Gov. Gavin Newsom has released his much-anticipated budget proposal for the coming fiscal year. After enacting an array of spending cuts last year, the administration and legislative advisors expect the $322 billion budget to be roughly balanced. Yet Republicans have been quick to warn that deficits are likely to return in the years ahead if the state does not take actions now to further curb spending.
To fill gaps in priority programs for agriculture, water and wildfire resilience, the governor plans to dip into $2.7 billion of funding provided in the $10 billion Proposition 4 climate bond voters approved in November.
Newsom proposes to spend $1 billion on projects for drinking water, restoring the Salton Sea and water reuse and recycling, among other provisions. The general taxpayer fund would provide an additional $174 million for water projects involving storage, groundwater recharge and improving rivers. Another $176 million in bond money would support conservation easements, habitat restoration, reviving floodplains and protecting wetlands—efforts that would potentially support the Healthy Rivers and Landscapes approach to protecting endangered fish species in the Sacramento-San Joaquin Bay-Delta watershed.
The Northern California Water Association, representing prominent irrigation districts in the Sacramento Valley, hopes to tie some of the proposals to its “ridgetop to river mouth” strategy for water management.
The administration wants to apply $134 million from the bond toward climate-smart programs at the California Department of Food and Agriculture. It would deliver $37 million for water efficiency grants under SWEEP, $36 million for Healthy Soils, $20 million for combating invasive species, $20 million for farmers’ markets and $200,000 to develop a program for sharing farm equipment. The general fund would supply another $25 million for Farm to School grants.
As one of the primary backers of the climate bond, the California Climate & Agriculture Network applauded the investments, though it pointed out that Newsom is not proposing any new general fund dollars for Healthy Soils, on-farm water conservation or livestock methane reduction programs.
California Farm Bureau President Shannon Douglass“Without Prop. 4, California’s food and farming systems would be facing another year of significant underinvestment,” said Brian Shobe, a CalCAN policy director.
Another progressive agricultural group, Community Alliance with Family Farmers, said the investments would support underserved and small producers.
Altogether the governor plans to shift $273 million in prior spending obligations to the bond. State Senate Republicans argued the move “lacks strategic integration and prioritizes short-term spending over long-term, integrated solutions.” They also pushed for more of a focus on nutrient management and pest control in the climate-smart agriculture package.
Despite the many budgeting mechanisms deployed to rein in the deficit over the last two years, business and farm groups have appreciated the governor’s pledge to not raise taxes or fees as a means for driving more state revenue. The governor and legislative leaders made the same commitment last year but then approved a dramatic increase to the state’s sales tax on pesticides under the mill assessment.
“Fees, taxes and increasing labor costs continue to negatively impact California food producers,” said California Farm Bureau President Shannon Douglass, in a statement on the budget.
She pointed to data indicating California has lost more than 7,000 farms and fallowed nearly 1.5 million acres of productive lands in the past five years, while costs have increased more than $150,000 per farm. The alarming trend has prevented beginning and underserved farmers from launching new operations, according to Douglass.
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She pressed policymakers to follow through on their commitments over the past year to address the steep costs for fuel, energy and other expenses plaguing California. She worried about the potential for more costs ahead as the state grapples with a pending reauthorization of its cap-and-trade program, the unraveling property insurance crisis and increasing labor costs, such as the full implementation this year of the agricultural overtime law.
“We’ve heard promises from legislative leaders about focusing on California’s affordability, and we hope that every regulation and law that the governor and Legislature propose keeps affordability top of mind,” said Douglass. “Only with agriculture as a partner will the governor’s goals to advance economic development in rural communities find success. The future of California’s rural economies depends on it.”
The budget plan describes it as paramount for the state to develop a suite of actions this year that will “yield meaningful electric bill cost savings for Californians,” noting the looming expenses posed by the state’s transition to clean energy sources. With extending cap-and-trade beyond its current 2030 timeline, the budget calls for making that decision soon to “provide greater certainty and attract stable investment” and for deploying revenues generated by the program to address energy affordability.
Jennifer Barrera, president and CEO of the California Chamber of Commerce, shared gratitude for the governor’s commitment to improving the state’s economy and competitiveness.
“We appreciate the governor continuing to hold the line on new taxes,” said Barrera. “We encourage the governor to consider reinstating the research and development tax credit, which will invite innovation and spur much-needed investment in our economy.”
CalChamber, as well as state Republicans, urged Newsom to invest in recovery for Los Angeles, after fires have destroyed more than 12,000 structures and led to at least 25 deaths.
Newsom responded with a proclamation on Monday calling for $1 billion for emergency response, cleanup and recovery, with the expectation that the Federal Emergency Management Agency will reimburse the state later for the spending. In a separate action, the governor sought to streamline the rebuilding process by waiving permitting requirements under the California Environmental Quality Act, a law often criticized across the aisle for interest groups wielding it as a tool to block or delay contentious development projects.
“We’ll do all of this while investing in legal protections for some of our most vulnerable Californians,” said Senate President Pro Tempore Mike McGuire, in a statement supporting the governor’s announcement.
As the state digs into the factors that led up to last week’s firestorm, Newsom directed the Legislature to accelerate $1.5 billion in climate bond funding for wildfire prevention efforts.
The fires, along with a surge of activity in Washington, D.C., have diverted Newsom’s focus away from the budget.
The governor typically spends at least two hours presenting his budget plans, dedicating much of that time to reporter questions. Newsom, who has also shied away from delivering a traditional State of the State speech, decided to forgo the budget presentation this year, passing the podium to his finance director instead.
In an earlier press conference light on details and primarily focused on a jobs plan, Newsom touched on his top priorities. He stressed that the state’s economy remains strong, after polling indicated it weighs heavily on Californians, and said the state still dominates in manufacturing, agriculture, tourism, trade, technology and the development of artificial intelligence software.
Newsom had planned to leave the state soon afterward to attend the funeral service for former former President Jimmy Carter. But the outbreak of extreme fires forced him to instead pivot to crisis response, diverting more attention away from the budget.
“Obviously, the governor's total focus now is on the communities and residents who have been impacted by the devastating wildfires,” said Department of Finance Director Joe Stephenshaw at the start of his presentation on Newsom’s budget.
The governor has also maintained a critical eye toward the incoming Trump administration. Last fall he called for a special session to consider a $25 million legal fund to finance anticipated lawsuits against the administration. This week Democratic legislators agreed to double that fund.
Newsom’s budget plan warns the proposed Trump policies pose risks to the state’s economic forecast. The president-elect’s pledge to dramatically increase tariffs “would be highly inflationary” and could increase federal interest rates.
“California would also be especially vulnerable to tariffs as the ports of Los Angeles, Long Beach and Oakland and the logistics industry that is concentrated in the Inland Empire are highly dependent on foreign trade,” forecasts the Newsom administration.
Sen. Brian Jones, R-San DiegoThe report goes on to caution that Trump’s proposed reduction for legal immigration and his vow to deport millions of undocumented immigrants would lead to labor shortages and could increase prices for goods and services, with acute impacts in construction, manufacturing, agriculture, leisure and hospitality.
Republicans appreciated that Newsom listened to their calls and expanded the special session to consider emergency response actions for the wildfires. Yet Senate Minority Leader Brian Jones chastised Newsom for “lumping” the wildfire situation into the same session as the Trump resistance effort, which he called politically motivated and insulting to the fire victims.
The governor is planning for battles in other, less-politicized arenas as well. Since he struck a deal with United Farm Workers in 2023 to enact card check, a controversial system to streamline union elections, the Agricultural Labor Relations Board has been inundated with ballot petitions and employers contesting certifications for labor representation.
According to an ALRB proposal for a budget trailer bill, the increase in workload over the past year has “exposed critical structural gaps, resulting in challenges to the board meeting its statutory obligations and operational needs with respect to representation and compliance matters.” It has experienced a significant increase in appeals and litigation as a result of disputes emanating from the new process.
The seasonal nature of agriculture has led to many petitions filed within a short timeframe, often involving multiple claims of unfair labor practices involving fraud and coercion by both the union and the employer, requiring extensive investigation. ALRB claims that “in most petitions staff faced obstructive parties and witnesses.”
The board is requesting $2 million to support seven more positions to handle the additional workload.
The administration is proposing additional trailer bill funding to roll out several new laws. The California Air Resources Board is seeking $6 million to implement the Advanced Clean Fleets Rule to enact a sales ban on diesel-powered engines, though it has decided to withdraw its request for a U.S. EPA waiver to enforce the regulation. CARB is requesting $3.5 million to implement new rules for converting warehouses to clean forklifts and $2 million for expediting a review of the E15 ethanol blend in gasoline. The California Department of Pesticide Regulation, meanwhile, is requesting money to implement a new rodenticide ban and new requirements for pesticide applications near schools.
The State Water Resources Control Board is pushing for an additional $16 million to review groundwater management plans, fulfilling its role as the regulatory backstop for the Sustainable Groundwater Management Act.
The overall budget plan gained a thumbs up from the nonpartisan Legislative Analyst’s Office. Yet the advisors urged Newsom and lawmakers to remain prudent in their spending. The recent revenue gains stand on shaky ground held up by a booming stock market, “which can change rapidly and without warning,” the LAO warned in a report.
“These gains are not tied to improvements in the state’s broader economy, which has been lackluster, with elevated unemployment, a stagnant job market outside of government and healthcare, and sluggish consumer spending,” it writes.
Republicans have seized on that forecast and raised alarms that the state could ratchet up a deficit of as much as $43 billion by 2028 if it does not take steps to further cut spending this year.
The budget debates will continue through committee hearings this spring, with the governor revising his proposal in May following stakeholder feedback and a more refined revenue outlook after the tax filing the deadline. While the Legislature faces a June 15 deadline to approve a budget bill, the process tends to continue to roll out through a series of trailer bills and last into the final hours of session in September.
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