Gov. Gavin Newsom signed California’s budget on Saturday to close an estimated $46,8 billion deficit by cutting spending and temporarily increasing taxes on certain businesses.

The budget was passed by lawmakers on Wednesday, following an agreement reached between Newsom, the governor, and the legislative leaders. Both sides had made concessions, but also won, as they had to, for the second consecutive year, reduce or delay certain progressive policies, which had been fuelled by record-breaking revenues during the COVID-19 epidemic.

Newsom stated in a press release that “this is a budget that invests in programs that are of great value to millions of Californians.” “Thanks for the careful stewardship we have shown over the last few years of the budget, we are able to meet the moment and protect our progress in housing, homelessness education, health care, and other areas that are important to Californians.”

The state’s deficit is expected to grow in the future. In 2023, the deficit was $32 billion. The signing of the bill on Saturday came only two years after Newsom, Democratic legislators and other state officials boasted about surpluses totaling more than $100 billion. This was the result of hundreds of millions of dollars in federal COVID-19 assistance and a progressive income tax code which produced an unexpected windfall for the wealthiest residents of the state.

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These revenue spikes didn’t last, as inflation slowed down the economy. This contributed to a rise in unemployment and a decline in the tech sector that had driven the majority of the growth for the state. After a seven-month extension of the deadline for filing taxes, Newsom’s administration miscalculated what money California would earn last year.

California’s budget has been known to fluctuate wildly, due to its dependence on the wealthiest of taxpayers. These deficits come at an unfortunate time for Newsom. He is building his national profile in preparation for a possible future presidential run and was selected as the top surrogate of President Joe Biden’s campaign.

Newsom and legislators have agreed to try to amend the California constitution so that more money can be put aside for future shortages.

Republicans said, however, that they had been left out of the negotiations. They criticised the tax hike on businesses that will apply to all companies with at least $1,000,000 in revenue over a period of three years and bring in an extra $5 billion for the state in the next year. They also criticized Democrats over some cuts made to the social safety net.