He says the deficit is partly due to broad economic uncertainty, including ever-changing federal tariff policies and a volatile stock market. California relies heavily on revenue from a tax on capital gains. The shortfall is also due to a swelling Medicaid budget, and Newsom has proposed freezing enrollment in a state-funded health care program for immigrants in the country illegally starting in 2026 to cut down on costs.
The shortfall will require “difficult but necessary decisions,” according to a budget document released by the administration ahead of Newsom’s budget presentation.
Newsom, a Democrat, kicked off his budget presentation by highlighting California's contributions to the U.S. and world economy and blaming President Donald Trump's economic policies for causing uncertainty that's hindering the state.
“California is under assault,” he said. “We have a president that's been reckless in terms of assaulting those growth engines.”
His decision to freeze health care enrollment for immigrants highlights Newsom's struggle to protect his liberal policy priorities amid budget challenges in his final years on the job.
California was among one of the first states to extend free health care benefits to all poor adults regardless of their immigration status last year, an ambitious plan touted by Newsom to help the nation's most populous state to inch closer to a goal of universal health care. But the cost for such expansion ran $2.7 billion more than the administration had anticipated.
Newsom in March suggested to reporters he was not considering rolling back health benefits for low-income people living in the country illegally as the state was grappling with a $6.2 billion Medicaid shortfall. He also repeatedly defended the expansion, saying it saves the state money in the long run. The program is state-funded and does not use federal dollars.
Under Newsom's plan, low-income adults without legal status will no longer be eligible to apply for Medi-Cal, the state's Medicaid program, starting in 2026. Those who are already enrolled won't be kicked off their plans because of the enrollment freeze, and the changes won't impact children. Newsom's office didn't say how long the freeze would last.
Starting in 2027, adults with “unsatisfactory immigration status” on Medi-Cal, including those without legal status and those who have legal status but aren't eligible for federally funded Medicaid, will also have to pay a $100 monthly premium. The governor's office said that is in line with the average cost paid by those who are on subsidized heath plans through California's own marketplace. There's no premium for most people currently on Medi-Cal.
“We believe that people should have some skin in the game as it relates to contributions," Newsom said.
In total, Newsom's office estimated the changes will save the state $5.4 billion by 2028-2029.
Newsom also plans to cut spending for a program providing in-home domestic and personal care services for some low-income residents and Californians with disabilities by capping workers’ overtime and travel hours at 50 hours per week. The move would reduce spending by nearly $708 million for the upcoming fiscal year.
The Medi-Cal expansion, combined with other factors such as rising pharmacy costs and larger enrollment by older people, it has forced California to borrow and authorize new funding to plug the multibillion hole earlier this year. California provides free health care to more than a third of its 39 million people.
Newsom's proposals go against the commitment the state has made to the immigrant community, said Masih Fouladi, executive director of the California Immigrant Policy Center.
“Questions about the practicality of the program aren't even something that we want to entertain with,” he said. “The proposal just doesn't match with our values as a state.”