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By: @Ophelia Szigeti

On Monday, January 6, Governor Gavin Newsom held a press conference at California State University Stanislaus to preview his 2025-26 State Budget proposal ahead of its official release on Friday, which will be led by staff at the Department of Finance. During the event, the Governor noted a “modest” budget surplus and sought to highlight his administration’s ongoing investments, while calling for accountability and a constitutional amendment to allow for an increased state reserve fund.

In previewing the “toplines” of his budget proposal, Governor Newsom’s slide deck included a slide entitled, “A New Economic Vision for California’s Future” with the subtitle “Bold Vision Realized Locally.” The slide and the Governor’s site selection for the press conference were a nod to his California Jobs First Economic Blueprint, which is a regional investment initiative that consists of ten key industry sectors identified through engagement with thirteen economic regions. At the press conference, the Governor reiterated his refrain that “localism is determinative.”

Key Investments

Governor Newsom emphasized the state’s significant infrastructure efforts, with 16,000 active projects and $180 billion in infrastructure investments planned over the next decade. Additionally, he announced over $5.7 billion in workforce investments, underscoring the administration’s commitment to economic growth and job creation.

Proposed Constitutional Amendment

The Governor expressed a desire to address constraints imposed by Propositions 2 and 4:

• Proposition 2 (2014): This measure amended the state constitution to mandate specific rules for the Budget Stabilization Account (or "rainy day fund"), including a requirement to pay down state liabilities annually for 15 years. Newsom noted that these rules limit the state’s ability to set aside additional funds during volatile economic periods.
• Proposition 4 (1979): This law restricts property taxes and caps revenue collection for local jurisdictions. If the state’s revenue exceeds the cap over a two-year period, half of the surplus must be refunded to taxpayers, with the other half allocated to K-14 education. Newsom argued that these constraints hinder the state’s fiscal flexibility.

Specifically, Governor Newsom suggested he would like to amend Propositions 2 and 4 to allow the state to increase the Rainy Day Fund from 10 percent to 20 percent of the budget and to ensure investments in the reserve fund do not count as expenditures for the purpose of the spending cap.

Topline 2025-26 Budget Numbers

Governor Newsom stated his proposed $322.2 billion State Budget is balanced, with $228.9 billion in general fund spending and $16.9 billion in total reserves:

• Rainy Day Fund: $10.9 billion
• Public School Rainy Day Fund: $1.5 billion
• Special Fund for Economic Uncertainties: $4.5 billion

The Governor noted that state revenues are currently up by $16.5 billion, enabling both a balanced budget and a modest contribution to the Rainy Day Fund.

Efficiency and Accountability Initiatives

Governor Newsom declared "accountability" as the “word of the year,” suggesting it would serve as his administration’s guiding principle and emphasizing a focus on outcomes, not inputs. He highlighted his administration’s focus on creating a leaner, more efficient government. Key measures include:

• Cutting 6,500 vacant government positions, saving $1.2 billion over two years.
• Renegotiating private vendor contracts and reducing travel expenses, achieving an additional $3.5 billion in operational savings.
• Modernizing IT systems and consolidating state office buildings to streamline workflows.

Governor Newsom closed by emphasizing California’s commitment to fiscal responsibility, innovation, and delivering results to improve the lives of its residents. He also noted that with a balanced budget, strategic investments, and a focus on accountability, the state aims to navigate economic uncertainties while building a stronger and more sustainable future.

The Governor has until Friday, January 10, to formally present his budget proposal. On the that day, the Department of Finance intends to provide a comprehensive briefing on the full budget.