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California Faces $16 Billion Revenue Hit Tied to Trump Tariffs and Healthcare Costs

Governor Newsom's revised budget projects a deficit for 2025-26, citing federal tariffs and Medi-Cal overruns as key drivers of the shortfall.

California Gov. Gavin Newsom was set to unveil his budget proposal on Wednesday in Sacramento.
California Gov. Gavin Newsom discusses President Donald Trump’s tariffs, as California Attorney General Rob Bonta, left, listens, during a press conference on Wednesday, April 16, 2025, at an almond farm in Ceres, Calif. (AP Photo/Noah Berger)
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Overview

  • Governor Gavin Newsom's administration forecasts a $16 billion revenue decline through June 2026, attributed to the economic impact of President Trump's tariffs.
  • California's Medi-Cal program reported a $6 billion cost overrun this year, driven by expanded coverage for undocumented immigrants, requiring an emergency cash infusion in March.
  • The state has already implemented $27.3 billion in financial remedies for 2025-26, including $16.1 billion in cuts and $7.1 billion withdrawn from reserves.
  • California filed a lawsuit last month challenging Trump's authority to impose tariffs and plans to seek a preliminary injunction to freeze them.
  • Despite higher-than-expected tax receipts through April, California's reliance on capital gains taxes leaves its budget highly vulnerable to economic disruptions.