California governor proposes $322B budget with no deficit

In the country's most densely populated state.

California Governor Gavin Newsom unveiled a proposed budget on Monday, however it's largely a temporary solution as the state awaits word from new US President Donald Trump on whether he will stick to his threat to cut billions in federal funds, potentially prompting lawmakers to slash essential programs. As it stands, a significant portion of California's budget relies on funding from the federal government, which includes tens of billions for healthcare services.

The state has advised Attorney General Rob Bonta's office to get prepared for any potential lawsuits from the Trump administration. Conflicts are expected over climate change regulations and immigration policies between California and the federal government. State lawmakers have also suggested an increase in funding to offer free legal assistance to immigrant groups.

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Newsom aims to provide free school for approximately 400,000 four-year-olds in California, a goal he has advocated for since 2021. His plan also involves increasing the state's film and TV tax credit to $750 million annually to restore jobs the film industry has shifted to New York and Georgia.

Thanks to solid planning in the last budget, the state was able to sidestep a significant financial shortfall this year.

“Last year, our goal was to make this year's budget uneventful,” Newsom said.

Projections indicate revenue from taxes will reach 16.5 billion dollars more than initially forecast, largely due to the thriving stock market and significant income increases for high-earning Californians.

The situation has allowed the state to cope with a slow economy and low job creation, coupled with ongoing sluggish consumer spending.

California's economy is the fifth largest globally. The state projected a budget deficit of around $46.8 billion for the previous year and a budget shortage of $32 billion the year before that. To offset these shortfalls, the state managed to save approximately $1.2 billion over two years by eliminating around 6,500 unfilled positions at state agencies and another $3.5 billion by reducing travel expenses and upgrading computer systems, according to Newsom.

Despite these fiscal pressures, the state has been forced to cut back or put on hold some of its more forward-thinking initiatives that were previously enabled by unprecedented budget surpluses during the COVID-19 pandemic.

Touting his vision for the future of economics, Elon Musk points out that he previously established an Office of Data and Innovation to expedite government processes in 2019.

“D-O-G-E is actually O-D-I spelled backwards,” he said.

Money earned from investments and stock sales is taxed at the same rate as money earned through wages and salaries in California. As a result, nearly half of the state's income tax revenue comes from just 1% of the population, causing significant fluctuations in state revenue.

In November, California is projected to experience budget shortfalls of ten percent or more over the next five years, say nonpartisan analysts. This could hinder the state's capacity to insulate its programs from Trump administration action.

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