‘Trump slump’ or ‘Gavin’s gap’? How California got into a $12 billion deficit
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As Gov. Gavin Newsom presented his plan to fill a $12 billion deficit Wednesday, a large screen next to him blared two words: Trump Slump.
The governor blames — at least partially — the shortfall on President Donald Trump’s tariffs, which he said cost the state $16 billion in lost revenue, primarily from capital gains taxes.
But state spending has also ballooned in recent years, a fact Republican lawmakers are quick to point out during budget season.
“Trump slump? Frankly, I think it might be more like ‘Gavin’s Gap’,” said state Sen. Roger Niello, R-Fair Oaks, who serves as Vice Chair of the Senate Budget Committee.
Newsom’s budget proposal is nearly $322 billion, including $226 billion in General Fund spending, which is paid by income taxes. For comparison, the first state budget Newsom signed in 2019 was nearly $215 billion, including $148 billion from the General Fund.
“The governor has a convenience now to blame everything on the new federal administration but the fact of the matter is, we really don’t know what the stock impact is, and there isn’t even a draft of a budget” in Washington, Niello said.
So who owns the deficit?
Both the tariffs and increased spending are to blame, Newsom’s Department of Finance chief said Wednesday.
“They’re both factors and both significant factors,” said Finance Director Joe Stephenshaw. “If it weren’t for the reduction in revenue, we would be in a lot better position to — at least in the short term — handle the increase in cost that we’re seeing.”
The bulk of those increases come from Medi-Cal, which has seen higher-than-expected costs due to caseloads and expensive drugs. State spending on the program is projected to reach $44.6 billion in the next fiscal year, compared to $37.4 billion this year.
Newsom proposed pausing enrollment for undocumented adults and charging $100 premiums for other residents to help offset those costs.
The nonpartisan Legislative Analyst’s Office has for years warned that increased state spending could lead to future deficits.
That warning came in a November report, which said “atypically high spending growth” is “one reason the state faces operating deficits” in future years. This year marks the third consecutive deficit state lawmakers and Newsom have had to solve.
Who does Newsom blame?
Despite the “Trump slump” branding, Newsom said he is “not blaming the president for the deficit.”
What he does blame the president for is an estimated $16 billion in lost revenue due to Trump’s tariff policy rollout.
“We have that issue on the revenue side, and we have an expense issue,” the governor acknowledged. “I certainly am attaching those revenue concerns directly to the activities of the administration, but not the totality of the deficit.”
The White House did not immediately respond to a request for comment.
When asked directly about the growth in state spending in recent years, Newsom defended the programs he’s implemented: transitional kindergarten — which under his proposal would be open to all 4-year-old children in the state later this year — and free school meals, increased spending on wildfire and climate resilience projects, behavioral health care and more.
“I’m very proud of the work we’ve done,” Newsom said, adding that he “submitted a balanced budget, as I’ve done every single year” as governor.
The governor has also said the state’s volatile revenue sources and rules around rainy day savings are barriers to dealing with boom-or-bust cycles.
Year after year, Republican lawmakers have criticized High Speed Rail, Medi-Cal eligibility for undocumented people and billions in homelessness spending.
Niello called for a “comprehensive look” at programs set up during recent large surplus years, though he did not point to any specific programs.
“There’s no doubt in my mind, we’ll find weaknesses there, and that’s where we need to adjust our spending for the out years,” he said.
This story was originally published May 15, 2025 at 4:13 PM.
