California Governor Gavin Newsom at the Georgia TechÕs McCamish Pavilion prior to the CNN Presidential Debate between President Joe Biden and former President Donald Trump held at CNN's studios in Atlanta. CNN Anchors Jake Tapper and Dana Bash are moderators of the debate.
Sacramento, California – As California’s economy reels from a turbulent stock market and the threat of sweeping tariffs, state lawmakers are grappling with what Assembly Speaker Robert Rivas (D-Hollister) called “the most challenging of years” for crafting a state budget.
In a stark warning from the Capitol last week, Rivas predicted President Trump’s aggressive trade policies would “squeeze our economy at every level.” Days later, Trump unexpectedly paused most new tariffs, triggering a brief market rally — but the volatility only deepened the uncertainty facing California’s budget writers.
With tax revenues tied heavily to capital gains and high-income earners — particularly in the tech sector — California is uniquely exposed to stock market shocks. The so-called “Magnificent Seven” tech stocks, including Apple and Nvidia, are major drivers of state income. A sharp decline could wipe out billions in expected revenue.
“This is unlike anything we’ve seen,” said Jerry Nickelsburg of the UCLA Anderson Forecast. “We’re forced to build forecasts around presidential unpredictability, not just economic data.”
Gov. Gavin Newsom’s administration is now revising its 2025–26 budget projections, with his finance team scrambling to account for tariff threats, stock market slumps, and ongoing lawsuits over federal funding cuts.
Chief economist Somjita Mitra said the state is “trying to wait as long as we can because things change every day.” H.D. Palmer, spokesperson for the Department of Finance, added that California’s vulnerability to international markets — especially China — further complicates the forecast.
California agriculture, particularly almond and pistachio exports, faces retaliation from trading partners. Ports like Los Angeles, Long Beach, and Oakland risk job losses. Even Hollywood is bracing for economic fallout after China announced a reduction in U.S. film releases.
Meanwhile, Assembly Democrats are preparing to defend state programs already under financial strain. On Thursday, the Legislature approved an additional $11.1 billion in funding to backfill Medi-Cal shortfalls, driven in part by the state’s expansion of healthcare to all immigrants regardless of status.
But critics, like state Sen. Tony Strickland (R-Huntington Beach), say Newsom and Democrats share blame. “Only in politics do you do a poor job and then try to blame someone else,” Strickland said, urging the state to invest in domestic manufacturing and reduce reliance on foreign goods.
With the state already planning to dip into its $7.1 billion rainy-day fund, deeper cuts may be inevitable — and the worst may still lie ahead.
