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How Newsom plans to fix California's projected $37.9-billion budget deficit

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How Newsom plans to fix California's projected .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.

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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.

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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.

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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.

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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.

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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.

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“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.

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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.

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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.”

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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.

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Trump hails America as ‘most exceptional nation ever to exist’ in Mount Rushmore speech

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Trump hails America as ‘most exceptional nation ever to exist’ in Mount Rushmore speech

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President Donald Trump marked the eve of America’s 250th anniversary with a sweeping patriotic address at Mount Rushmore on Friday, declaring the United States the “most exceptional nation ever to exist” and vowing that it would “never be a Communist country.”

Speaking beneath the granite likenesses of four of his predecessors — George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevelt — Trump touted American exceptionalism as festivities marking the nation’s 250th anniversary ramped up across the country.

“In all the chronicles of the ages, never before has any nation celebrated so magnificent a triumph as this one,” Trump told the crowd.

TRUMP KICKS OFF FOURTH OF JULY WEEKEND WITH SYMBOLIC SALUTE TO AMERICA’S LEGACY

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President Donald Trump delivers remarks at Mount Rushmore on the eve of America’s 250th anniversary. (Chip Somodevilla/Getty Images)

“At 250 years, America is the oldest republic on earth,” he continued. “We are the freest people on earth. We have the most righteous and enduring Constitution on earth. We are the strongest and most powerful country on earth. And by the grace of God, the United States of America is the most successful, most accomplished, most exceptional nation ever to exist in human history.”

Trump praised the nation’s history and argued that no other country had achieved as much as the United States.

“The birth and survival of the American nation under God is, quite simply, the best and most incredible thing ever to happen on this planet by human hands, ever,” he said. “No other country has done more good for this world than the United States of America.”

AMERICA’S NEXT 250 YEARS DEPEND ON PASSING FAITH AND FREEDOM TO OUR CHILDREN

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Fireworks explode after President Donald Trump spoke at Mount Rushmore National Memorial, Friday, July 3, 2026, near Keystone, South Dakota. (AP Photo/Matt Gade)

Before Trump took the stage, the new Air Force One flew over Mount Rushmore as spectators cheered. After his remarks, the president stayed to watch a fireworks display over the Black Hills.

Trump argued the country was facing what he described as a growing communist movement that sought to undermine America’s “exceptional character” and “alienate us from our history.”

The president said the movement had raised the question, “What does it mean to be an American?”

MAMDANI BLASTS ICE AGENTS, ELON MUSK AND ‘SUPREMACY’ IN AMERICA 250 SPEECH AHEAD OF JULY 4 WEEKEND

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President Donald Trump speaks at Mount Rushmore National Memorial, Friday, July 3, 2026, near Keystone, South Dakota. (AP Photo/Matt Gade)

Trump described communism as “the greatest threat” facing the United States.

“It is the greatest threat to our country, including World War One, World War Two, Pearl Harbor, or even 9/11,” Trump said. “We’re not going to let this happen to us. Believe me, we’re not letting it happen, because communism is the enemy of free people.”

“Communism is the exact opposite of life, liberty, and the pursuit of happiness — it is death, tyranny and the pursuit of evil,” he continued.

“But we will not let them win,” he added. “They have no chance against us.”

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Trump issued a clear directive: “You can be loyal to Karl Marx, or you can be loyal to America. You can be a communist, or you can be a patriot. You cannot be both.”

President Donald Trump speaks beneath Mount Rushmore during a celebration ahead of America’s 250th anniversary. (Chip Somodevilla/Getty Images)

As Americans face those choices, Trump pointed to the nation’s past sacrifices as a guide for its future.

“Our American ancestors did not shed their blood at Concord and Trenton, Gettysburg and Shiloh, Midway and Normandy, just so that a band of thieves, radicals and lunatics could come in and loot, pillage our nation,” he said.

Trump also highlighted the four presidents carved into the mountain behind him, saying they represented America’s founding ideals.

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“They were men of action, men of ambition, men of daring, men of destiny, and men of truly great intelligence,” he said. “Above all, they were great men of history. Tonight, on the threshold of our 250th year, we stand beneath the monument of these heroes, a true group of unbelievable people. And we rededicate ourselves to being a nation as big, bold, noble, and as great as these American giants.”

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Trump is scheduled to deliver another speech Saturday on the National Mall in Washington, D.C. before a fireworks display celebrating the nation’s 250th anniversary.

“We know that this is not an ending,” Trump said. “This is only the beginning of the golden age of America.”

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Trump administration sues California over ‘Glock ban’ law targeting machine gun pistols

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Trump administration sues California over ‘Glock ban’ law targeting machine gun pistols

California’s effort to restrict sales of handguns that can be converted into fully-automatic machine guns drew an immediate federal challenge Wednesday, with the Trump administration suing the state over its new “Glock ban” law just hours after it took effect.

The U.S. Department of Justice is seeking a court order to block the controversial state law that limits where most Glock and Glock-style pistols can be sold. The lawsuit, filed in U.S. District Court for the Central District of California, also aims to invalidate key parts of the state’s handgun roster — a list that dictates the types of firearms that Californians may legally purchase. In a statement Wednesday, acting Atty. Gen. Todd Blanche said that both policies “trample” the rights of law-abiding Californians.

“The Second Amendment is a sacred right belonging to all Americans, even those in California,” Blanche said. “California cannot ban the most popular type of handgun in America.”

California’s Assembly Bill 1127 does not explicitly name the Glock brand, but instead targets any handgun with a specific mechanism that can easily be converted by a black market device. These simple “Glock switches” convert semiautomatic handguns into a weapon capable of firing 20 rounds per second with a single squeeze of the trigger.

Advances in 3D printing have made the conversion devices widely available and cheap to produce. Federal authorities reported recovering 11,088 of them from crime scenes between 2019 and 2023. Switches have been used in several mass shootings, including one in Sacramento that resulted in six deaths and 12 injuries in 2022.

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The new law does not prohibit the possession of affected handguns already owned by Californians, and includes exemptions for gun dealers, as well as law enforcement and military agencies.

Gov. Gavin Newsom signed the bill in October, and has maintained that firearm laws are responsible for California’s declining crime rates and gun deaths.

“The Trump administration is once again trying to dismantle California’s commonsense gun safety laws,” Diana Crofts-Pelayo, a spokesperson for the governor, said in a statement. “Our response is simple — these laws save lives.”

The federal government argues in its complaint that California can’t ban legal semiautomatic handguns simply because they could be illegally altered, adding that state and federal law already prohibit such pistol converters. The U.S. compared California’s approach to banning ordinary shotguns because they can be illegally shortened.

The lawsuit also challenges California’s decades-old handgun roster, which requires new handgun models to pass certain safety tests before they can be approved for retail sale. A federal judge tentatively blocked portions of the roster requirements in a separate 2023 case, which is being appealed before the 9th Circuit. That lawsuit was filed by the California Rifle & Pistol Assn. and other gun rights supporters following a landmark 2022 decision by the U.S. Supreme Court that set new standards for evaluating firearm restrictions.

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Under those new guidelines, the Trump administration wants a judge to find that California’s gun restrictions violate the 2nd Amendment, and is seeking an order to bar the state from enforcing them.

The Trump administration is relying on a federal civil rights law typically used against police departments accused of repeated constitutional violations, arguing that California Atty. Gen. Rob Bonta and state Justice Department agents qualify as peace officers and therefore violate gun owners’ rights whenever they enforce handgun restrictions.

Bonta, who is named in the suit, has a winning court record over the Trump administration, and has secured at least 12 final court rulings and more than 35 preliminary injunctions or emergency orders.

“California’s gun safety laws helped drive firearm death rates to record lows in our state and are a blueprint for reducing gun violence nationwide,” Bonta’s office said in a statement. “We will review the complaint and respond as appropriate in court.”

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Mamdani blasts ICE agents, Elon Musk and ‘supremacy’ in America 250 speech ahead of July 4 weekend

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Mamdani blasts ICE agents, Elon Musk and ‘supremacy’ in America 250 speech ahead of July 4 weekend

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New York City Mayor Zohran Mamdani took aim at U.S. Immigration and Customs Enforcement (ICE) agents, Elon Musk and what he described as the “arena of supremacy” in the United States during an immigration-themed America 250 speech on Friday ahead of Fourth of July weekend.

Flanked by eight recently naturalized U.S. citizens, Mamdani invoked the Statue of Liberty, Ellis Island and America’s history of immigration before turning his rhetoric on elements of today’s U.S. Mamdani also blasted the “world’s first trillionaire” — a milestone Musk achieved with the long-awaited Initial Public Offering (IPO) of SpaceX last month.

“We see the wealthiest country in the history of the world, one where children go to sleep hungry while the world’s first trillionaire hungers for more,” Mamdani said, without naming Musk. “We see monopolies that dominate every industry, and oligarchs who buy elections. We see masked agents terrorizing our streets, eating food cooked by our undocumented neighbors before spiriting them away in unmarked vans.”

“We see a nation whose immense wealth has been built by those with calloused, dirt-streaked hands, those who toil on factory floors and chisel into stone. And we see a nation that has allowed so much of that wealth to be held instead in the soft hands of a precious few,” he added.

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Mamdani, who was sitting at George Washington’s desk during the remarks, also praised the legacy of immigrants, claiming that they have overcome riots “aimed at their very existence,” to create lives in New York.

FETTERMAN WARNS MAMDANI RISKS ‘CONSTITUTIONAL CRISIS’ BY VOWING TO DEFY SCOTUS IMMIGRATION RULING

New York City Mayor Zohran Mamdani delivers a speech to mark the 250th anniversary of the United States of America at City Hall on July 3, 2026. (Anna Connors/Pool via REUTERS)

“Over the years that followed, despite laws enacted by the federal government to bar their entry, despite sweatshop fires that killed hundreds of women, despite riots aimed at their very existence, immigrants made homes here in New York City, and they helped to make New York City,” the mayor said.

“That legacy of every generation of Americans insisting that the right to life, liberty and the pursuit of happiness extends to them, too, is no relic of the past. It carried millions of Black Americans north during the Great Migration. It drew hundreds of thousands of Puerto Ricans to New York City after the Second World War. It invited countless others from the West Indies and South Asia and West Africa and across the world. And it is what brought my family to this city when I was seven years old,” he continued.

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ZOHRAN MAMDANI PRAISED FOR ‘FANTASTIC’ QUESTION-DODGING ON PRESIDENTIAL ELIGIBILITY

Mamdani did not mention his own family’s wealth in the speech. His father was an elite Harvard academic, and his mother and acclaimed film director.

“My family did not arrive by boat, although we saw the Statue of Liberty from the window of the plane. Even from the air, we could make out the promise of America, the promise of the beautiful patriotic work of rendering America, year after year, a little more faithful to its founding ideals,” he said.

The Statue of Liberty stands in the foreground as Lower Manhattan is viewed at dusk, Sept. 8, 2016, in New York City. (Drew Angerer/Getty Images)

In his speech, Mamdani blasted those with “power and influence,” who he lamented have written American history.

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“There is a term so often used to describe our nation and those who have shaped it. American exceptionalism. American exceptionalism, the conventional wisdom tells us, makes our freedom a little more free. It is how we dug the Erie Canal and irrigated the West. Is why children in faraway lands grow up dreaming of one day moving here. And yet, the irony is that the story of America has so often been written by those who were told by others with power and influence and wealth, that they were anything but exceptional,” Mamdani said. “For generation after generation, we have been told that when the world has sent its people to our shores, it has not sent its best.”

“It sent Puritans and Sikhs and Quakers and Muslims and Jewish people who were banished for praying the wrong way, worshiping the wrong gods, angering the wrong people. It sent peasants and serfs from slums and shuttles, who were treated as less because they hardly owned clothes, let alone land. It sent immigrants from whom power was something someone else had,” he continued. “We are told that America is exceptional because we are richer, stronger, more powerful than everyone else. The truth, my friends, is that America is exceptional because here nothing is fixed into place.”

New York City Mayor Zohran Mamdani delivers a speech to mark the 250th anniversary of the United States of America at City Hall on July 3, 2026. (Anna Connors/Pool via REUTERS)

Mamdani referenced how he became a naturalized U.S. citizen in 2018. Mamdani was born in Uganda in 1991 and moved to New York when he was 7. The mayor is a dual U.S.-Ugandan citizen.

“Nearly a decade ago, I too felt what you feel the joy of no longer being just a New Yorker, but an American too. You each hold a special power. The power to determine what America means,” the mayor said, speaking to the recently naturalized citizens by his side.

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“The powerful have always known their answer. America, in their view, is an arena of supremacy where only a select few are allowed freedom,” Mamdani said. “Where not all are created equal. America, if you ask them, becomes less the more people it welcomes. America, they will tell you, belongs only to those with the right accent or the right shade of skin. The rest of us, they insist, should be grateful for merely being allowed to visit. How small they are, how weak, how unoriginal. At every moment in our past, those who led through exclusion and isolation have tried to win power and enrich themselves by turning us against one another.”

New York City Mayor Zohran Mamdani delivers a speech to mark the 250th anniversary of the United States of America at City Hall in New York on July 3, 2026. (Anna Connors/Pool via REUTERS)

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Mamdani also claimed ICE were invading New York neighborhoods.

“We see America each time neighbors link arms with neighbors without asking how long they have lived here or what papers they have as ICE invades our neighborhoods,” he added. “We see America each time those young and old stand in the beating rain or the stifling heat to cast their ballots. We see America each time working people demand more not just for themselves, but for their fellow Americans.”

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“There are some who respond to those who ask for more from America with a simple refrain. ‘Love it or leave it,’ they say. But patriotism has never been about pretending our nation is without flaws. Patriotism is every act of righteous dissent,” Mamdani said. “It is every March led under the heavy sun. It is every protest held a decade before its time. It is precisely because we love this nation that we will not leave it.”

Mamdani ended his speech with a rousing call to America’s greatness.

“What power each of us holds to bring America ever closer to the greatness so many have seen when they looked upon these shores. The greatness that for 250 years has been America. Thank you. God bless America. God bless New York City. And happy Fourth of July,” he concluded.

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