SACRAMENTO — Gov. Gavin Newsom reached an agreement Friday with legislative leaders on a $351.7-billion state budget in his final year as governor, a spending plan that uses a tax windfall to avoid major cuts and lessen California’s chronic deficit in the years ahead.

The deal provides nearly $2 billion in state revenue next year through tax hikes on corporations, new levies on software sales and a revamped tax on managed healthcare organizations. Lawmakers and the governor continue major investments in public schools, healthcare and agreed to increase spending on subsidized childcare and affordable housing.

“We want to leave the next governor not only a balanced budget, but a budget that is substantially structurally sound, and we’re going to accomplish that,” Newsom said in an interview Friday. “We were very cautious in terms of new spending,”

The agreement ends weeks of lobbying by outside interests and negotiations among lawmakers and the governor at the state Capitol about how to handle a surge of income tax collected on stock market gains related to artificial intelligence.

Early forecasts last June projected a $12.6-billion deficit in 2026-27, according to the California Department of Finance. Updated predictions now suggest the state will end the year with a surplus of $4.5 billion.

Democrats, following Newsom’s lead, are tucking away $6.4 billion for future years, which allows the governor to knock down a deficit previously projected through 2027-28 and assuage criticism about his spending habits.

But economists say the fix and revenue increase are likely only temporary.

Spending in California has generally exceeded revenue growth during Newsom’s tenure in the governor’s office, creating a chronic shortfall. Despite the extra funding, the budget continues a trend of relying on reserves, shifting funds, borrowing and suspending debt payments to balance state spending.

The Legislative Analyst’s Office, the nonpartisan fiscal advisor for lawmakers, has warned of a roughly $10-billion annual gap between the amount of money the state brings in and spends, which could grow dramatically worse if the stock market turns downward. The LAO has said the existence of any operating deficit during a revenue boom is a red flag and that the state is “ill-prepared” for even a modest decline.

Christopher Thornberg, an economist and founder of the consulting firm Beacon Economics, said it’s business as usual in Sacramento.

“They love increasing spending. But it seems politically impossible to go the other way,” Thornberg said. “We’ve seen this play out over and over again.”

Lawmakers and the governor offered a different take and asserted that their decision to put the $6.4 billion into a short-term reserve, called the Projected Surplus Temporary Holding Account, and ask voters to allow them to store more money in the rainy day fund are examples of prudent budgeting.

“You see us save more and you see us try to address the immediate needs of our community, but also the structural budget that potentially awaits us,” said Senate President Pro Tem Monique Limón (D-Goleta) in an interview. “We are forecasting a moment where we will need to address these issues and we want to start now to think about the future as well.”

Under a progressive tax structure, the state budget is dependent on income taxes paid by the ultra-rich on earnings largely from capital gains. The set up leaves California vulnerable to the unpredictable nature of the stock market, dramatic swings in revenue and, in recent years, reliant on poor projections.

Negotiations at the state Capitol included an agreement on a constitutional amendment that seeks to offset the revenue highs and lows.

If approved by voters on the statewide ballot in November, the amendment would raise a cap on mandatory deposits into the rainy day fund from 10% to 20% of general fund revenue. The measure would also allow lawmakers to exempt money they put into the rainy day fund and the temporary holding account from state spending limits.

Under an existing state appropriations restraint, also known as the Gann Limit, lawmakers cannot spend more than an amount determined by a formula that takes annual tax proceeds, changes to the population and cost of living into consideration. Tax revenue above the limit must be divided between schools and refunds to taxpayers.

With few exceptions, the limit applies to most appropriations of tax revenue, including when lawmakers put money away in the rainy day fund and other reserves.

Newsom said the change will leave the state in a much better position to weather the volatility. Though calls for tax reform remain in California, the governor said being able to place more money into the reserves could ultimately solve the state’s budget challenges.

“The one thing missing is the one thing that I think we finally landed, which is the change in the reserves,” Newsom said. “It changes the political dynamic, where now you’re not exchanging general fund priorities.”

Republicans criticized the proposed constitutional amendment, which passed in a budget trailer bill this week, for failing to require that excess revenue pays down the state’s $22 billion in unemployment insurance debt.

State Sen. Tony Strickland (R-Huntington Beach) called it a missed opportunity.

“It does not require debt payment to go to the UI debt,” Strickland said. “It facilitates more spending, exempting reserve deposits from the state spending limit.”

The proposed change to the state Constitution also jabs the president and asks voters to approve a 100% tax on payments any California taxpayers receive from the “Anti-Weaponization Fund” Trump established for allies who claim they were unjustly targeted by the federal government.

As part of the overall budget negotiations, lawmakers agreed to delay some healthcare cuts that would have required monthly premiums for immigrants and eliminated dental care. The deal adopts a Medi-Cal asset test of $21,000 on July 1, 2027, instead of $2,000.

The budget agreement includes a provision requiring California’s next governor to develop options to reduce taxpayer subsidies for corporations whose employees receive state-sponsored healthcare through Medi-Cal instead of the company’s health plan. The plan is aimed at raising revenue to offset federal cuts that are expected to leave millions of Californians without access to healthcare.

To generate $11.25 billion for affordable housing, Democrats approved a bond for the November ballot that would include down payment and mortgage assistance to veterans and low-income families. Democrats also approved $900 million in Homeless Housing, Assistance, and Prevention grants, marking a $400-million increase from Newsom’s budget proposal in May.

The California Department of Finance said state reserves are expected to total $28.8 billion under the 2026-27 budget.

Sen. Elizabeth Warren, D-Mass., lashed out at President Donald Trump during a recent local television interview, labeling him a “man-child” throwing a “tantrum” over his refusal to sign a sweeping bipartisan housing package.

Appearing on WCVB’s “On the Record,” the left-wing senator did not hold back her frustration over the stalled legislation, delivering a blunt message to the president: “Sign the damn bill.”

“If he cared about the American people, he’d have already signed the damn thing,” Warren said during the interview, arguing that Trump “does not care about the economic survival of America’s working families.”

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The 21st Century ROAD to Housing Act is an expansive bipartisan package that she said contains nearly 50 provisions designed to address the nationwide housing emergency.

Warren noted that decades of under-building have driven prices up, leaving the U.S. in need of millions of new units. 

The primary focus of the bill is to lower the costs of construction and make it easier to build new homes.

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The bill, which was co-sponsored by Sen. Tim Scott, R-S.C., also includes a secondary focus aimed at blocking corporate consolidation of the housing market. 

Warren explained that the legislation is designed to keep private equity firms from buying up local neighborhoods and turning America “into a nation of renters.”

According to Warren, the legislation had widespread support from both sides of the aisle before it was stalled.

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She claimed the bill was “handed to the president on a silver platter” and that lawmakers from both parties were eagerly taking credit for the legislation.

“Republicans were all going online, saying, ‘well, I helped write that bill. This bill is terrific,’” Warren said. “So everybody’s out there saying, ‘my bill, I helped make this happen,’ right up until the man-child has a tantrum and announces he will not be signing it.”

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Critics of the legislation claim it does not allocate fresh federal funding, directly address rising costs of homeownership, or go far enough to address permitting issues. 

The president previously canceled a scheduled signing event, insisting lawmakers must first approve the unrelated SAVE America Act, a voting-focused measure, before he moves forward.

The White House did not immediately respond to Fox News Digital’s request for comment.

Fox News Digital’s Alex Miller contributed to this report.

Veteran MS NOW anchor Alex Witt is leaving the news network, which is moving away from live evening programming on weekends.

The new weekend programming strategy announced Friday is a cost-saving measure that will give parent company Versant more resources for a new direct-to-consumer streaming offering that makes MS NOW available to consumers without a pay-TV subscription. The company is also looking to expand its live event business.

According to a memo from MS NOW President Rebecca Kutler, “The Weekend: Primetime,” a live discussion program launched last year, will have its final airing Saturday.

One of the program’s co-hosts, Antonia Hylton, will take over Witt’s midday shifts later this year. Hylton’s co-hosts Ayman Mohyeldin, Catherine Rampell and Elise Jordan will remain with MS NOW and continue to appear on other programs.

Kutler said job losses from the moves are minimal and encouraged staffers who lose their current roles to apply for 40 current job openings at the company with more on the way. MS NOW has been staffing up its news operation since separating from NBC News last year.

MS NOW changed its name from MSNBC in November. The network, along with other Comcast-owned cable channels, were spun off into Versant in January.

Weekends have long been a ratings weak spot for MS NOW, which while a distant second to Fox News, has seen audience growth in 2026 and remains ahead of CNN. The network has started to rely on podcasts such as “Pod Save America,” from Crooked Media, to fill some hours. The episodes have performed strongly enough for MS NOW to try similar deals with outside podcast producers.

“Throughout the summer, we will expand our taped strategy and announce new content partnerships,” Kutler said in her memo.

With the changes, MS NOW will still have 20 hours of live programming each weekend and will be staffed to handle breaking news.

Witt joined the network formerly known as MSNBC in 1999, long before it began its strong tilt toward progressive political commentary. Over the years, Witt’s weekend newscast became one of the few programs on the network that delivered straight news without opinion.

Kutler called Witt “a beloved longtime member of our MS NOW family” and “a continued, trusted, and steady presence for our audiences.”

While Witt works through the summer, Hylton will anchor the 11 a.m. weekday time period, which will eventually be handled by former NBC News White House correspondent Peter Alexander.