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SACRAMENTO — California Gov. Gavin Newsom signed on Friday a budget that pares back a number of progressive priorities, including a landmark healthcare expansion for low-income adult immigrants without legal status, to close a $12-billion deficit.

It’s the third year in a row the nation’s most populous state has been forced to slash funding or stop some of the programs championed by Democratic leaders. Lawmakers passed the budget earlier in the day following an agreement of a $321-billion spending plan between Newsom and Democratic leaders.

But the whole budget will be void if lawmakers don’t send him legislation to make it easier to build housing by Monday.

The budget avoids some of the most devastating cuts to essential safety net programs, state leaders said. They mostly relied on using state savings, borrowing from special funds and delaying payments to plug the budget hole.

“It’s balanced, it maintains substantial reserves, and it’s focused on supporting Californians,” Newsom said in a statement about the budget.

California also faces potential federal cuts to healthcare programs and broad economic uncertainty that could force even deeper cuts. Newsom in May estimated that federal policies — including on tariffs and immigration enforcement — could reduce state tax revenue by $16 billion.

“We’ve had to make some tough decisions,” Senate President Pro Tempore Mike McGuire said Friday. “I know we’re not going to please everyone, but we’re doing this without any new taxes on everyday Californians.”

Republican lawmakers said they were left out of budget negotiations. They also criticized Democrats for not doing enough to address future deficits, which could range between $17 billion to $24 billion annually.

“We’re increasing borrowing, we’re taking away from the rainy day fund, and we’re not reducing our spending,” said Republican state Sen. Tony Strickland prior to the vote. “And this budget also does nothing about affordability in California.”

Here’s a look at spending in key areas:

Healthcare

Under the budget deal, California will stop enrolling new adult patients without legal status in its state-funded healthcare program for low-income people starting 2026. The state will also implement a $30 monthly premium July 2027 for immigrants remaining on the program, including some with legal status. The premiums would apply to adults under 60 years old.

The changes to the program, known as Medi-Cal, are a scaled-back version of Newsom’s proposal in May. Still, it’s a major blow to an ambitious program started last year to help the state inch closer to a goal of universal healthcare.

Democratic state Sen. María Elena Durazo broke with her party and voted “no” on the healthcare changes, calling them a betrayal of immigrant communities.

The deal also removes $78 million in funding for mental health phone lines, including a program that served 100,000 people annually. It will eliminate funding that helps pay for dental services for low-income people in 2026 and delay implementation of legislation requiring health insurance to cover fertility services by six months to 2026.

But lawmakers also successfully pushed back on several proposed cuts from Newsom that they called “draconian.”

The deal secures funding for a program providing in-home domestic and personal care services for some low-income residents and Californians with disabilities. It also avoids cuts to Planned Parenthood.

Environment

Lawmakers agreed to let the state tap $1 billion from its cap-and-trade program to fund state firefighting efforts. The cap-and-trade program is a market-based system aimed at reducing carbon emissions. Companies have to buy credits to pollute, and that money goes into a fund lawmakers are supposed to tap for climate-related spending.

Newsom wanted to reauthorize the program through 2045, with a guarantee that $1 billion would annually go to the state’s long-delayed high-speed rail project. The budget doesn’t make that commitment, as lawmakers wanted to hash out spending plans outside of the budget process. The rail project currently receives 25% of the cap-and-trade proceeds, which is roughly $1 billion annually depending on the year.

Legislative leaders also approved funding to help transition part-time firefighters into full-time positions. Many state firefighters only work nine months each year, which lawmakers said harms the state’s ability to prevent and fight wildfires. The deal includes $10 million to increase the daily wage for incarcerated firefighters, who earn $5.80 to $10.24 a day currently.

Public safety

The budget agreement will provide $80 million to help implement a tough-on-crime initiative voters overwhelmingly approved last year. The measure makes shoplifting a felony for repeat offenders, increases penalties for some drug charges and gives judges the authority to order people with multiple drug charges into treatment.

Most of the fund, $50 million, will help counties build more behavioral health beds. Probation officers will get $15 million for pretrial services and courts will receive $20 million to support increased caseloads.

Advocates of the measure — including sheriffs, district attorneys and probation officers — said that’s not enough money. Some have estimated it would take around $400 million for the first year of the program.

Other priorities

Newsom and lawmakers agreed to raise the state’s film tax credit from $330 million to $750 million annually to boost Hollywood. The program, a priority for Newsom, will start this year and expire in 2030.

The budget provides $10 million to help support immigration legal services, including deportation defense.

But cities and counties won’t see new funding to help them address homelessness next year, which local leaders said could lead to the loss of thousands of shelter beds.

The budget also doesn’t act on Newsom’s proposal to streamline a project to create a massive underground tunnel to reroute a big part of the state’s water supply.

Nguyễn writes for the Associated Press.

California is facing an additional $12-billion state budget shortfall next year, a deficit largely caused by overspending and that Gov. Gavin Newsom said was made worse by President Trump’s federal tariff policy.

“California is under assault,” Newsom said. “The United States of America, in many respects, is under assault because we have a president that’s been reckless.”

Newsom unveiled the forecast during a presentation Wednesday of his $321.9-billion revised spending plan that proposes walking back free healthcare for low-income undocumented immigrants, eliminating Medi-Cal benefits for expensive weight loss treatments and cutting back overtime hours for in-home supportive service workers, among dozens of other trims.

The new deficit comes in addition to $27.3 billion in fiscal remedies, including $16.1 billion in cuts and a $7.1-billion withdrawal from the state’s rainy day fund, that lawmakers and the governor already agreed to make in 2025-26.

The overall $39-billion shortfall marks the third year in a row that Newsom and lawmakers have been forced to reduce funding for state programs after dedicating more money than California has available to spend.

Newsom’s proposed cuts

Among the new cuts Newsom put on the table Wednesday is a call to cut back on his signature policy to provide free healthcare coverage to income-eligible undocumented immigrants.

Newsom is proposing freezing new Medi-Cal enrollment for undocumented adult immigrants as of Jan. 1 and requiring those over 18 to pay $100 monthly premiums to receive healthcare coverage through Medi-Cal.

The cost share will reduce the financial burden on the state and could lower the total number of people enrolled in the healthcare program if some immigrants cannot afford the new premiums. Freezing enrollment may prevent the price tag of the program from continuing to balloon after more people signed up for coverage than the state anticipated.

The changes offer minor savings of $116.5 million next year, with savings growing to $5.4 billion in 2028-29.

The governor is also following the federal government’s lead and cutting $85 million in benefits for Ozempic and other popular weight loss medications from all Medi-Cal coverage plans, while saving $333.3 million by eliminating long-term care benefits for some enrollees.

Newsom wants to cap overtime hours for in-home support service workers, according to his budget, to save $707.5 million next year.

The governor’s budget includes a controversial proposal to grab $1.3 billion in funding in 2025-26 from Proposition 35, a measure voters approved in November that dedicated the revenue from a tax on managed care organizations to primarily pay for increases to Medi-Cal provider rates. The decision is expected to draw pushback from a coalition of doctors, clinics, hospitals and other healthcare groups that supported the proposition, which nearly 68% of voters backed.

Under another cost-saving measure, the governor wants to shift $1.5 billion in funding for Cal Fire from the general fund. Instead, Newsom wants to provide that $1.5 billion from the greenhouse gas reduction fund paid for by proceeds of the state cap-and-trade program next year.

The governor’s budget proposes extending the cap-and-trade program — a first-of-its-kind initiative that sets limits on companies’ greenhouse gas emissions and allows them to buy additional credits at auction from the state, and he wants to dedicate at least $1 billion each year to high speed rail.

A spending deficit

The budget marks a continuation of years of overspending in California under the Newsom administration.

After predicting a lofty $100-billion surplus from federal COVID-19 stimulus funding and the resulting economic gains three years ago, Democrats have not reduced spending to match up with a return to normal after the pandemic.

Poor projections, the ballooning cost of Democratic policy promises and a reluctance to make long-term sweeping cuts have added to the deficit at a time when the governor regularly touts California’s place as the fourth largest economy in the world.

State revenues have exceeded expectations since April, but so has state spending.

Despite the shortfall, California has more money to spend than in the prior budget approved in June, and the governor and lawmakers still plan to take $7.1 billion from the state’s rainy day fund to cover the total 2025-26 deficit.

A “Trump Slump”

Though personal income tax and corporate tax receipts in the state came in $6.8 billion above projections through April, Newsom is predicting that overall revenues will be $16 billion lower than they could have been from January 2025 through June 2026 because of the economic impact of Trump’s tariffs.

The governor originally released the new information, which his team dubbed the “Trump Slump,” on the eve of the presentation of his revised 2025-26 state budget plan, seeking to blame the president for California’s expected revenue shortfall.

Trump in April implemented a series of tariffs on all imported goods, higher taxes on products from Mexico, Canada and China, and specific levies on products and materials such as autos and aluminum. The president has backed down from some of his tariffs, but Newsom alleges that the policies and economic uncertainty will lead to higher unemployment, inflation, lower GDP projections and less capital gains revenue for California.

California filed a lawsuit last month arguing that Trump lacks the authority to impose tariffs on his own. On Tuesday, the state said it will seek a preliminary injunction to freeze the tariffs in federal court.