California Gov. Gavin Newsom’s new budget proposal aims to eliminate the state’s deficit by 2028 while preserving funding for core services.
SACRAMENTO, Calif — California Gov. Gavin Newsom unveiled a revised 2026-27 state budget proposal that aims to eliminate the state’s projected deficit through July 2028.
The revised proposal includes a $1.8 billion reduction in General Fund spending and projects, no deficit this budget year, next budget year and no structural deficit through July 2028, according to the governor’s office.
The administration said the proposal cuts California’s long-term operating imbalance by more than half for the 2028-29 budget and represents a broader multi-year effort to stabilize the state’s finances.
“California is proof that fiscal discipline and progressive values go hand in hand. We’re balancing the budget, eliminating the deficit, cutting spending, and building reserves — all while protecting healthcare, education, and essential services for Californians,” Newsom said.
The revised budget doesn’t propose significant new ongoing General Fund spending commitments. Instead, the administration said the proposal focuses on fiscal restraint, long-term sustainability and protecting the state from future economic volatility.
The budget would place $9.7 billion into the state’s Surplus Holding Account to support future budgets and maintain nearly $30 billion in combined reserves, including the state’s Rainy Day Fund.
The budget also includes several investments and policy initiatives, including $300 million to help maintain healthcare affordability after the Affordable Care Act subsidies expired. It also calls for a 50% tax cut for hundreds of thousands of new small businesses through lower limited liability company fees.
Education spending in the proposal includes a $5 billion Student Support and Professional Development Discretionary Block Grant and funding for up to 14 weeks of paid pregnancy leave for TK-12 schools and community colleges.
The administration also proposed what it described as the largest special education investment in California history, increasing ongoing special education funding by $2.4 billion, or 43%.
The budget proposal includes another $500 million to continue literacy coaches and math support staff in high-need schools for up to three more years.
Newsom’s revised budget would also create a new $100 million disaster rebuilding fund aimed at helping wildfire survivors secure construction financing and make rebuilding costs more affordable when insurance coverage and existing aid aren’t enough.
The proposal also calls for permanent limits on certain corporate tax credits beginning in tax year 2027. Under the plan, corporations could use no more than $5 million in certain credits or 50% of their tax liability, whichever is greater. The administration said the change is meant to ensure large corporations keep contributing to funding schools, healthcare, public safety and other services.
The revised budget additionally proposes affordable housing reforms that would bar local governments from charging impact fees on some affordable housing developments seeking state funding. The administration said the changes could reduce development costs by tens of thousands of dollars per unit and save hundreds of millions annually.
In response to Newsom’s budget, Senator Tony Strickland (R-Huntington Beach) provided the following statement.
“Truth in advertising: I’m waiting for the real numbers from the respected, nonpartisan Legislative Analyst’s Office because their data is based on facts and fiscal reality. The governor’s numbers are as unreliable as the high-speed rail project, and I’m skeptical until I see the LAO’s analysis, given his history of living in Fantasyland.
“California doesn’t have a revenue problem. It has a wasteful spending problem.
“If there is truly a budget surplus, priorities should focus on providing things like real cost-of-living relief for Californians, fully funding Proposition 36, and paying off the federal unemployment insurance debt so job creators are no longer stuck paying for Newsom’s lack of leadership.
“Public dollars should be used responsibly and focused on the needs of hardworking Californians who are crushed under the high cost of living.”
Newsom says California budget deficit will be eliminated through 2028