One straightforward way to break bad news is to let someone else handle it.
That’s exactly what Governor Gavin Newsom did recently. Reportedly breaking from tradition, he chose not to give the annual budget presentation himself, as he had previously done. Instead, he left it to his finance chief while managing the Los Angeles wildfires last year.
Joe Stephenshaw, appointed by Newsom to lead the state Treasury in 2022, outlined a budget of around $349 billion. This is an increase of nearly $30 billion from the previous year, but it also comes with a projected shortfall of $3 billion. The situation could worsen, with estimates suggesting a potential gap of $22 billion for the next fiscal year.
Stephenshaw, at times struggling to maintain a positive tone, indicated that the shortfall could be manageable due in part to the strength of the state’s main revenue streams.
The budget seems to reflect a somewhat risky strategy; Newsom appears to be relying on a potential stock market boost from the current AI technology boom.
Stephenshaw noted that Newsom’s administration didn’t adequately account for warnings about a stock market decline, which could spell trouble for the state as the governor heads into his final year in office. This oversight could contribute to an anticipated $18 billion budget deficit.
Izzy Gurdon, a spokesperson for the governor, defended his absence, stating that Newsom had previewed the budget the day before in his State of the State address. She emphasized that January serves only as the starting point of the budget conversation, asserting that the governor views the May update as his final budget presentation.
Newsom’s upward revenue projections—about $42.3 billion more than expected—have been met with skepticism, especially in light of previous assertions about a nearly $100 billion surplus that turned out to be inflated by figures the Treasury revised secretly.
While the budget does not propose significant cuts, it does allocate over $700 million to the state’s two public higher education systems.
George Andrews, speaking for the state House Republican Caucus, criticized the budget announcement, comparing it to constructing a house on unstable ground. He suggested it relies on uncertain revenues and delays payments to retirees, ultimately placing a burden on Californians to pay more later.
Some Democrats in the Legislature seem hesitant to embrace Newsom’s proposal, noting that the modest $23 billion reserve could leave them in a tight spot after he leaves office.
Reports indicate that Senator Monique Limón expressed concerns about the inability to shield health and food assistance programs from federal cuts, complicating Newsom’s opposition to a wealth tax on billionaires.
Speaker Robert Rivas and House Budget Chairman Jesse Gabriel echoed worries about the funding shortfall, placing part of the blame on President Trump’s policies. They urged the need to protect vulnerable communities and recommend using current tax revenues to bolster schools and accelerate essential housing projects.
This, of course, is just the tip of the iceberg in what promises to be a tough negotiation process. The governor is expected to propose a revised budget in May, and lawmakers will need to finalize their plans by mid-June.
