Newsom set to deliver final State of the State amid budget deficit, affordability concerns

SACRAMENTO, Calif. — Gov. Gavin Newsom is set to deliver his final State of the State address on Thursday, in-person for the first time since 2020. His address comes as California lawmakers brace for difficult budget decisions and mounting affordability concerns.

Both Democrats and Republicans say the state’s financial outlook will loom large in Newsom’s remarks, particularly as California faces an estimated $18 billion budget deficit, according to the nonpartisan Legislative Analyst’s Office. That shortfall is projected to double the following year.

“The state of the state is tenuous,” said Sen. Roger Niello, a Republican from Fair Oaks and vice chair of the Senate Budget Committee.

Democratic Sen. John Laird of Santa Cruz, the committee’s chair for the remainder of the 2025-2026 legislative session, agreed the budget outlook is troubling but said California’s broader condition remains strong.

“The budget situation in one year is tenuous, but I don’t think the state of the state is tenuous,” Laird said.

Both lawmakers said they are eager to hear Newsom’s initial budget signals ahead of his full proposal, expected Friday. Despite rising revenues, Niello said the state continues to grapple with deficits that defy conventional expectations.

“We still have a budget deficit when we in fact have increasing revenues,” Niello said. “That doesn’t happen.”

Analysts say affordability is likely to be a central theme of the address, particularly as federal funding cuts threaten safety net programs such as health care and food assistance.

“It’s going to be a difficult year,” Laird said. “We’re anxious to see what the governor proposes.”

Rich Ehisen, editor in chief of Capitol Weekly, said there appears to be growing bipartisan support for more restrained spending focused on cost-of-living issues.

“I do think there’s more support for wise spending and affordability-related issues than there ever has been,” Ehisen said.

Laird acknowledged that lawmakers may be forced to consider cuts in areas they typically seek to protect, including health care, education and housing — the largest components of the state budget. Nothing is off the table in terms of cuts, the senator said.

“You can’t have savings unless you go to the biggest parts of the budget,” Laird said. “And the biggest parts of the budget are what we really want to protect.”

Republicans are already sharpening their criticism of Newsom’s record as he enters the final years of his governorship. 

The Assembly Republican caucus a day before the address released a video questioning whether Californians are better off now than when Newsom took office, citing housing costs, homelessness and wildfire prevention. Senate Minority Leader Brian Jones said the governor’s priorities have failed to reflect those of voters.

“When we look at the results of things the governor has said he wanted to tackle, it leaves a lot to be desired,” Niello said.

For Newsom, political observers say the address represents an opportunity to frame his legacy while defending California’s policy direction.

“This is about protecting California values, protecting the California economy, pushing back against Donald Trump and saying, ‘Look how good we’re doing in spite of that,’” Ehisen said. “If you’ve been to one of these, you know there’s a lot of pomp and circumstance, and I think that is probably something he would like to have.”

What insiders have described as Newsom’s shadow campaign for a 2028 presidential run is what legislators say they’re feeling too.

“I think [the address is] something that can be used perhaps beyond California,” Niello said. 

It’s not yet clear how Newsom will unveil his final budget proposal. California Director of Finance Joe Stephenshaw is scheduled to hold a media briefing Friday morning.

“Handing it off in its entirety to the Department of Finance? No, I can’t say I’ve seen that before,” Ehisen said when asked about this year’s likely presentation.

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