Cracks between Newsom and frustrated lawmakers show in first budget hearings

Gavin Newsom is officially a lame-duck governor, and his final year in office seems increasingly focused on an almost certain campaign for the White House.

Meanwhile, however, he must spend at least some of his time governing California and dealing with a Legislature dominated by his fellow Democrats but increasingly less willing to cater to his whims.

Newsom’s relationship with legislators has always been more transactional than collaborative. He has even used the annual budget process to force them to adopt major policy changes with little or no scrutiny. Legislators often grumbled about being squeezed by Newsom, but felt compelled — not always but most of the time — to go along.

However, their annoyance is becoming more public, as indicated during legislative hearings on his final budget last week.

Newsom’s initial $349 billion budget for the 2026-27 fiscal year is, as administration officials acknowledge, merely a placeholder. It continues the current budget, with a few tweaks, but won’t be fleshed out until May, just a month before the June 15 constitutional deadline.

This year the squeeze is particularly bothersome because the Legislature’s budget advisor, Gabe Petek, and Department of Finance officials are both warning that the state faces large and growing budget deficits after Newsom departs.

The frustration was evident during last week’s introductory hearings for budget committees. Legislators heard Petek advise that they deal with the forecasted deficit sooner rather than later, and discussed remedies ranging from sharp cuts in spending to sharp increases in taxes.

But in the absence of specifics from Newsom, they could only speculate.

Newsom has steadily opposed major tax increases, even though it was his administration’s immense error in revenue projections four years ago that helped create what officials call a “structural deficit,” meaning that the revenue system cannot generate enough money to pay for all the programs and services now offered.

The administration’s 2022 revenue projection error of $165 billion over four years led to Newsom declaring a $98 billion budget surplus and a sharp increase in spending, especially on social services. As an ideological tenet, Democratic legislators dislike cutting those enhancements to balance the budget, which is why increasing taxes was repeatedly mentioned during last week’s hearings.

The comments of state Sen. Caroline Menjivar, a Van Nuys Democrat, typified the squeeze that Democratic legislators are feeling. She called one of Newsom’s health care proposals, scaling back Med-Cal benefits to undocumented immigrants, “barbaric.”

“I’m disappointed that there’s no proposal to change how our revenues come in,” Menjivar said. “We can’t just cut our way out of it. I think there should be a mixture of cuts, being strategic with how we use our dollars, but also looking to change our revenue streams.”

While the angst over the budget is palpable, reductions in federal support for expensive health and welfare programs, imposed by President Donald Trump and a Republican-controlled Congress, raise the stakes even more. If they had their way, some Democrats would not only raise taxes to cover the state’s structural deficit but backstop the reductions in federal aid.

Meanwhile, public employee unions and their allies are proposing two November ballot measures to bolster revenues: a one-time wealth tax on the state’s billionaires, and an extension of a temporary surtax on high-income taxpayers that was imposed in 2012 to close a budget deficit and later extended to 2030.

The situation leads to more questions than answers.

Will Newsom keep his promise to close this year’s deficit and the ones projected for the future?

With a presidential campaign likely in the offing, will he maintain his anti-tax increase posture?

Will Democratic legislators insist that taxes be raised to balance the budget without deep spending cuts?

In an eyeball-to-eyeball scenario, we will see who blinks first.