This story was updated Jan. 8, 5:00 p.m. with additional reporting.
Delivering his final State of the State Address on Thursday morning, Governor Gavin Newsom called California “a beacon” of inspiration and counterweight to an “unrecognizable” federal government that continues to assault the state’s progressive values.
Newsom touted California’s social and economic accomplishments and condemned the Trump administration for “attacking marginalized communities, rewriting history, censoring historical facts.”
“In California, we’re not silent. You’re not silent,” Newsom proclaimed, speaking at the State Capitol before a joint session of the State Legislature. “You’re not hunkering down. We are not retreating. We are a beacon. This state is providing a different narrative. An operational model, a policy blueprint for others to follow.”
Newsom, who was first elected in 2018 and is termed out at the end of this year, touted the achievements of his tenure ahead of a likely presidential bid in 2028. Those included what the governor said was a 9% reduction in unsheltered homelessness last year, a figure that’s already being questioned given that many California communities didn’t conduct a homeless count last year. The governor also cited a reduction in insulin prices and higher wages for fast food and healthcare workers.
California’s budget crunch
His speech comes as California wrestles with a massive budget deficit — estimated at $18 billion by the non-partisan Legislative Analyst’s Office — and braces for continued funding cuts by the Trump administration.
Those include billions of dollars the federal government froze this week for state childcare services and transportation projects following fraud allegations.
But Newsom didn’t directly confront how big this year’s budget deficit would be, instead focusing on the fact that California’s revenue will be $42 billion higher than projected last year.
“It certainly is preliminarily encouraging news,” said Democratic Assemblymember Jesse Gabriel, who chairs the Assembly Budget Committee. “It’s always good to receive good news, but we’re also mindful that this is still a complicated and tricky moment.”
Republicans, meanwhile, pushed back on Newsom’s characterization of this year’s financial outlook. They called for a bigger focus on cutting costs for Californians and reducing state spending.
“I didn’t hear a lot of cuts proposed today,” Republican Assemblymember Josh Hoover of Folsom said of Newsom’s speech. “I actually heard a lot of increased spending proposed today.
A speech back at the Capitol
The governor also cited some unexpected positive news for the state, noting it saw its first drop in homelessness last year in nearly two decades and that state coffers brought in more than $42 billion more in tax revenue than expected amid a severe budget crunch.
This was Newsom’s first State of the State Address held at the Capitol since 2020. The pandemic disrupted the format. In March 2021, Newsom delivered his speech from an empty Dodger Stadium. He stood behind a solitary lectern deep in center field, with the 56,000 vacant seats representing California’s COVID-19 death toll up to that point.
The following year, he spoke to a small audience in a Sacramento state building where he touched on pandemic recovery efforts, gas prices and the war in Ukraine. In both 2024 and 2025 Newsom delivered pre-recorded State of the State addresses.
California Gov. Gavin Newsom arrives for his State of the State address Thursday, Jan. 8, 2026, in Sacramento, Calif.Godofredo A. Vásquez/AP Photo
Following the speech, Newsom’s critics said they live in a very different California than the one Newsom touted — and aren’t seeing conditions improve.
"Governor Newsom told Californians that homelessness is down, crime is at record lows, schools are improving, and Los Angeles is recovering after the Palisades fires,” California Republican Party Chairwoman Corrin Rankin said in a statement. “Governor Newsom painted a picture of a California that exists in his imagination.”
Newsom acknowledged a difficult budget year ahead but argued the state’s economy is still generating strong revenue. He said the budget he will submit Friday is backed by a $248.3 billion General Fund and includes revenues that are $42.3 billion higher than forecast last year. He also said the state will add $7.3 billion to reserves and pay down long term pension obligations over the next few years.
At the same time, the Legislative Analyst’s Office predicts the state could face a $35 billion deficit next year, double this year’s shortfall, if spending continues at the same rate.
That’s concerning for Jackie Mendelson, a policy advocate with Nourish California who co-led a campaign to protect food aid expansion for older undocumented residents last year. She said tens of thousands of immigrant Californians have already lost food assistance due to federal reductions to SNAP, known as CalFresh in California.
“[Newson] has the power to invest in this budget to ensure that those 74,000 humanitarian immigrants don’t lose access,” she said. “Cuts have such a devastating impact to individuals, to families and to our local economies.”
The governor’s budget will be released on Friday and is expected to be more optimistic.
Plans to tackle state’s high cost of living
During his address, Newsom called housing costs California’s “original sin” and said affordability is a “stacking” of pressures that hit families all at once.
He said California has passed major renter protections and housing reforms, including 61 housing bills last year. But, he argued the state needs to go further to lower construction costs and building materials.
Newsom took direct aim at institutional investors and said private equity firms are buying homes “by the hundreds and thousands,” crushing homeownership and driving rents higher. He said lawmakers will pursue stronger oversight and enforcement and may change the state tax code.
Newsom spoke at length on health care affordability. He said California’s 6.4% uninsured rate is one of the lowest in the country and highlighted state subsidies through Covered California.
The governor also blamed Trump's signature Big Beautiful Bill for healthcare premium shocks and coverage risks. He said 1.8 million Californians could lose health insurance and millions more could see higher premiums.
Newsom returned to a message his administration has touted for several months: It’s not enough to subsidize healthcare costs. He said California is trying to lower them through CalRx, the state’s generic drug label. He also pointed to the state’s effort to reduce insulin prices to $11 a pen, two to three times lower than alternatives, and cited last year’s state produced naloxone.
Governor touts rare decline in California homelessness
During his time as governor, Newsom has prioritized California’s stubborn and very visible homeless crisis, with mixed results. The state’s overall homeless population grew throughout his two terms even as the state committed tens of billions of dollars to clear encampments, fund mental health services and build more shelters.
In his final State of the State Address, Newsom was able to deliver what appears to be some positive news: The state’s unsheltered homeless population dropped 9% last year, he reported. That figure, however, appears to be a partial look at the state’s overall homeless population as numerous California communities did not conduct a homeless count last year. Most do so every two years.
“We have not seen a drop like this in nearly two decades in California,” the governor said of the reduction in question. “Our investments are paying off. And of course, it’s not good enough, particularly for those living on the streets, self-medicating with drugs or alcohol, suffering from bipolar disorder, schizophrenia, or paranoia.”
Republican Assembly Leader Heath Flora of the San Joaquin Valley questioned Newsom’s claim.
“We can manipulate numbers however we want them to read, but if we’re not using accurate numbers and if we’re not requiring people to submit actual data, then it’s just a fool’s errand,” Flora said. “We can’t just use numbers that work for our political agenda.”
Flora also noted California has some of the highest rates of homelessness in the country. It led the nation in 2024 with 187,000 people experiencing homelessness.
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