 billion to reserves and pay down long term pension obligations over the next few years.
At the same time, the Legislative Analyst’s Office predicts the state could face a $35 billion deficit next year, double this year’s shortfall, if spending continues at the same rate.
California Gov. Gavin Newsom arrives for his State of the State address Thursday, Jan. 8, 2026, in Sacramento, Calif.Godofredo A. Vásquez/AP Photo
Plans to tackle state’s high cost of living
Newsom called housing costs California’s “original sin” and said affordability is a “stacking” of pressures that hit families all at once.
He said California has passed major renter protections and housing reforms, including 61 housing bills last year. But, he argued the state needs to go further to lower construction costs and building materials.
Newsom took direct aim at institutional investors and said private equity firms are buying homes “by the hundreds and thousands,” crushing homeownership and driving rents higher. He said lawmakers will pursue stronger oversight and enforcement and may change the state tax code.
Newsom spoke at length on health care affordability. He said California’s 6.4% uninsured rate is one of the lowest in the country and highlighted state subsidies through Covered California.
The governor also blamed Trump’s signature Big Beautiful Bill for healthcare premium shocks and coverage risks. He said 1.8 million Californians could lose health insurance and millions more could see higher premiums.
Newsom returned to a message his administration has touted for several months: It’s not enough to subsidize healthcare costs. He said California is trying to lower them through CalRx, the state’s generic drug label. He also pointed to the state’s effort to reduce insulin prices to $11 a pen, two to three times lower than alternatives, and cited last year’s state produced naloxone.
Governor touts rare decline in California homelessness
During his time as governor, Newsom has prioritized California’s stubborn and very visible homeless crisis, with mixed results. The state’s overall homeless population grew throughout his two terms even as the state committed tens of billions of dollars to clear encampments, fund mental health services and build more shelters. In his final State of the State Address, Newsom was able to deliver some positive news: The state’s unsheltered homeless population dropped 9% last year, he reported.
“We have not seen a drop like this in nearly two decades in California,” the governor said. “Our investments are paying off. And of course, it’s not good enough, particularly for those living on the streets, self-medicating with drugs or alcohol, suffering from bipolar disorder, schizophrenia, or paranoia.”
While the news of the reduction is significant, the state continues to have a sprawling homeless population, measured at 187,000 people in 2024, the most in the nation.
This is a developing story and will be updated.
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