California no longer faces a budget deficit, Gov. Gavin Newsom said Monday, two months after budget officials projected a $2 billion deficit that had left little room for additional government spending.

Newsom teased his $322.2 billion budget proposal, which includes $228.9 billion in general fund spending and $17 billion in total reserves, at a press conference at Cal State Stanislaus in Turlock.

The proposal, which includes $16.5 billion in projected revenue, does not anticipate any major cuts, and includes previously published proposals such as Newsom’s plan to double the state film industry tax credit to $750 million. The Department of Finance will unveil the full proposal Friday for the upcoming fiscal year, which starts July 1 and ends on June 30, 2026.

It’s strikingly different from last year, when lawmakers and Newsom had to negotiate how to rectify a $47 billion shortfall.

Newsom attributed Monday’s improved economic situation to a healthier stock market. He also said the state had saved $1.2 billion by cutting 6,500 vacant jobs over the last two years. But he warned the state’s financial health could change greatly by the spring, when he submits his May Revise, and declined to give a specific number when asked how much money he thought was in what he called the state’s “modest surplus.”

“The bottom could completely fall out,” the governor said, referring to the potential fallout from proposals incoming President Donald Trump has floated, such as huge tariffs on imported goods and mass deportations of undocumented immigrants.

Newsom also urged major reform or doing away entirely with Propositions 2 and 4, which he said hampered the state’s ability to save money during surplus years. Proposition 2 (2014) governs how much the state can put in its rainy day fund, and Proposition 4 (1979) limits spending levels.

“Both contribute to our inability to set aside more money during the good years,” he said. “Just as we would, for those very familiar with atmospheric rivers, you want to collect as much water as you can so you can use it during the dry years.”

Senate President Pro Tempore Mike McGuire, D-Healdsburg, said the governor’s budget proposal reflected California’s “much stronger financial footing” as the Legislature returned for a special session Monday to shore up California’s response to the incoming Trump administration.

“We look forward to taking a close look at the governor’s full proposal later this week,” he said in a statement. “The major work will happen in the months ahead, when we’ll get down to brass tacks and craft a responsible and balanced budget which will help make California more livable and affordable.”

Assembly Speaker Robert Rivas, D-Hollister, emphasized the Legislature’s need to focus on affordability for California residents.

In an interview, Senate Budget Committee Vice Chair Roger Niello, R-Fair Oaks, called for a “robust analysis” of existing government programs, especially those proposed in the “last four or five years." He pointed to a report from last year as an example that said the state had failed to account for billions of dollars spent on programs addressing homelessness.

Assembly Budget Committee Vice Chair Heath Flora, R-Ripon, said while he and his fellow Republicans “welcomed” the deficit news, he would wait until Friday, when the full proposal is published, to pass judgment.

“The governor has used a lot of words, and not a lot to show for it,” Flora said in an interview. “We’ll have more to say Friday.”

_____

©2025 The Sacramento Bee. Visit sacbee.com. Distributed by Tribune Content Agency, LLC.