Seeking to close a multibillion-dollar budget gap, California Gov. Gavin Newsom’s fiscal 2024–25 budget proposal includes $8.5 billion in cuts to various programs, including climate, housing, and education.

Further complicating the budget discussion are discrepancies between the governor’s deficit projections and those of the nonpartisan Legislative Analyst’s Office, released in December 2023.

The governor’s office calculated a $37.9 billion shortfall, but analysts said the number is closer to $68 billion. The difference lies in variances in cost savings estimates and revenue projections, according to the governor.

“We’re all in this together, they’re partners, and I value their work,” Mr. Newsom said. “We’re just a little less pessimistic than they are about the next year.”

Climate Measures Take Biggest Hit

The largest proposed reductions are climate-related, totaling $2.9 billion.

“We’re maintaining roughly 90 percent of overall spending,” Mr. Newsom said on Jan. 10 during a press conference unveiling his budget proposal. “But there are some reductions.”

Several climate-related resilience and transportation programs will be affected, including a $350 million cut over two years from watershed infrastructure and a $200 million reduction from a program designed to encourage walking and biking.

Housing programs will see $1.2 billion in cuts after years of spending increases.

“Remember, California made ... unprecedented housing investments,” Mr. Newsom said. “But we’re going to make some adjustments.”

School facilities programs will see reductions of $500 million, and student housing is set for a $494 million cut, according to the governor’s budget proposal.

Also affecting higher education are $300 million cuts to the University of California and the California Institute of Immunology and Immunotherapy and a $289 million cut from the state’s middle-class scholarship programs.

“We’re going to pull some money back,” Mr. Newsom said.

The University of California and California State University systems would also experience funding deferrals of more than $200 million each.

Community colleges—which account for nearly one-quarter of students nationwide, according to the budget proposal—will receive slight funding increases.

Reductions to social programs, including the elimination of grants for state parks and broadband internet access, are also proposed, and a planned $30 million cut to foster care funding drew the ire of one lawmaker.

“Newsom is cutting support to foster kids as he insists on providing free healthcare to everyone in California illegally,” U.S. Rep. Kevin Kiley (R-Calif.) posted Jan. 11 on X, formerly known as Twitter.

New laws that provide free medical care to illegal immigrants will remain funded, the governor said during the press conference.

Government operations aren’t spared from the cuts, with an estimated $762.5 million potentially saved by cutting vacant positions—with plans to restore the money once the budget deficit is abated.

Reconsideration of Newly Passed Legislation

The proposal calls for $350 million in reductions through “legislative requests” that the governor said would include a reconsideration of bills signed and money committed last year before the budget issues were understood.

“The bills that I signed that have fiscal costs, I think it’s in all of our interest to review them on the basis of this shortfall and make a determination together whether those are still the top priority of the Legislature,” Mr. Newsom said. “There’s still some tough stuff that we’ll have to tend to.”

Citing one example that he would like to see reconsidered, the governor told reporters that a $22.1 million commitment for fruit fly containment is one of at least nine “early action items” that could help reduce spending.

In addition to nearly $9 billion in cuts, about $6 billion in borrowing, and more than $5 billion in delays, the plan is to use $13.1 billion of reserve funds—less than half of the state’s nest egg—to balance the budget.

The state also issued a spending freeze for all departments in December 2023 after tax receipts revealed a growing deficit.

“I love everyone lecturing me like, ‘You should be belt-tightening,’ but that’s exactly what we’re doing,” Mr. Newsom said during the press conference. “We did what you do at home.”

In a letter to department heads, the Department of Finance ordered a stop to all nonessential spending, including travel, vehicles, phones, and equipment.

Such prudence is necessary to ensure that the state can offer core services, according to the governor.

“This budget prioritizes the services and programs that Californians depend on most while making necessary adjustments to ensure long-term fiscal stability,” Mr. Newsom wrote on Jan. 10 in a letter to legislators introducing his proposal.

More cuts could be needed if income and corporate tax revenues due in April fail to meet expectations, according to the governor. He'll reissue a revision to his proposal a month later.

“The Administration will continue to address whether additional corrective actions are necessary during the development of the May revision,” Mr. Newsom wrote.