From Boom to Bust: Newsom’s Budget Blunders Push California to Brink

Paul Riverbank, 1/8/2026California’s surplus turns to deficit—budget woes, policy battles, and Newsom’s legacy hang in the balance.

Standing at the rostrum for what could be his final State of the State address, Newsom finds himself in a peculiar bind familiar to any leader eyeing higher office. There’s the record to defend, a legacy to carve out, criticism to weather—all while whispers of a 2028 presidential bid gain volume. Expectations from both Sacramento and D.C. are palpable, sometimes oppressive.

So what went wrong for California? For much of the last decade, the state’s top earners—flush with gains from the stock markets—filled the treasury’s coffers, their capital gains taxes buoying ambitious public projects. But as Wall Street faltered and federal aid dried up, revenues crumbled. Suddenly, longtime strengths became liabilities: ambitious social spending, expanding programs, and costly expansions of coverage—like the $3.4 billion borrowed to underwrite Medicaid for undocumented residents—now draw fire, especially with the state forced to tighten its belt.

Critics, not shy this year, point to more than the dollar amounts. “Year after year, his policies have pushed opportunity out of state while driving the cost of living to ever new heights for working families,” Senate Republican Leader Brian Jones said flatly. And for families scraping by, the grocery bill reflects this new mood—prices for food and gas haven’t just risen; they jolt households each month. With California’s unemployment rate stubbornly perched at the higher end nationally and nearly 187,000 people without a permanent home, it’s little wonder the sense of unease is widespread.

Even among experts who aren’t seeking to score partisan points, frustrations simmer. Stanford’s Lanhee Chen, speaking with the candor that marks many budget cycles, questioned the apparent lack of oversight: “There’s never really been an effort to account for whether that spending has been successful or not.” Recent reports confirm as much—around $24 billion vanished into homelessness programs, and state audits flagged over $30 billion lost to fraudulent unemployment claims during pandemic chaos.

Meanwhile, the bureaucracy swelled. Payrolls in Sacramento grew by 21 percent since 2019, with public employee pay climbing an eye-watering 48 percent—statistics that land uneasily alongside a shrinking state population and a private sector still catching its breath.

Capitol insiders predict bruising policy battles ahead. State Senator Dave Cortese put it bluntly: "There are going to be policy fights this year in terms of how to close the deficit. We are at a point where we can’t cut our way out of it.” There’s tacit acknowledgment: not every wish-list item will survive, and some sacred cows may be tried for slaughter.

The issue of housing—Newsom’s banner promise from his earliest speeches—remains an open sore. There have been regulatory reforms, sure, and State Sen. Jesse Arreguín credits the administration for “streamlining” some processes. Yet he admits, “Now we can look at how we can incentivize and innovate housing production. I know the governor supports that goal.” But optimism is hard to find among young Californians locked out of the housing market or families packing up for Nevada or Texas. A recent Republican video jabbed, “Housing is now less affordable than ever. The promise faded.”

That critique rings out not just from Republican ranks. Political analyst David Latterman sounded a warning: “He’s going to have to address, or preempt, what some of the automatic negative things are going to be—the housing crisis is real and unemployment is real.” As Latterman sees it, whatever grand vision Newsom lays out, he’ll have to wrestle with persistent skepticism over what’s been accomplished—and what hasn’t.

Nationally, Newsom has crafted an image as a pugnacious progressive, often at odds with Donald Trump, fighting high-profile battles over child care and state autonomy. Capitol regulars recall moments where he clashed with the federal government over funding freezes. But back home, recall advocates like Mike Netter accuse him of hiding California’s “far uglier reality” behind well-rehearsed soundbites.

So as Thursday’s speech approaches, the stakes are personal as much as political. In California, as anywhere, what a governor leaves undone often echoes louder than what he touts. Political consultant Jim Ross, no sentimentalist, put it succinctly: “The last things he does in office are going to be the things that people remember.”

Numbers don’t tell the whole story, but they loom large. With deficit forecasts bleak and warnings it could double, everyone—lawmakers, voters, even out-of-state observers—watches to see whether Newsom can steady California’s course. Or whether this ship, battered by turbulent tides, faces even rougher waters ahead.

For years, California glided on a wave of prosperity that had lawmakers dreaming big. Two short years ago, a staggering $100 billion budget surplus—unlikely though it now sounds—seemed to all but guarantee blue skies ahead. But those golden days haven’t just faded; they’ve vanished, replaced by a hard-edged reality Governor Gavin Newsom faces as his tenure winds down. The state is staring at an $18 billion deficit, with every dollar and decision drawing sharp scrutiny.Standing at the rostrum for what could be his final State of the State address, Newsom finds himself in a peculiar bind familiar to any leader eyeing higher office. There’s the record to defend, a legacy to carve out, criticism to weather—all while whispers of a 2028 presidential bid gain volume. Expectations from both Sacramento and D.C. are palpable, sometimes oppressive.So what went wrong for California? For much of the last decade, the state’s top earners—flush with gains from the stock markets—filled the treasury’s coffers, their capital gains taxes buoying ambitious public projects. But as Wall Street faltered and federal aid dried up, revenues crumbled. Suddenly, longtime strengths became liabilities: ambitious social spending, expanding programs, and costly expansions of coverage—like the $3.4 billion borrowed to underwrite Medicaid for undocumented residents—now draw fire, especially with the state forced to tighten its belt.Critics, not shy this year, point to more than the dollar amounts. “Year after year, his policies have pushed opportunity out of state while driving the cost of living to ever new heights for working families,” Senate Republican Leader Brian Jones said flatly. And for families scraping by, the grocery bill reflects this new mood—prices for food and gas haven’t just risen; they jolt households each month. With California’s unemployment rate stubbornly perched at the higher end nationally and nearly 187,000 people without a permanent home, it’s little wonder the sense of unease is widespread.Even among experts who aren’t seeking to score partisan points, frustrations simmer. Stanford’s Lanhee Chen, speaking with the candor that marks many budget cycles, questioned the apparent lack of oversight: “There’s never really been an effort to account for whether that spending has been successful or not.” Recent reports confirm as much—around $24 billion vanished into homelessness programs, and state audits flagged over $30 billion lost to fraudulent unemployment claims during pandemic chaos.Meanwhile, the bureaucracy swelled. Payrolls in Sacramento grew by 21 percent since 2019, with public employee pay climbing an eye-watering 48 percent—statistics that land uneasily alongside a shrinking state population and a private sector still catching its breath.Capitol insiders predict bruising policy battles ahead. State Senator Dave Cortese put it bluntly: "There are going to be policy fights this year in terms of how to close the deficit. We are at a point where we can’t cut our way out of it.” There’s tacit acknowledgment: not every wish-list item will survive, and some sacred cows may be tried for slaughter.The issue of housing—Newsom’s banner promise from his earliest speeches—remains an open sore. There have been regulatory reforms, sure, and State Sen. Jesse Arreguín credits the administration for “streamlining” some processes. Yet he admits, “Now we can look at how we can incentivize and innovate housing production. I know the governor supports that goal.” But optimism is hard to find among young Californians locked out of the housing market or families packing up for Nevada or Texas. A recent Republican video jabbed, “Housing is now less affordable than ever. The promise faded.”That critique rings out not just from Republican ranks. Political analyst David Latterman sounded a warning: “He’s going to have to address, or preempt, what some of the automatic negative things are going to be—the housing crisis is real and unemployment is real.” As Latterman sees it, whatever grand vision Newsom lays out, he’ll have to wrestle with persistent skepticism over what’s been accomplished—and what hasn’t.Nationally, Newsom has crafted an image as a pugnacious progressive, often at odds with Donald Trump, fighting high-profile battles over child care and state autonomy. Capitol regulars recall moments where he clashed with the federal government over funding freezes. But back home, recall advocates like Mike Netter accuse him of hiding California’s “far uglier reality” behind well-rehearsed soundbites.So as Thursday’s speech approaches, the stakes are personal as much as political. In California, as anywhere, what a governor leaves undone often echoes louder than what he touts. Political consultant Jim Ross, no sentimentalist, put it succinctly: “The last things he does in office are going to be the things that people remember.”Numbers don’t tell the whole story, but they loom large. With deficit forecasts bleak and warnings it could double, everyone—lawmakers, voters, even out-of-state observers—watches to see whether Newsom can steady California’s course. Or whether this ship, battered by turbulent tides, faces even rougher waters ahead.