California Politics 360 Full Episode | Understanding the proposed budget
The Finance Department projects the state’s deficit will be $2.9 billion – a major difference from the Legislative Analyst’s Office projections of $17.6 billion.
The economy is growing. Our population is growing, but California is facing *** budget problem. Short, billions of dollars. The challenges ahead for the governor and lawmakers as they decide how to use your taxpayer dollars. Governor Newsom gives his final State of the State address. We’re *** beacon. The state is providing *** different narrative, an operational model, *** policy blueprint for others to follow. The major issues he wants to work on with lawmakers. What drove him is just *** belief that. We could do better. Remembering Congressman Doug LaMalfa, he was Truly the heart of *** public servant. Thank you for joining us for California Politics 360. I’m Ashley Zavala. Governor Gavin Newsom delivered his final State of the State address this week, speaking to *** joint session of the California legislature. The governor in his speech promoted how he and Democratic state leaders are handling *** variety of issues impacting Californians from housing to education to affordability. In the 1st 10 minutes, Governor Newsom blasted the federal government and spoke directly to President Donald Trump. I, I say this. With respect, but mindful, but Mr. President, You can’t cut off critical food assistance for millions of people. You can’t send the military into American cities without justification, and you cannot cruelly and illegally cut off funding for medical research, homeland security, or disaster response. That is wrong. That is wrong, and you have all stood up. You have all stood up. Our attorney General has stood up. Our Speaker has stood up. Our pro tana stood up, all of you, on behalf of all people in our state. Proud of that. You should be proud of that. I’m not naive, you know, if we’re gonna keep the faith of the California spirit, we gotta do more than just resist what is wrong. We got to keep building what’s right. We’re not defined. We all know this, we’re not defined by what we’re against, we’re defined by what we’re for opportunity and dignity and responsibility, the future. Governor Newsom and the legislature now have *** major task ahead of them figuring out how to use your taxpayer dollars in *** year with *** lot of uncertainty. The governor says more work needs to be done to invest in education, reduce the cost of construction, combat crime, rebuild homes destroyed by wildfires, and implement *** sustainable insurance strategy. This week, the governor’s finance department announced it’s projecting *** budget deficit of about 2.9 billion. billion dollars. That’s *** major difference from the legislative analysts Office who has projected that number in November to be $18 billion. Joining us now is HG Palmer, the spokesman for the Department of Finance. HG, thank you so much for making time for us. Thanks for having me, HG. So those numbers are very different between the legislative analyst and the Department of Finance, in part because the LAO is factoring in several risks from. The excitement over AI and the stock market to potentially slow and *** possible economic downturn. Why is the governor not considering those risks in this forecast? Well, we are considering those risks. In fact, we stated right up front in the first chapter of the budget. We say that *** market correction is *** significant risk to the budget. What the legislative analysts has done in their forecast is to basically incorporate that into their revenue forecast, assume that is *** foregone conclusion. And as *** result, their revenues are significantly lower than the ones we have in our forecast. We have *** lot of confidence in our forecast. One way to look at it is this if you look at how much money. Increased in revenue it would take to be able to meet that lower forecast by the legislative analyst. It’s $11 billion worth of growth between April of last year and June of 2027. Just in the last 9 months of this year we’ve already exceeded our revenue growth projections by $10 billion so we’re almost there. It would take either *** flatlining of revenues or *** collapse of them for that to come to pass. What we’re seeing with our professional economists and our forecasters in the economy, in the market, and the cash we’ve already received to date tells us and informs us that we’re going to do better in our forecast than that projection. By the LAO, not *** criticism, but *** comparison of our forecasts. And because of that, our revenue forecast is higher and as *** result, our shortfall that we project of nearly $3 billion is different from the LAOs, right? I spoke with Republican state senator Roger Nielo, who’s also the vice chairman of the Senate’s Budget Committee. He actually noted California is in *** strange situation where it is bringing in more money than expected and really doing well when it comes to revenue. But at the same time facing these major structural potential deficits of up to $35 billion *** year starting in July of 2027, he said that’s alarming. How would you respond to that? We’ve projected that we’re going to have *** shortfall in the. Following year as well, the budget that the governor sent to the legislature this past week is balanced for the coming fiscal year, and it has reserves combined of about $23 billion and that’s an insurance policy against the kind of risk that we’ve just been talking about. We recognize that there’s going to be *** shortfall in the coming year in part because of the growth of program costs, in part because of the additional costs that the federal government has put on us over the last year. And so the governor recognizes that, and that’s why he said we’re going to come back and we revise our budget in May when we have an updated economic forecast and we have an updated revenue forecast. We’re going to put solutions on the table. Not only to close the budget gap for the coming year, but for the one that follows as well when he’s not even going to be here. So he’s already looking over the horizon. But why wait until May to figure out some of these big issues that are facing the state’s finances? Well, we’re still looking at those right now, 1. Number 2, the circumstances are going to change. In case in point. Why don’t you have $22 billion in cuts in this budget as well as you have now? We’ve got *** lot of uncertainty right now, uh, particularly in the area of healthcare. When you look at the subsidies that are just gone off of the books for folks that are on Obamacare. Covered California, the state’s health insurance broker, indicates that that’s probably going to throw 290,000 Californians off of the rolls. The changes in Medicare or Medicaid law, excuse me, that Congress passed last year are going to begin to remove another hundreds of thousands from the rolls just starting in the coming year. So at *** time when there’s *** lot of uncertainty in things like healthcare, we believe it’s prudent to plan for it and look ahead, but to wait until we’ve got those updated forecasts before we take that next step, which the governor says he intends to do after this balanced budget proposal for the coming year. The governor has prided himself on giving this budget presentation, and he has taken hours of questions from reporters over the years on. Subject, but this year without an emergency, he did not do that. Where was he? Why didn’t he take questions from journalists? Well, he did. I can’t answer why he was not there. I don’t have his personal schedule. I will tell you that when he delivered his state of the state address the day before, he covered *** lot of the major points on the budget. He talked about how large it was, what the growth in revenue was. Some of the major proposals that he was going to put forward in terms of additional $1 billion for community schools for his reform of the education governance system, so he covered *** fair amount of that ground in his remarks. Traditionally, the director of finance and our staff handle *** lot of the details after the governor’s remarks. This year he chose to advance it by one day. All right, HG Palmer, we appreciate your time. Thank you. Well, next, the response from Republicans. I sit down with the Assembly Republican leader Heath Flora, how the budget shortfall could impact Californians from his perspective. This week, the governor laid out his priorities for the legislature. I spoke with Assembly Republican Flora. He is the Republican minority leader. Here’s part of our conversation. Era, thank you so much for making time for us today. It’s great to see you, Ashley. Welcome. I want to start with the state of the state address and the Republican response. I know we saw focused on education and potentially *** new way of doing things, but what was your reaction with some of what the governor had to say? You know, I thought it was interesting, very interesting, quite frankly. I think there was *** lot that he said. Some of it is *** little bit, uh, concerning, you know, I think we didn’t quite address, you know, the budget issues. Um, I know we have *** budget today, but we talk about homelessness, when we talk about education, we have all these grandiose ideas. We didn’t really get into the meat and potatoes of how we’re going to actually implement all of those things, you know, we talk *** lot about these great ideas, but then when it actually comes to implementation, it becomes *** different story, and sometimes I feel we fall short of that, you know, it’s, it’s hard to. Things, I mean, California is *** very complex state, you know, we have from, you know, the Oregon border, the Mexico border, and everything in between, and all those regions are different, so the governor is and does have *** hard job, but I think we have to be very, very cautious about how we talk about things and kind of the expectations that we give to our constituents. You were um the budget vice chairman in the assembly and I, I, I wonder what your reaction was to the governor’s top line presentation on Friday. I mean, he didn’t give the presentation as director of finance did, but what was your main takeaway? I think we got some problems, you know, and, and again, it’s, um, if we’re not honest with the numbers, if we’re not honest with the problems, it’s gonna be really hard to find *** solution. And I think that’s just my biggest takeaway. It’s hard to believe the numbers that they threw out. It just simply is. And even in *** scenario where the state, what he’s proposing is to grow the size of the state budget by about $30 billion and we didn’t see *** plan to address these big structural deficits in the years to come, Joe Stefenshaw said that he’s not, he’s, he’s not waiting for the next governor to figure that out. That’s not what he’s doing. He’s just going to wait until May. Your reaction to that? Just not sure why we’re waiting until May. I mean, I think if we have *** plan, we should tell people what the plan is. If we don’t have *** plan, then we’re kind of building *** plane while we’re flying it, and I think that’s where we get ourselves in trouble, you know, I’m all about growing the state budget. I think you grow the state budget by making our state business friendly. You know, there’s *** lot of businesses that are leaving. There’s *** lot of things that we could do to cut bureaucratic red tape and allow businesses to thrive. They are not just Silicon Valley, and that was one of the things that was very interesting in the state of the state was he said *** lot about Silicon Valley. And you know he mentioned Central Valley g, but you know the ag community feels very left out. They feel very taken advantage of. They feel really kind of cast aside. And so I think we have to start broadening our horizons on who we view as important and what businesses we tend to prop up. Is that something that could be done in the budget, or how could that be done? I think through the budget or legislation. I think you know it could go either way. I think. When it comes to ag, uh, there’s just so many red, you know, red tape when it comes to pesticide uses and how we farm, you know, the cost of fuel, the cost of diesel, you know, which is also something interesting that he didn’t mention yesterday in the state of the state was the fuel price and what the plan is there. Meanwhile, Valero and all these refineries are leaving the state, so there was *** few holes that I thought we could have probably closed. We talk more about all of that. I also ask Assembly Member Heath Flora about the impact of those oil refineries closing down and the focus overall for Republicans this year in the California legislature. My full conversation with Assembly Member Flora is on Calpolitics 360.com. Next we’re joined by *** panel of reporters covering the state capitol, the challenges facing lawmakers this session. California lawmakers have *** major task ahead of them deciding how to spend your taxpayer dollars to address major issues impacting you. I’m joined now by our panel of experts and reporters Sophia Boleg with the San Francisco Chronicle, Blake Jones with Politico, and Jeannie Kwang with Cal Matters. Thank you all so much for being here. Thanks for having us, Jeannie. I want to start with you and for everyone, really, what is your biggest takeaway from. State of the State speech from the budget presentation. This is all supposed to set the tone for the year. So what was the one thing you really got out of this week? Yeah, well, obviously Governor Newsom started his two terms in office with *** ton of ambitious policy goals, and he’s really left his mark on state government, expanding the different services that the state provides, you know, universal transitional kindergarten. And just so many things that he’s made his priorities and now I think in his last year he’s kind of on this farewell tour where he’s looking to tout some of the progress that’s been made even in areas that he’s fallen short. He’s looking to be able to have *** positive story to tell about California at the end of this as he looks towards higher office potentially on that farewell tour, Blake, what do you think? What stuck out to you? What sticks out to me is that um like you said in an earlier segment, he’s not slashing spending to the bone in his last year which um makes sense on one level politically yet um we’ll have to see come May how *** revenue is coming in, particularly from the tech sector, and we’ll see if he has to make some more difficult decisions then that could frustrate some key allies uh within California ahead of what we expect. 2028 presidential run. Sofia, what are you thinking about this week as all of this gets moving? Yes, I think watching his State of the State address, it was really clear to me that he feels pressure to sort of show results. He’s been in office for 7 years now. Um, and in past years his state of the state addresses, his budget presentations were focused on the things he was going to do, um, areas where he was going to expand programs, and now I think he’s under pressure to deliver some results. He highlighted, um, uh, in the preliminary numbers, uh, *** drop in unsheltered homelessness of about 9%, which would be very significant if that’s what the final numbers end up showing. Um, but you know, there’s been *** lot of criticism that he’s faced that his homelessness and housing policies really have not lived up to the really ambitious goals that he set, uh, when he came into office. So I think he’s, you know, feeling the heat. Blake, I mean, the governor on defense, what do you see being the biggest challenge for him or state lawmakers moving forward? I think that state lawmakers in particular this year are going to have to manage *** lot of the conversations that are happening in the 3rd house here about increasing taxes, whether that’s on the wealth of billionaires or on corporations. I think in particular that’s going to be *** challenge for the two legislative leaders who are here, including Senate pro tem Monique Limon, who was just sworn in. And they’re going to have to manage progressives within their caucuses who would like to raise taxes with moderates and Governor Newsom who have been critical of raising taxes and frustrating voters. Jeannie, how about you? Yeah, I don’t know if this is necessarily *** challenge, but I’m really interested in seeing as far as the dynamic between lawmakers and the governor, how far lawmakers are willing to push back on someone who. He is very likely to continue exerting *** lot of control over the legislature like he’s done in the past. Now that he’s likely running for higher office, I imagine he also wants to continue exerting control to tamp down on any potential negative headlines coming out of the capital. So I’ll be interested in seeing how lawmakers respond. All right, thank you both, all three of you so much for your time. Well, remembering Congressman Doug LaMalfa, how his friends and colleagues are remembering his legacy and service to California. Congressman Doug LaMalfa, who represented Californians in the north part of the state for more than *** decade, passed away this week. He was 65 years old. Friends and colleagues are remembering Congressman LaMalfa for his legacy, fighting for his constituents and rural California. What drove him is just *** belief that we could do better, right? That, that that’s what it means to really serve people. As great of *** legislator as he was, he was even *** better person. Doug was always *** farmer, and I’ve been *** farmer rancher all of my life also, so the two of us really shared the soil. I started work for him, working for him about 2 weeks into his assembly career. I was *** junior. Senior field rep just out of college, uh, 2002, and he said, hey, uh, why don’t you come work for me and run, you know, run *** field office for me. It’s *** guy that would come to, come to meetings and still have grease under his fingernails because he actually did work in real life. I started working in politics for Doug. It’s my first job in politics. Um I’ve learned, I’ve learned so much from him, um. You know, he supported me when I decided to run for the assembly myself. Um, so we’ve been, we’ve been all over the North state together, we’ve campaigned together, we’ve. Represented Together, um. Gone through all these. Disasters in our district from the campfire at Orville Dam. You know, we just, we’ve been through, literally been through the fire. Constituents known him as not congressman or senator or some of them, they called him Doug La Malfa and he wanted it that way, uh, because he had *** personal relationship with his constituents. We fly back and forth week after week. Uh, to Congress and back to California and we developed *** very, very close personal relationship with Doug. On the working side of it, we shared the great Sacramento Valley for more than *** decade. And together on issues dealing with the agricultural interests in the Sacramento Valley, water interests, sites, reservoirs, levee after levee, uh, and even the uh very near collapse of the Oroville Dam. Doug and I were always side by side on those sets of issues. From Democrats to Republicans, he, he has *** lasting legacy, um, and he’s *** person who fought for rural California. Humble. Kind. Lighthearted, like could relate to anybody. You know, always had *** good joke. Um, but he was really serious about the job of being *** representative for his district like he took that. Very seriously. Representative Doug LaMalfa leaves behind *** wife, 4 children, and *** grandchild. He was 65 years old. Thank you for joining us for this week’s California Politics 360. See you next Sunday.
California Politics 360 Full Episode | Understanding the proposed budget
The Finance Department projects the state’s deficit will be $2.9 billion – a major difference from the Legislative Analyst’s Office projections of $17.6 billion.
Updated: 8:25 AM PST Jan 11, 2026
Gov. Gavin Newsom gave his final State of the State address ahead of a joint session of the Legislature. This was his first traditional State of the State address since 2020. On Friday, the California Department of Finance laid out its budget projections for the 2026-27 fiscal year. The Finance Department projects the state’s deficit will be $2.9 billion – a major difference from the Legislative Analyst’s Office projections of $17.6 billion. Finance Department spokesman H.D. Palmer joins California Politics 360 to explain the governor’s budget projections. Republican Assemblymember Heath Flora talked with Ashley Zavala and responded to the governor’s State of the State address. A panel of reporters covering the State Capitol talked about their major takeaways from the governor’s State of the State address and budget presentation. Congressman Doug LaMalfa died this week at the age of 65. He represented the northern part of California for more than a decade in Congress. Friends and colleagues paid tribute to the late congressman.KCRA 3 Political Director Ashley Zavala reports in-depth coverage of top California politics and policy issues. She is also the host of “California Politics 360.” Get informed each Sunday at 8:30 a.m. on KCRA 3.
Gov. Gavin Newsom gave his final State of the State address ahead of a joint session of the Legislature. This was his first traditional State of the State address since 2020.
On Friday, the California Department of Finance laid out its budget projections for the 2026-27 fiscal year. The Finance Department projects the state’s deficit will be $2.9 billion – a major difference from the Legislative Analyst’s Office projections of $17.6 billion. Finance Department spokesman H.D. Palmer joins California Politics 360 to explain the governor’s budget projections.
Republican Assemblymember Heath Flora talked with Ashley Zavala and responded to the governor’s State of the State address.
A panel of reporters covering the State Capitol talked about their major takeaways from the governor’s State of the State address and budget presentation.
Congressman Doug LaMalfa died this week at the age of 65. He represented the northern part of California for more than a decade in Congress. Friends and colleagues paid tribute to the late congressman.
KCRA 3 Political Director Ashley Zavala reports in-depth coverage of top California politics and policy issues. She is also the host of “California Politics 360.” Get informed each Sunday at 8:30 a.m. on KCRA 3.