California Gov. Gavin Newsom outlined the basic elements of his $322.2 billion budget proposal for the 2025–2026 fiscal year on Jan. 6, cautioning that President-elect Donald Trump’s policies could negatively affect the state and lead to substantial changes before the budget is finalized in May.

“We’re also walking into headwinds, a radically different moment in U.S. history, world history, arguably,” Newsom said during a press conference in Stanislaus County in the San Joaquin Valley. “And as a consequence, we need to be prepared.”

Trade, tariff, and immigration policies proposed by Trump on the campaign trail could hurt California if implemented, according to the governor.

“That could radically shape and impact the debate in this country and impact our revenue stream in this state,” Newsom said.

He cited concern about the $2 trillion in cuts proposed by the incoming Department of Government of Efficiency.

The governor called a special session in December to allocate $25 million for the state’s Department of Justice to fund potential litigation in response to any Trump administration actions deemed harmful to the state.

Critics of the budget plan questioned the $17.4 billion general fund spending increase.

“It’s a spending problem,” state Sen. Roger Niello told The Epoch Times. “The governor talks about all the money we’re spending, but he doesn’t talk about how well we’re spending the money. What are we accomplishing? What are the outcomes?”

He said the plan to spend nearly $25,000 per pupil—an increase from $14,000 a decade ago—is concerning given the number of students that fail to meet the state’s academic standards. Fewer than half of California students are proficient in language arts skills, and about two-thirds test below math and science standards.

“The outcomes of our K–12 system are absolutely dismal,” Niello said. “We’re spending a lot of money on K–12 education, and frankly, not getting our money’s worth.”

Members of the Republican Assembly Caucus criticized the plan to use $7.1 billion in rainy-day funds to balance the books.

They also pointed to estimates in November 2024 from the nonpartisan Legislative Analyst’s Office that forecast ongoing deficits of up to $30 billion starting in 2026.

Assembly Republican Leader James Gallagher said the plan benefits “Hollywood donors” by doubling the film tax credit while leaving businesses to pay higher taxes because the state owes the federal government more than $21 billion for unemployment loans.

“Californians were clear in the last election, they want lower prices, safer streets and a government that works for them,” he said in a statement. “This budget doesn’t even come close to getting that done.”

A colleague said residents of the state need substantive changes from the Legislature to help improve their lives.

“It’s time to put ideology and ambition aside and do what’s right for the people of our state,” Assemblyman Heath Flora said in a statement. “The problems facing Californians have come to a head under Gov. Newsom; he needs to show he’s serious about turning things around.”

How to pay for rehabilitation treatment programs mandated by the newly passed Proposition 36—which increases penalties for repeat offenders while allowing eligible defendants to avoid jail time by completing mental health and drug abuse programs—is also a point of contention.

Having faced a nearly $73 billion budget deficit last year, the state passed its budget with a forward-looking two-year plan that helped manage finances and prevent another shortfall.

Revenues for the current fiscal year are $16.5 billion above forecast because of higher-than-expected capital gains tax collections, according to the state’s Department of Finance.

“One thing we didn’t anticipate, and we’re pleased to see, is this revenue increase ... which is substantial and significant,” Newsom said.

He described tax collection volatility led by gains and losses in the stock market as a “friend and a foe” because of the uncertain nature of estimating revenues.

The proposed budget includes state reserves totaling approximately $16.9 billion.

“The state continues to recognize that we need to do more to save for a rainy day,” Newsom said.

He called for reforms to laws that limit the amount of money the state can set aside in reserves—suggesting the current 10 percent cap should be doubled, at least.

The governor said the state is committed to paying down unfunded health care and pension liabilities.

Streamlining government operations is a priority of the new budget, including, among other things, using artificial intelligence to eliminate redundancies and expedite processes, with a goal of saving $3.5 billion over the next two years.

Additionally, 6,500 vacant positions are set to be eliminated to save $1.2 billion over two years, a downward revision from the plan announced last May to cut 10,000 jobs and save nearly $5 billion.

Highlighting the Golden State’s status as the world’s fifth largest economy, with a population of more than 21 states combined, Newsom said, “The word of the year is accountability.”

Details of the budget plan will be released on Jan. 10 by the state’s finance department.