Newsoms

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 CEO 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 does 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.

SACRAMENTO — In his final State of the State address, Gov. Gavin Newsom will look to define his legacy by touting California’s economic and policy achievements while casting the state as a counterweight to dysfunction in Washington.

The speech, which he will deliver Thursday morning to lawmakers in the Capitol, highlights economic strength, falling homelessness and expanded education funding, while also offering a glimpse of how Newsom is positioning himself beyond his final year in office.

In a summary of the speech provided Thursday morning, Newsom portrayed California as a financial powerhouse that strives to help those in need and works diligently to address its own shortcomings, including high housing costs, unlike the chaotic Trump administration. Newsom, who has acknowleged that he is considered a 2028 bid for president, argues that the state is positioned not just to endure the moment but to help shape what comes next nationally.

Newsom is expected to announce an estimated 9% drop statewide in unsheltered homelessness last year, addressing a topic that has been a persistent political vulnerability for the two-term governor and former San Francisco mayor. Despite some improvements, California has been home to nearly a quarter of the nation’s homeless population, according to the Public Policy Institute of California.

Newsom also said two of his top priorities — the mental health program known as CARE Court and Proposition 1, the statewide bond measure he championed to provide funding for mental health and homelessness — are achieving results ahead of schedule, with counties now equipped with funding, authority and tools to combat the crisis.

Calling affordability a multi-layered crisis, Newsom is expected to signal a tougher stance toward the buying spree of homes by private equity and institutional investors in California. That message is a rare point of rhetorical overlap with Trump, who has said the United States should bar such practices because they push prices beyond the reach of many Americans.

Newsom offered a few previews of select budget priorities, with his office set to unveil the full proposed budget on Friday. The governor will announce that the state would set a record on per-student funding in public schools and fully fund universal transitional kindergarten under his budget proposal. He is also expected to announce a major shift in how the state oversees education, unifying the policymaking State Board of Education with the California Department of Education, which is responsible for carrying out those policies.

The address will mark the first time in five years that Newsom delivers a State of the State from the Assembly rostrum. His last in-person address came shortly before COVID-19 shut down the Capitol in early 2020.

Last year, he delivered his written remarks unusually late, in September, during which he said the state was under siege by the Trump administration — which he accused of dismantling public services, flouting the rule of law and using extortion to bully businesses and universities — all while California grappled with the aftermath of the devastating Los Angeles County fires, spiraling housing costs and an uneven economic recovery.

Like past speeches, Newsom will tout the successes of California, now the world’s fourth-largest economy.

Reporting from Sacramento — Gov. Gavin Newsom’s lifelong struggle with dyslexia makes his proposal to screen little kids for developmental disorders a personal mission.

California’s new governor wasn’t diagnosed with the reading disability until he was in the fifth grade.

“I got screened late,” Newsom, 51, told me. “I bounced around to five schools in seven years because I didn’t get the support. My mom kept trying different schools, looking for support. Back then, they didn’t know what this stuff was.

“I’d fallen behind, literally behind, and when that happens you tend to act accordingly. Finally someone diagnosed it. That allowed me to get support and self-confidence.”

Whatever guidance young Newsom got obviously worked. He graduated from Santa Clara University, created a successful wine and hospitality business, was twice elected San Francisco mayor, became lieutenant governor and then California’s 40^th governor.

Anyone who watched Newsom’s recent inaugural speech on the Capitol steps saw him reading flawlessly off the teleprompter. He didn’t miss a beat even when his 2-year-old son, Dutch, leaped into his arms and stayed there.

In his $209-billion state budget proposal, Newsom asked the Legislature for roughly $100 million to fund developmental and health screenings for infants and toddlers in low-income families.

That’s a little-noticed slice of Newsom’s $1.8-billion proposed package of programs aimed at expanding early education and childcare for the poor.

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I asked the governor if the developmental screenings were inspired by his struggles with dyslexia.

“Deeply so — 100%,” he replied. “It’s very personal for me.

“If you get those screens early, you can not only change a person’s life, you can save taxpayers a lot in the process.”

That’s because certain developmental disorders can lead to serious medical ailments that often require tax dollars to treat. At worst, they can lead to criminal behavior.

“I found out [about dyslexia] when I was in the fifth grade,” Newsom says. “My mother struggled with whether to tell me about it. She didn’t want me to have an excuse. She wanted me to work hard.”

Newsom says at least one — maybe two — of his four children has dyslexia.

“It is deeply painful not just for the kids, but for the parents watching them struggle,” he says.

“Unless you get the screening, the rest of your life you struggle.” But with trained help, a child can work around the disorder, he adds, and “later in life you find other strengths.”

The biggest chunk of Newsom’s package to help kids from poor families — and their parents — is his proposal to offer all-day kindergarten. Now, 22% of school districts provide only part-day kindergarten, a costly burden on working parents who must pay for expensive childcare after school.

Newsom also wants to provide full-day pre-kindergarten for all 4-year-olds from low-income families. He’d like to eventually include 3-year-olds.

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“Most of the brain development work is done by the time you’re 4,” the governor says. “Getting 3-year-olds in [class] is the game-changer.”

OK, that’s a great idea. But why not provide pre-kindergarten classes for all kids, regardless of family income? The middle class gets shunted aside again.

There’s a reason why Social Security and Medicare — and K-12 public schools — are so popular everywhere. They’re not means tested. No one is rejected because of income.

Newsom asked the Legislature for $10 million to draw “a road map” to universal pre-kindergarten for every 3- and 4-year-old, regardless of family income. But liberal lawmakers would need to be persuaded to provide preschool for the upper middle class and wealthy.

“The consensus in the Legislature is that it’s not our goal to serve kids whose parents have the means to afford their own,” Assembly Speaker Anthony Rendon (D-Paramount) told me last month.

But full-time day care is unaffordable for many middle-class parents. It costs as much or more than tuition at the University of California — $1,000 a month and up.

The governor and legislators say there isn’t enough money for universal pre-kindergarten, not even with a projected budget surplus of around $21 billion.

“And even if we had all the resources in the world,” Newsom says, “we’re not prepared to spend that appropriately. We couldn’t even lease the facilities, couldn’t train the workforce. It’s not just about access. It’s about quality access.”

Assemblyman Kevin McCarty (D-Sacramento), who chairs the budget subcommittee on education finance, says it would cost $4 billion annually to include all 4-year-olds in pre-kindergarten. He has introduced legislation to cover poor children. He estimates that would cost $1.5 billion.

“I’d like nothing more than to afford it for all kids,” McCarty says. “But we have other priorities. We can start with the families who need it the most — where we get the biggest bang for the buck.

“Upper-middle-class families will pay for it on their own. And some of the middle-class families will just miss out.”

Senate Budget Committee Chairwoman Holly J. Mitchell (D-Los Angeles), who once ran one of the largest child development organizations in the country, Crystal Stairs, says, “If I had a magic wand, I absolutely would” provide early childhood education for everyone. “But we don’t even have enough money to pay for the lowest-income kids.”

Somehow they’ll find enough money for the poor kids and should — and make sure they’re screened for developmental disorders.

Famous people, including Steven Spielberg, Walt Disney, Leonardo da Vinci, Tom Cruise and Albert Einstein, have battled dyslexia.

California’s governor is the latest role model for youngsters struggling with the affliction.

george.skelton@latimes.com

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