SACRAMENTO — California and its state-funded programs are heading into a period of volatile fiscal uncertainty, driven largely by events in Washington and on Wall Street.

Gov. Gavin Newsom’s budget chief warned Friday that surging revenues tied to the artificial intelligence boom are being offset by rising costs and federal funding cuts. The result: a projected $3-billion state deficit for the next fiscal year despite no major new spending initiatives.

The Newsom administration on Friday released its proposed $348.9-billion budget for the fiscal year that begins July 1, formally launching negotiations with the Legislature over spending priorities and policy goals.

“This budget reflects both confidence and caution,” Newsom said in a statement. “California’s economy is strong, revenues are outperforming expectations, and our fiscal position is stable because of years of prudent fiscal management — but we remain disciplined and focused on sustaining progress, not overextending it.”

Newsom’s proposed budget did not include funding to backfill the massive cuts to Medicaid and other public assistance programs by President Trump and the Republican-led Congress, changes expected to lead to millions of low-income Californians losing healthcare coverage and other benefits.

“If the state doesn’t step up, communities across California will crumble,” California State Assn. of Counties Chief Executive Graham Knaus said in a statement.

The governor is expected to revise the plan in May using updated revenue projections after the income tax filing deadline, with lawmakers required to approve a final budget by June 15.

Newsom did not attend the budget presentation Friday, which was out of the ordinary, instead opting to have California Director of Finance Joe Stephenshaw field questions about the governor’s spending plan.

“Without having significant increases of spending, there also are no significant reductions or cuts to programs in the budget,” Stephenshaw said, noting that the proposal is a work in progress.

California has an unusually volatile revenue system — one that relies heavily on personal income taxes from high-earning residents whose capital gains rise and fall sharply with the stock market.

Entering state budget negotiations, many expected to see significant belt tightening after the nonpartisan Legislative Analyst’s Office warned in November that California faces a nearly $18-billion budget shortfall. The governor’s office and Department of Finance do not always agree, or use the LAO’s estimates.

On Friday, the Newsom administration said it is projecting a much smaller deficit — about $3 billion — after assuming higher revenues over the next three fiscal years than were forecast last year. The gap between the governor’s estimate and the LAO’s projection largely reflects differing assumptions about risk: The LAO factored in the possibility of a major stock market downturn.

“We do not do that,” Stephenshaw said.

Among the key areas in the budget:

Barely more than a week into the new year, the California Department of Public Health confirmed its first measles case of 2026.

The diagnosis came from San Mateo County, where an unvaccinated adult likely contracted the virus from recent international travel, according to Preston Merchant, a San Mateo County Health spokesperson.

Measles is one of the most infectious viruses in the world, and can remain in the air for two hours after an infected person leaves, according to the CDPH. Although the U.S. announced it had eliminated measles in 2000, meaning there had been no reported infections of the disease in 12 months, measles have since returned.

Last year, the U.S. reported about 2,000 cases, the highest reported count since 1992, according to CDC data.

“Right now, our best strategy to avoid spread is contact tracing, so reaching out to everybody that came in contact with this person,” Merchant said. “So far, they have no reported symptoms. We’re assuming that this is the first [California] measles case of the year.”

San Mateo County also reported an unvaccinated child’s death from influenza this week.

Across the country, measles outbreaks are spreading. Today, the South Carolina State Department of Public Health confirmed the state’s outbreak had reached 310 cases. The number has been steadily rising since an initial infection in July spread across the state and is now reported to be connected with infections in North Carolina and Washington.

Similarly to San Mateo’s case, the first reported infection in South Carolina came from an unvaccinated person who was exposed to measles while traveling internationally.

At the border of Utah and Arizona, a separate measles outbreak has reached 390 cases, stemming from schools and pediatric centers, according to the Utah Department of Health and Human Services.

Canada, another long-standing “measles-free” nation, lost ground in its battle with measles in November. The Public Health Agency of Canada announced that the nation is battling a “large, multi-jurisdictional” measles outbreak that began in October 2024.

If American measles cases follow last year’s pattern, the United States is facing losing its measles elimination status next.

For a country to lose measles-free status, reported outbreaks must be of the same locally spread strain, as was the case in Canada. As many cases in the United States were initially connected to international travel, the U.S. has been able to hold on to the status. However, as outbreaks with American-origin cases continue, this pattern could lead the Pan American Health Organization to change the country’s status.

In the first year of the Trump administration, officials led by Health Secretary Robert F. Kennedy Jr. have promoted lowering vaccine mandates and reducing funding for health research.

In December, Trump’s presidential memorandum led to this week’s reduced recommended childhood vaccines; in June, Kennedy fired an entire CDC vaccine advisory committee, replacing members with multiple vaccine skeptics.

Experts are concerned that recent debates over vaccine mandates in the White House will shake the public’s confidence in the effectiveness of vaccines.

“Viruses and bacteria that were under control are being set free on our most vulnerable,” Dr. James Alwine, a virologist and member of the nonprofit advocacy group Defend Public Health, said to The Times.

According to the CDPH, the measles vaccine provides 97% protection against measles in two doses.

Common symptoms of measles include cough, runny nose, pink eye and rash. The virus is spread through breathing, coughing or talking, according to the CDPH.

Measles often leads to hospitalization and, for some, can be fatal.

The Trump administration announced a major overhaul of American nutrition guidelines Wednesday, replacing the old, carbohydrate-heavy food pyramid with one that prioritizes protein, healthy fats and whole grains.

“Our government declares war on added sugar,” Health and Human Services Secretary Robert F. Kennedy Jr. said in a White House press conference announcing the changes. “We are ending the war on saturated fats.”

“If a foreign adversary sought to destroy the health of our children, to cripple our economy, to weaken our national security, there would be no better strategy than to addict us to ultra-processed foods,” Kennedy said.

Improving U.S. eating habits and the availability of nutritious foods is an issue with broad bipartisan support, and has been a long-standing goal of Kennedy’s Make America Healthy Again movement.

During the press conference, he acknowledged both the American Medical Association and the American Assn. of Pediatrics for partnering on the new guidelines — two organizations that earlier this week condemned the administration’s decision to slash the number of diseases that U.S. children are vaccinated against.

“The American Medical Association applauds the administration’s new Dietary Guidelines for spotlighting the highly processed foods, sugar-sweetened beverages, and excess sodium that fuel heart disease, diabetes, obesity, and other chronic illnesses,” AMA president Bobby Mukkamala said in a statement.