AI windfall helps California narrow projected $3-billion budget deficit

By Melody Gutierrez, Los Angeles Times

SACRAMENTO, Calif. — California and its state-funded programs are heading into a period of volatile fiscal uncertainty, driven largely by events in Washington and on Wall Street.

Gov. Gavin Newsom’s budget chief warned Friday that surging revenues tied to the artificial intelligence boom are being offset by rising costs and federal funding cuts. The result: a projected $3 billion state deficit for the next fiscal year despite no major new spending initiatives.

The Newsom administration on Friday released its proposed $348.9 billion budget for the fiscal year that begins July 1, formally launching negotiations with the Legislature over spending priorities and policy goals.

“This budget reflects both confidence and caution,” Newsom said in a statement. “California’s economy is strong, revenues are outperforming expectations, and our fiscal position is stable because of years of prudent fiscal management — but we remain disciplined and focused on sustaining progress, not overextending it.”

Newsom’s proposed budget did not include funding to backfill the massive cuts to Medicaid and other public assistance programs by President Donald Trump and the Republican-led Congress, changes expected to lead to millions of low-income Californians losing heal...