Newsom's Final Budget: Cutting Now, Saving for the AI Boom

California Gov. Gavin Newsom unveiled a revised 2026-27 budget that aims to balance the books for 18 months after he leaves, pairing continued reserves withdrawals with new cuts and a larger rainy-day fund to blunt a potentially long-term deficit. Fueled by a surge in tax revenue from California’s AI-driven tech sector, the plan projects a near $350 billion spending blueprint that still expects a deficit in 2028-29 and 2029-30, and it slashes general-fund spending by about $1.8 billion, mainly through Medi-Cal cuts and higher premiums for about 1.3 million undocumented immigrants while reinstating asset tests. Newsom would transfer money into the rainy-day fund and set aside billions for future years, while also funding targeted items like paid pregnancy leave for TK-12 and community college staff and literacy and math supports. The plan clashes with Democratic lawmakers over education funding levels, homelessness money, and corporate tax credits, and would impose new matching requirements on localities receiving homelessness funds. Negotiations continue, with a June 30 deadline for a final deal.