With the release of the May Revise, budget negotiations between the Governor, Assembly, and Senate will now kick into high gear. Tax revenues for the current fiscal year are better than expected. Still, fiscal discipline is required, and when it comes to fiscal responsibility, Gov. Newsom talks a good talk, but even a cursory review demonstrates his updated budget plan is reckless.
Let’s start with the supposed $1.8 billion spending reduction he highlights. This figure is not an actual spending cut. It is a reduction to the spending increase he proposed back in January. Compared to the current Fiscal Year 2025-26 budget, Newsom wants to increase total General Fund spending by 8.0 percent to $246.6 billion. Worse, when all funds are included, the May Revise proposes an 8.8 percent spending increase. In total, the state would spend $349.4 billion in the coming fiscal year, which is even more than the $348.9 billion proposed in the January budget.
If adopted, this would be a fiscally irresponsible spending plan. It means that under Newsom’s watch, total spending will have increased by nearly 70 percent. General Fund spending alone will have increased by $100 billion compared to 2019!
While it is booming times for the state budget, Californians’ personal budgets are not doing nearly as well. During Gov. Newsom’s tenure, personal income in California has been growing around 30 percent slower than the growth in state spending.
The May Revise would also increase the burden on job creators by capping corporate tax credits and expanding the sales tax to target business-to-business transactions. The cascading impacts from these tax increases will worsen the state’s current affordability problems and discourage future economic growth. Newsom has also proposed some tax reductions, such as the proposed 50 percent cut in the annual $800 business filing tax for new businesses over the next three years. But these tax cuts are small, tightly targeted, and do not meaningfully improve the state’s anti-growth bias.
