Gov. Gavin Newsom faces reckoning with $73B budget deficit lawmakers say he helped create

California Gov. Gavin Newsom has to reconcile a $73 billion budget deficit by the end of June, a problem some lawmakers and analysts say his “mismanagement of state finances” helped create.

In 2022, Newsom signed a $301 billion budget into law and boasted a $97 billion surplus. The budget, nearly triple what it was the prior fiscal year, included billions of dollars for climate change initiatives, homelessness and education. But two years later, the deficit has ballooned.

Democratic lawmakers came to an agreement Friday to reduce the state’s multibillion-dollar deficit by $17.3 billion through a combination of spending cuts, delays and deferrals, a deal reached behind closed doors Republican lawmakers quickly labeled as “gimmicky.”

“This most recent deal that he’s touting is all reliant on budget gimmicks, cause shifts and deferrals, which, when you look at the numbers, it’s clearly not enough,” Vince Fong, Assembly vice chair of the budget committee  told Fox News Digital. “We have a sustainability problem. We have an overspending problem in California, and nothing the governor is working on tackles that.”

CALIFORNIA DEMS REACH $17.3B DEFICIT REDUCTION AGREEMENT

California Gov. Newsom speaks in San Francisco Nov. 9, 2023. He is expected to disclose his plan to deal with California’s massive deficit Wednesday. (AP Photo/Jeff Chi, File)

The agreement comes after Newsom previously sent a letter to state agencies urging them to “take immediate action to reduce expenditures and identify all operational savings achieved” as damage control.

“I thank our legislative leaders for their partnership in taking this major step to address the shortfall with a balanced approach that meets the needs of Californians and maintains a strong fiscal foundation for the state’s future,” Newsom said in a statement Friday.

After Newsom initially predicted in January that the budget shortfall was only about $37.9 billion, the state’s nonpartisan Legislative Analyst’s Office (LAO) predicted it was nearly double that amount by the following month. Historically, the LAO’s data has been more accurate for the state’s economic outlook, according to Fong, who has been on the state’s budget committee nearly a decade.

“I’ve been warning the governor about the growing problem of our budgets for the entire time we got into this mess, because the budget that the governor continues to push has grown more unsustainable,” Fong said.

The economic slowdown, caused by the state’s highest unemployment in the nation after recent data revealed that job growth in the Golden State was much lower in 2023 than previously believed, is largely to blame for the shortfall. The exodus of businesses and residents from the state for more tax-friendly states is also a contributing factor. California relies heavily on income taxes for its revenue.

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California saw its first-ever population decline in 2020, when the state imposed rigid lockdowns during the COVID-19 pandemic. From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.

Republican state Rep. Kevin Kiley, who has been one of Newsom’s top critics in the legislature, told Fox News Digital another driver of costs is the state’s progressive championing of taxpayer-funded health care coverage for illegal immigrants in the state.

“We’re the only state that’s saying we’re gonna give every single person in this state that’s here illegally free taxpayer funds,” Kiley told Fox News Digital. “California is a model of exactly what not to do when it comes to managing a state’s finances and managing its tax system and spending.”

The California State Capitol July 17, 2022, in Sacramento. (Myung J. Chun/Los Angeles Times via Getty Images)

According to Jon Coupal, president of the Howard Jarvis Taxpayers Association, a California-based taxpayer advocacy group, the state “really slams the wealthy” who “are leaving in fairly significant numbers.”

“When you’re on a spending binge, it’s easy to get yourself into a deficit situation,” Coupal told Fox News Digital. “From the taxpayers’ perspective, I think the issue is clearly just a couple of decades long of overspending the taxpayer dollars, and the budget has essentially doubled in six years. And the state has adopted all kinds of new programs that it never had before.”

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Will Swaim, president of the conservative think tank California Public Policy, told Fox News Digital the ballooned budget “in the world of public finance is insanity.”

“Though he claimed there was a budget surplus in 2022 that was historic, we have swung completely the other way because spending has outstripped income,” Swaim told Fox News Digital.

Rep. Kevin Kiley  (Scott Strazzante-Pool/Getty Images)

The new agreement with Democratic lawmakers, who hold a supermajority in both houses, includes many proposals Newsom and the state Senate laid out earlier this year. The plan calls for a cut of $3.6 billion in primarily one-time funding to some schools, welfare and climate programs, leaving out previously proposed $1.2 billion in cuts to housing and homeless programs. The plan also delays and defers about $5.2 billion in spending for a variety of programs, including on public transit and facilities for preschools. It also authorizes Newsom to freeze additional one-time funding that was included in the budget the last three years.

The governor’s office pointed Fox News Digital to Newsom’s comments in January dismissing criticism. 

“California is a tent pole of the American economy, in terms of American recovery, in terms of job creation, innovation, entrepreneurial spirit. … More scientists, researchers, Nobel laureates, engineers, patents than any other state in America. One of the top growing economies of the last five years, so I just dismiss, with respect, that narrative.”

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The Associated Press and Fox News’ Bradford Betz and Joe Schoffstall contributed to this report.