Politics
How Newsom plans to fix California's projected $37.9-billion budget deficit
Gov. Gavin Newsom asked California lawmakers on Wednesday to dip into the state’s rainy-day reserves, and signaled his desire to potentially delay a minimum wage increase for healthcare workers as part of his plan to offset an expected $37.9-billion deficit.
A confluence of weaker-than-expected state revenues, delayed tax deadlines and overspending based on inaccurate budget projections created the budget shortfall. Newsom’s new deficit estimate is more than double the shortfall he and lawmakers anticipated last June, a tacit admission of how badly the state underestimated the size and scope of the budget hole, and marks substantial disagreement within California government about the depth of the financial problem.
Newsom described his plan as an example of resilience as he outlined the $291.5-billion budget proposal for fiscal year 2024-25 during a presentation Wednesday in Sacramento. His proposal to offset the shortfall includes declaring a budget emergency in order to dip into reserves; cutting $8.5 billion in spending from programs that support climate change efforts, housing and other services; and reconsidering the healthcare wage increase.
“This is a story of correction and normalcy, and one that we in some respects anticipated — the acuity perhaps not — and one we’re certainly prepared to work through,” Newsom said.
The deficit deepens state government’s economic challenges and could pose political problems for Newsom this year as he grapples with lawmakers and interest groups about his proposed cuts.
His budget proposal indicates that he wants to work with lawmakers to add funding restrictions to a law he signed last year that increases the minimum wage for healthcare workers to $25 per hour. Such changes could delay the pay hike from taking effect if state revenues drop below a certain level.
The governor’s plan seeks to maintain funding for many of his expensive policy promises, including the expansion of Medi-Cal eligibility to all immigrants regardless of legal status.
But his decision to dip into the budgetary reserves sounds a new alarm for the Golden State. Until now, Newsom has rebuffed calls from Democratic lawmakers to tap into the state’s rainy-day fund and other reserves, which act as a piggy bank that can be cracked open during a financial crisis to avoid sweeping cuts to critical services and social safety net programs.
The governor is proposing that he declare a budget emergency this summer, which is required by law to draw down the reserve accounts. His plan to spend $13.1 billion of the reserves means less funding will be available to backfill spending if revenues continue to decrease, possibly forcing more painful and drastic cuts in the years ahead.
Newsom is also looking to dip into the reserves at a time when he’s proposing decreased annual spending. The 2024-25 budget marks a decline of nearly $20 billion in spending from the budget lawmakers passed last June for the current fiscal year.
California’s budget difficulties were compounded last year when the state and federal government delayed the deadline to file 2022 income tax returns from April to November due to winter storms that pummeled coastal California and flooded parts of the state. The extended deadline affected more than 99% of California taxpayers in 55 of the state’s 58 counties, according to the state Department of Finance.
In a typical budget year, state government has tax receipts in hand before the governor unveils a revised budget proposal in mid-May and before reaching a final spending agreement with lawmakers in June. The tax delay forced lawmakers and the governor to enact the current budget in July based on estimates of how much money the state would collect in tax revenues by the November deadline.
“If you recall, this time last year we were dealing with unprecedented flooding,” Newsom said. “Little did we know that those extreme weather patterns would lead to this extreme volatility in financial projections.”
The Department of Finance anticipated last year that there would be a nearly $32-billion shortfall in the current fiscal year, which ends on June 30. That forced lawmakers and the governor to trim their spending plans.
The state budget is highly dependent on income taxes paid by California’s highest earners. Revenues are prone to volatility, hinging on capital gains from investments, bonuses to executives and windfalls from new stock offerings.
Newsom and lawmakers anticipated additional revenue declines driven by a declining stock market, high interest rates and increased inflation. But Newsom’s new estimate indicates the deficit is much worse than lawmakers and the governor planned for in June.
Now state leaders must cut spending further in the upcoming fiscal year to make up for last year’s actual revenue shortfall and an anticipated deficit in the coming year.
“The timing challenge related to this deficit estimate is definitely unique,” said Gabriel Petek of the Legislative Analyst’s Office.
In December, the office projected the budget deficit would be $68 billion — much higher than Newsom’s estimate. The governor chalked up the difference to the Department of Finance anticipating greater revenues than the Legislative Analyst’s Office, among other accounting discrepancies.
“We just are a little less pessimistic than they are about the next year,” Newsom said.
Despite the budget challenges, there’s no indication of a larger economic crisis in California.
“Until now, California has been growing faster than the U.S., on a per capita basis, and has been one of the fastest-growing states in the U.S.,” said Jerry Nickelsburg, an economics professor and director of the UCLA Anderson Forecast. “And now it’s growing at about the rate of the U.S., as really everyone sort of slows down a bit.”
He noted that there’s more geopolitical risk worldwide and that the presidential election could affect U.S. economic policy in the near future.
But Nickelsburg added that the slow growth is expected to be short-lived, with economic growth accelerating later this year and into 2025.
Newsom’s January budget proposal begins a six-month process of hearings and negotiations with the California Assembly and Senate, both of which will have new leaders by the time the budget talks intensify.
He promised to provide a more complete fiscal plan in May when the state has a more accurate understanding of 2023 income tax collections.
Newsom shot down the idea of California enacting a wealth tax to address the shortfall.
K-12 schools somewhat relieved
The budget proposal was something of a relief for schools: no major cuts, no major step back of priorities and expanded efforts such as free school meals for all and gradual expansion of transitional kindergarten that will allow all 4-year-olds to attend public school by the start of the 2025-26 school year.
But funding for facilities to improve early-education classrooms is delayed for a second straight year. The total for public school funding is $109.1 billion, about 40% of the state budget.
Overall, the funding level guaranteed under the state’s complex formula works out to $8 less per student over last year, to a total of $17,653 per student — a small difference but one that adds up with nearly 6 million public school students. The funding level also becomes potentially significant coupled with inflation and employee wage increases. School districts also are anxious over the expiration of COVID-relief funding that had led to record, but temporary, revenues for schools.
“This certainly takes the cake on being the best bad-year budget” for K-12, said Kevin Gordon, president of Capitol Advisors Group, a firm that lobbies on behalf of school districts.
Delaying increases for universities
Newsom proposes deferring a 5% budget increase for the University of California and California State University, and providing two years’ worth of increases next year. In 2022, he pledged five years of 5% annual base funding increases to deliver long-sought financial stability in exchange for gains in access, equitable student achievement, affordability and training for state workforce needs.
A highly anticipated measure to help address the need for new affordable student housing with a zero-interest revolving loan fund would be suspended under the proposed budget.
On financial aid, the proposal forgoes a planned one-time investment of $289 million for the middle-class scholarship program. And a sweeping plan to significantly increase Cal Grants for needy students will not kick in this year due to the budget shortfall.
Sonya Christian, chancellor of California Community Colleges, said Newsom’s proposal maintains key investments, such as the $60-million expansion of nursing programs in community colleges.
Cuts to social services
Newsom’s budget proposal includes backtracking or delaying planned funding for numerous programs serving vulnerable Californians.
Child-welfare advocates were stunned Wednesday by a proposed $30-million reduction in funding for an urgent response program that helps youth in foster care and families in crisis, a move that could eliminate the service entirely.
“While we recognize the large deficit affecting the administration’s budget proposal, we can’t continue down this path of deprioritizing kids that has led to alarmingly poor outcomes,” Ted Lempert, president of the nonprofit group Children Now, said in a statement.
Other funding planned for this year has been delayed to make up for the shortfall.
That includes delaying $80 million for a program meant to reduce the number of families in the child welfare system experiencing homelessness, and $50 million for a program that helps homeless Californians with disabilities. The funds would be delayed to the 2025-26 budget under Newsom’s proposal.
And Behavioral Health Bridge Housing program designed to provide shelter to homeless Californians with serious mental health issues would see $235 million in funding delayed.
Some homeless funding delayed
Newsom proposed more than $1.2 billion in total cuts to a variety of housing programs, including regional planning grants, low-interest development loans and assistance for first-time home buyers, and suggested delaying payments until next year for several programs that address homelessness.
His plan would maintain $3.4 billion for homelessness, including funds to dismantle encampments and provide grants to local governments to prevent people from losing their homes.
Newsom spoke forcefully about the public’s demand to see results from the billions the state spends on homelessness.
“People have just had it,” he said. “They want these encampments cleaned up. They’re done. They’re fed up.”
Cuts to environmental programs
Newsom proposed cutting the state’s multiyear climate budget by 11% from the $54 billion approved in 2022, including reductions to clean-transportation programs and others that address forest maintenance, watershed resilience, coastal protection and rising sea levels.
“We would have hoped for a little bit more of a courageous proposal — something that is more creative and solutions-oriented about how to fund the transition that is so desperately needed toward clean energy and resilience,” said Mary Creasman, chief executive of California Environmental Voters.
Newsom acknowledged that 2023 was the planet’s hottest year on record, and vowed to “hold Big Oil accountable” for its role in the climate crisis. That includes a recommendation in the budget to eliminate some subsidies that benefit oil and gas corporations, such as funds geared toward intangible drilling costs and allowances for economic credits.
In a statement, Barry Vesser, chief operating officer with the Santa Rosa-based Climate Center, said that was a wise recommendation, but that the governor should go even further and eliminate all tax breaks and subsidies for fossil fuel corporations.
Times staff writers Mackenzie Mays, Queenie Wong, Hayley Smith, Howard Blume, Jenny Gold, Teresa Watanabe, Debbie Truong, Andrew Khouri and Doug Smith contributed to this report.
Politics
DOJ expands indictment against SPLC, alleging $4M secretly funneled to KKK and extremist groups
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The Department of Justice last month announced an indictment against the Southern Poverty Law Center (SPLC), alleging that the civil rights nonprofit defrauded donors by secretly paying informants associated with extremist organizations, including the Ku Klux Klan.
A federal grand jury in the Middle District of Alabama returned an 11-count indictment in April charging the SPLC with six counts of wire fraud, four counts of making false statements to a federally insured bank and one count of conspiracy to commit concealment money laundering, according to the Justice Department.
The superseding indictment retains those charges while expanding on the alleged misconduct.
According to the DOJ, the SPLC “secretly funneled” more than $3 million in donor funds between 2014 and 2023 to numerous individuals associated with extremist organizations, including the Ku Klux Klan, United Klans of America, the National Socialist Movement, participants in the Unite the Right rally and the Aryan Nations-affiliated Sadistic Souls Motorcycle Club.
NEO-NAZIS, ‘SADISTIC’ BIKERS AND CHARLOTTESVILLE ORGANIZER: 5 OF THE MOST SHOCKING SPLC INFORMANTS
The Southern Poverty Law Center has widespread influence in education. FILE: Acting Attorney General Todd Blanche, left, and SPLC interim President and CEO Bryan Fair are shown in a split image as the Justice Department pursues charges against the Southern Poverty Law Center. (Nathan Posner/Anadolu via Getty Images; USA TODAY Network via Imagn Images)
The original indictment alleged approximately $3 million in payments between 2014 and 2023.
“The SPLC’s paid informants (‘field sources’) engaged in the active promotion of racist groups at the same time that the SPLC was denouncing the same groups on its website,” the indictment states.
Prosecutors further allege the SPLC opened bank accounts tied to fictitious entities in order to conceal donor funds that were allegedly routed to confidential sources.
MIKE DAVIS: SOUTHERN POVERTY LAW CENTER: A TALE OF A RACISM SCAM
The Southern Poverty Law Center (SPLC) building seen in March 2020 in Montgomery, Alabama. (Barry Lewis/InPictures via Getty Images)
According to the indictment, the SPLC began operating a covert informant network in the 1980s, and between 2014 and 2023 allegedly paid those sources in a clandestine manner.
The DOJ alleges an SPLC employee instead encouraged the pair to remain involved and offered them a monthly salary of $1,200.
The two subsequently agreed to remain in the organization, according to the indictment.
DR. BEN CARSON: I KNOW HOW BAD THE SPLC WAS, IT CAME AFTER ME AND PUT ME AT RISK
Acting Attorney General Todd Blanche spoke during a press conference alongside FBI Director Kash Patel at the Department of Justice on April 21, 2026, in Washington, D.C., following the indictment of the Southern Poverty Law Center. (Nathan Posner/Anadolu via Getty Images)
Prosecutors allege an SPLC employee instructed the individuals to claim they worked for a company called Rare Books and helped college students with research and writing assignments if anyone questioned the source of their income.
The indictment alleges donor funds were used to pay both individuals through SPLC accounts.
According to prosecutors, the pair were also reimbursed for expenses related to Ku Klux Klan activities, including cross-burning events and associated costs such as wood and fuel.
One of the individuals is also accused of recruiting new members using donor-funded payments. The indictment further alleges the SPLC knew donor funds were used to purchase materials for Ku Klux Klan garments.
In a statement to Fox News Digital, attorney Abbe Lowell, who represents the SPLC, denied the allegations.
A composite image shows Acting Attorney General Todd Blanche overlaid on photographs of the Department of Justice and FBI headquarters in Washington, D.C. (Valerie Plesch/Bloomberg via Getty Images; Graeme Sloan/Bloomberg via Getty Images)
“This apparent superseding indictment attempts to shore up the flaws in the initial charges, but it changes nothing,” Lowell said.
“The SPLC did not lie to its donors, it did not mislead banks it did business with, and its informant program prevented violence and saved lives,” he continued.
“It appears the Justice Department shared the indictment with media before it was unsealed by the court – another example of the government’s troubling handling of this case.”
“We will be addressing these irregularities with the court and look forward to presenting the truth at trial,” he added.
NONPROFIT REVENUE TOTALS SURGE AMID GROWING SCRUTINY AFTER MAJOR FRAUD CASES
SPLC interim President and CEO Bryan Fair speaks during a wreath-laying ceremony at the Southern Poverty Law Center Civil Rights Memorial in Montgomery, Ala., on March 5, 2026. (Jake Crandall/Advertiser / USA TODAY NETWORK via Imagn Images)
The superseding indictment also notes that the SPLC’s reported revenue increased from roughly $38.7 million in 2010 to more than $129 million in 2023, an increase of approximately 233%.
According to the filing, the organization’s net assets grew from approximately $238 million to nearly $787 million during the same period.
The SPLC is a longtime nonprofit organization that says it combats white supremacy and extremism through research, reporting and monitoring efforts intended to assist law enforcement and the public.
During a news conference announcing the original indictment, Acting Attorney General Todd Blanche alleged the SPLC paid members of extremist groups so it could generate “work product” documenting their activities.
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“To that end, [SPLC] was doing the exact opposite of what it told its donors it was doing – not dismantling extremism but funding it,” Blanche said.
Fox News Digital’s Alexandra Koch, David Spunt, Jake Gibson and Alec Schemmel contributed to this report.
Buoyed by a new Congressional map favoring their party, California Democrats were eyeing Tuesday’s primary elections as a critical first step toward flipping a handful of House seats and taking back power in Washington.
Results from California’s massive and slow-moving election process were not immediately clear late Tuesday, as polls closed and mail ballots continued to be processed and counted. Still, Democrats were bullish about their chances of advancing candidates to November’s general election in all five districts that were redrawn in their favor as a result of last year’s Proposition 50 ballot measure.
“The path to winning back the House starts with voting in the June 2nd primary,” the California Democratic Party posted online Monday.
Meanwhile, California Republican Party Chairwoman Corrin Rankin urged Republican voters to make their own voices heard too.
“Like President Trump said, we need to make it too big to rig,” Rankin said on “The Benny Show.” “We need to swamp the vote.”
One of the most closely watched races was in the redrawn 22nd Congressional District in the Central Valley, where incumbent Rep. David Valadao (R-Hanford) is facing challenges from moderate Assemblymember Jasmeet Kaur Bains (D-Delano) and progressive college professor Randy Villegas.
Another closely watched race was in the redrawn 48th Congressional District in San Diego and Riverside counties, where Rep. Darrell Issa (R-Bonsall) decided to retire rather than run for reelection, and where Republican San Diego County Supervisor Jim Desmond — who is endorsed by Trump — is running against a pack of Democrats.
Prop. 50 — which Californians passed with nearly 65% of the vote a year ago — was California Democrats’ response to Texas Republicans redrawing their state’s Congressional maps in the GOP’s favor, at President Trump’s behest. It was also the only major Democratic counterpunch in the wider mid-decade redistricting brawl that has spread across the country in the last year.
Experts expect the redistricting battle to deliver a net gain of a handful or more House seats to Republicans. But Democrats could gain even more ground given Trump’s lousy approval ratings and the long history of midterm election losses for the president’s party.
Combined, those factors make the battle for control of the House incredibly close, which in turn makes the five seats up for grabs in California pivotal — and potentially decisive.
Tuesday’s primaries won’t determine if any of those five seats will indeed flip parties in November. However, the primaries will define those head-to-head races to come and better inform the odds of Democrats toppling Republican incumbents, experts said.
In addition to flipping the seats currently held by Valadao and Issa, Democrats are hoping to pick up three additional seats.
In the 1st Congressional District — which after Prop. 50 lost rural reaches of northeast California and picked up liberal North Bay communities — various candidates were vying for the seat long held by the late Rep. Doug LaMalfa (R-Richvale), who died in January. They include Democratic state Sen. Mike McGuire and Republican Assemblymember James Gallagher, who is endorsed by Trump.
Voters from the existing district are also voting in a special election Tuesday to fill the remainder of LaMalfa’s term.
In the 3rd Congressional District, which lost an eastern rural stretch along Nevada and now holds more tightly to the Sacramento suburbs, Rep. Ami Bera (D-Elk Grove) — who currently represents a different district — is running to remain in Congress in a new seat.
Meanwhile, the 3rd Congressional District’s incumbent, Rep. Kevin Kiley (I-Rocklin), is seeking to do the opposite. He quit the Republican Party, became an independent and is now running for Bera’s current seat in Congressional District 6, which includes the city of Sacramento and Placer County suburbs.
In the 41st Congressional District, which became more liberal after Prop. 50 by losing voters in Riverside County and gaining them in Los Angeles County, a slate of candidates — including Rep. Linda Sánchez (D-Whittier), who currently represents a different district — are running to replace Rep. Ken Calvert (R-Corona). Calvert, a 17-term incumbent, decided to run in the neighboring 40th Congressional District instead.
In the 40th Congressional District, which covers a swath of inland Orange County and portions of San Bernardino and Riverside counties, incumbent Rep. Young Kim (R-Anaheim Hills) is now going head-to-head with Calvert, while also facing several Democratic challengers.
Other districts that were not part of the Prop. 50 shuffle are also attracting attention.
In the 11th Congressional District in San Francisco, several Democratic candidates are vying to replace Rep. Nancy Pelosi (D-San Francisco), the retiring former House Speaker, including state Sen. Scott Wiener; tech millionaire and Democratic political operative Saikat Chakrabarti; and Connie Chan, a member of the San Francisco board of supervisors who Pelosi endorsed.
Democrats are also closely watching several races where younger Democrats and progressives are challenging older incumbent Democrats, and where newer Democratic incumbents are seeking to hold onto their seats in relatively competitive districts.
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LOS ANGELES — Outside a Bristol Farms market in LA’s Westchester neighborhood, residents who spoke to Fox News Digital all agreed that homelessness is a top problem facing the city, but disagreed on which mayoral candidate is the right choice to clean it up.
“Love him,” Shelley Zuckerman said about reality television star and independent candidate Spencer Pratt, adding that homelessness is a main motivator of her support for the reality TV star’s mayoral run.
“The fact that he’s not a politician, so he may or may not be a liar, we don’t know that yet, and I know that he wants to do something for LA that the politicians have been saying they’re going to do and then don’t,” Zuckerman added. “And I know politics works, that once you get in there you can’t always do what you want to do, but at least he’s got the passion.”
SPENCER PRATT SAYS HIS POLICY WILL FORCE HOMELESS OUT OF LA AND INTO CITIES LIKE SEATTLE
Los Angeles residents say homelessness is the top problem facing the city as they head to the polls for the mayoral primary. (Fox News Digital)
When asked if crime was a motivating factor to vote for Pratt, Zuckerman’s husband Saul responded, “Of course.”
The couple says they are supporting Republican Steve Hilton for governor.
Patrick Reynolds, who lives in the neighborhood, said he is “not happy with any of the candidates” and called Pratt a “clown” before saying he voted for incumbent Mayor Karen Bass “a little reluctantly.”
Homelessness has been a top-of-mind concern for voters in Los Angeles, and despite Bass being mayor for the last four years, Reynolds said he believes she’s the best choice on that front.
Reynolds, who said he is supporting billionaire Democrat Tom Steyer for governor, spoke at length about the problems with homelessness, including a local park he said has become “too dangerous” to visit in recent years.
KAREN BASS GRILLED OVER BROKEN HOMELESSNESS PROMISE, BLAMES BUREAUCRACY FOR SLOWED PROGRESS
Mayoral candidate Spencer Pratt hosts a campaign block party on 10th Avenue in Los Angeles on May 20, 2026. (Robert Gauthier/Los Angeles Times)
“Homelessness for sure,” a woman named Diane, who said she voted for Bass, told Fox News Digital, “That’s number one on my list, and I think she’s tried very hard to fix that problem. It’s a big problem, I know. And I just think she is down to earth. She’s not some rich billionaire, which I appreciate.”
Diane said she is supporting former Department of Health and Human Services Secretary Xavier Becerra, a Democrat who served in the Biden administration, for governor because he is a “good guy.”
“I like that he is an immigrant and that he has worked his way up in this world,” Diane said. “I think he has a good sensibility. I like also that he isn’t a billionaire. I can relate to him.”
Dan Madden, a resident of nearby Manhattan Beach, told Fox News Digital that if he could vote in LA proper, he’d go with Pratt.
WHO IS TOM STEYER? ANTI-ICE BILLIONAIRE IN CA GOVERNOR’S RACE FACES SCRUTINY OVER DETENTION INVESTMENTS
A Los Angeles city councilwoman and progressive candidate for mayor Nithya Raman, left, pictured alongside incumbent mayor Karen Bass, right. (Ronaldo Bolaños/Los Angeles Times via Getty Images; Justin Sullivan/Getty Images)
“That’d be my man,” said Madden, who added that he is voting for Hilton for governor. “The last 20 years in Los Angeles has been screwed.”
“It’s getting worse,” Madden said about the homeless situation in the Los Angeles area. “They cleaned up here and there. Spots, especially along the beach, coastline, you see it cleaned up. Two months later, everybody’s back.”
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Pratt, a registered Republican running as an independent, faces off in a nonpartisan mayoral primary against incumbent Mayor Karen Bass, a Democrat, and City Councilmember Nithya Raman, a socialist.
Tuesday’s election will determine which two candidates advance to the November general election. If a candidate receives more than 50% of the vote, they will automatically be named the next mayor.
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