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Not-so-happy deficit day, everyone

DRIVING THE DAY — Gov. Gavin Newsom will propose capping undocumented Californians' enrollment in Medi-Cal as the programs' costs outrace projections, Rachel Bluth reports this a.m. Newsom will also ask lawmakers to fast-track the Delta tunnel project, Camille von Kaenel reports. The project to reroute more water around the Sacramento-San Joaquin River Delta to farmers and cities is part of the governor's revised budget blueprint. THE BUZZ: MAYDAY — Don't get too sentimental. But this morning, Newsom will release his second-to-last May Revision — typically the governor's final public budget proposal before negotiations with legislative leadership. It's bound to be a doozy. The Newsom administration projected in a memo that President Donald Trump's tariffs will cost the state $16 billion in revenue through next fiscal year alone, as we reported yesterday. The result is expected to be a shortfall of at least $10 billion. And that's not counting fiscal years beyond 2026. The state in January had seemingly balanced its ledger heading into the upcoming fiscal year, before tariffs, federal spending cuts and soaring health care costs left budget wonks feeling some type of way about the state's finances. Now, cuts and perhaps accounting gimmicks will have to come into play for the third-straight year as California grapples with another deficit. Newsom will release the plan at around 10:30 a.m., and our reporters will be rifling through its pages, alongside lobbyists and lawmakers checking in on the fate of their budget babies. Ahead of the release, we asked a few members of our bureau where their eyes will be darting first. Here's what they're watching: Drug costs: Newsom just this morning answered looming questions about whether he'd make cuts to the Medi-Cal program for undocumented patients in response to a multibillion-dollar shortfall. But I'm also following the pharmacy part of the Medi-Cal budget. The administration has been signaling all year that it wants to find a way to rein in pharmacy costs, and Newsom made some early budget news by introducing pharmacy benefit regulations. In Washington, congressional Republicans are floating ideas to bring down Medicaid costs by imposing cost-sharing requirements like co-payments. I'm curious if we could see something like that proposed here to bring Medi-Cal costs down, such as pharmacy co-pays. Even a $5 co-pay could be a barrier for people, especially if they have multiple prescriptions. — Rachel Bluth, health care reporter Eyes on the prize: The revised budget proposal is shaping up to be a reality check on how deep the damage from tariffs runs for Newsom's prized tech sector. The state fiscal outlook, previously buoyed by surprise tax hauls from Silicon Valley giants, is closely tied to the day-to-day swings of major tech stocks like Nvidia. The budget could also decide the fate of a $25 million plan for a Silicon Valley chip center. It's a project California fought hard to win, but officials are warning they may lose it if lawmakers pull funding, compelling Trump to reopen the contest. One top Silicon Valley business group tells us it will be scanning the budget to see if Newsom follows through on his push to integrate AI into various government functions. — Christine Mui, Silicon Valley reporter Lifeline for BART: One of the biggest budget requests from lawmakers — $2 billion over the next two years to prop up struggling public transit systems — will now be an even longer shot, given the projected deficit. The proposal, spearheaded by state Sen. Jesse Arreguín, a Berkeley Democrat, and Democratic Assemblymember Mark Gonzalez of Los Angeles, comes as agencies like Bay Area Rapid Transit and the Los Angeles County Metropolitan Transportation Authority warn they could be forced to slash services amid ridership declines, undermining the state's goals of moving away from fossil fuels. — Alex Nieves, transportation reporter No cap? Newsom and legislative leadership (with an assist from Trump) have set the table for a reauthorization of the state's cap-and-trade system, which generates billions of dollars for state coffers. Sacramento observers had expected Newsom to come out with his plan as soon as Monday, but they're still holding out hope for Wednesday. (Read more on what the climate team is expecting in last night's California Climate.) — Camille von Kaenel, environment reporter Higher ed cuts: Newsom dealt a blow to the University of California and California State University systems in January when he proposed an 8 percent budget cut on top of a deferral of over $200 million for both institutions. More than 60 state lawmakers signed a letter in March asking legislative leaders to reject the proposed cuts amid heavy lobbying by both the UCs and CSUs. We'll see if Newsom gives in as the institutions continue to face funding threats from the Trump administration's purging of diversity initiatives in schools. — Eric He, education and budget reporter Homelessness fight: Local governments have limited space to request funding with all the state's red ink. Still, California's major cities and counties face severe problems with homelessness which, they argue, they can't solve themselves. Newsom's January draft budget included no new money for the state's Homeless Housing Assistance and Prevention program, which provides grants for localities to get people into shelter. Newsom argues his administration has already provided ample funding — more than $27 billion in recent years — to help local governments address the twin homelessness and housing crises. Will Newsom hold firm and push local governments to clear encampments using money allocated in prior state budgets? If he does, expect tension between the governor and local officials to amplify in the coming weeks. — Dustin Gardiner, Playbook co-author La La Land: I'll be looking for the fate of two major Los Angeles priorities — the expansion of the state film tax credit and if there will be any help for the city's budget woes. Newsom has made it clear that the former is one of his top priorities, and if he continues to seek $750 million for the incentives (as he first proposed last fall), that would be a major show of support for the industry even as resources are tightening elsewhere in his spending plan. Meanwhile, Los Angeles Mayor Karen Bass has made several trips to Sacramento to lobby for her cash-strapped city. We'll see just how effective that charm offensive was if there's more money for LA in the May Revise — or if the Los Angeles delegation will have to flex its muscle during budget negotiations with the Legislature. — Melanie Mason, senior politics reporter The long game: Even in January, the governor's team anticipated budget shortfalls beyond the upcoming 2026 fiscal year, hinting at cuts to come. As the governor nears the end of his term, will he make the kinds of structural changes needed to avoid saddling his successor with deficits? Or will he balance the budget only through the 2027 fiscal year, risking negative headlines about California's financial situation closer to the presidential primary? — Blake Jones, Playbook co-author GOOD MORNING. Happy Wednesday. Thanks for waking up with Playbook. You can text us at ‪916-562-0685‬‪ — save it as 'CA Playbook' in your contacts. Or drop us a line at dgardiner@ and bjones@ or on X — @DustinGardiner and @jonesblakej. WHERE'S GAVIN? Delivering his budget plan in Sacramento. CAMPAIGN YEAR(S) FIRST IN PLAYBOOK: THE DOCTOR IS IN — It's a day that ends in 'y' so that means GOP Rep. David Valadao is facing pressure not to vote for Medi-Cal cuts. But this particular new ad campaign from SEIU could also be read as a potential preview of a marquee showdown in the Central Valley House seat next year. The ad features Democratic Assemblymember Jasmeet Bains, a family doctor, making a direct appeal to Valadao to vote against cuts to the program. 'I'm trying to see as many patients as I can, because Congress is trying to cut their Medi-Cal,' she says over footage of Bains seeing patients. Her day job as a legislator in Sacramento goes unmentioned. House Republicans have proposed slashing hundreds of billions of dollars from the program, even though they have eschewed some of the more drastic cuts sought by hardliners. Valadao, whose district has the highest percentage of Medi-Cal enrollees in the state, has been a key voice among moderate Republicans warning against steep cuts to the program. The Republican is a political unicorn, managing to win cycle after cycle despite Democrats holding a double-digit registration advantage in his district. The one exception to his win streak: 2018, a wave election during Trump's first term where health care caused major headaches for GOP incumbents. Democrats see a similar dynamic brewing for the 2026 cycle, and Bains, a three-term legislator who still practices medicine, has been floated as a possible challenger who could cause Valadao some real headaches. Bains has not declared any plans to run for Congress. When asked about the SEIU ad, her spokesperson pointed to a recent statement decrying Medicaid cuts. Already Valadao has fielded one Democratic challenger: progressive local school board trustee Randy Villegas, who is running on an unabashedly economic populist platform. Still, the ads, which will run on broadcast for several weeks, by a major player such as SEIU is a notable boost to Bains' profile. The six-figure buy is financed by SEIU California, as well as smattering of its health care and homecare local affiliates. 'Dr. Jasmeet Bains is showing the Valley what strong leadership looks like: standing up for the health care a half million people in CD-22 — 200,000 of them children — rely on to live healthy lives,' said Riko Mendez, chief elected officer of SEIU Local 521. 'While David Valadao sides with extremists rushing through a plan to terminate health care for children, seniors, and veterans in the Valley, Dr. Bains is actively working to save their lives.' — Melanie Mason BACK TO BRASSTRACKS — Katie Porter apparently raised the eyebrows of the State Building and Construction Trades Council when she sounded a critical note on California's high-speed rail project, telling KTLA, 'if it can't get done, then stop' construction. Trades President Chris Hannan, who represents workers building the project, subtly bit back during a California Labor Federation panel Monday. While asking candidates for governor about high-speed rail, he said it could take an electric vehicle 15-plus hours to travel from Orange County (Porter's home) to Sacramento (the site of the event). Porter sided with every other Democratic candidate there by giving a green light to the project in response to a binary question about her support for it. And she told our colleague Jeremy B. White that 'we have to figure out how to build it' in an interview afterward. Beyond a simple yes-no, where do the other leading Democrats think of a project that remains popular with voters but is well behind schedule? Here's what they told Playbook: Toni Atkins is all in: 'High-speed rail is more than clean transit — it's an investment in the communities, small businesses and workers so often left behind. I fought to keep this project on track as a leader in the legislature and will do the same as Governor. I will never walk away from my commitment to creating good jobs, growing our economy, connecting our communities, and building for the future.' Xavier Becerra says he gets people's disappointment: 'I understand the frustration — costs have grown, timelines have slipped, and trust in government has taken a hit. But completing high-speed rail is a test of whether we're serious about building the future, delivering world-class infrastructure, and ensuring California remains a competitive force in the global economy — and I'm committed to seeing it through in a way that works for Californians.' Eleni Kounalakis is all aboard: 'High speed rail is an investment in the future of California. I am committed to getting it done. As Governor, I will work with all stakeholders to push costs down and speed up the timeline.' Tony Thurmond loved the AVE: 'The delays have been beyond disappointing but I still believe this project can work. We need to prove California can build big projects and do hard things — not give into the idea that we can't just because the state has failed to so far. … I have traveled by high speed rail on a trip to Spain and I believe that we can create a version in California that does great things from the standpoint of job creation and supporting tourism and our economy. I believe if things can't be turned around we should be willing to walk away from it, but I believe we can and should turn it around.' Antonio Villaraigosa is looking at the money: 'I don't think candidates should play politics with high speed rail. We need to safeguard local jobs, protect taxpayers, and avoid haphazard decisions that could trigger requirements forcing the state to repay billions in federal funding that we can't afford. As Governor, I'll make sure this project is transparent, meets deadlines, and sticks to a budget.' Betty Yee is focused on the sunk costs: 'I support California staying focused on completing the Merced to Bakersfield segment that is the backbone of the statewide high-speed rail system. To abandon this segment now would not only strand assets under construction but also forgo the potential for economic transformation in the Central Valley with respect to new business and housing opportunities.' TECH TALK A BIT LEAKY — California's utility regulator may have accidentally exposed 'sensitive,' 'confidential,' or 'personal' data of applicants seeking federal funds for internet expansion projects, according to correspondence shared with our colleague Tyler Katzenberger this week. In a message sent to applicants, dated May 8, the California Public Utilities Commission said it may have exposed personal information about some applicants, like emails and phone numbers, as well as other details about their project awards. The telecom companies that applied were vying for the same pot of federal cash. POLITICO Pro subscribers can read more in today's California Decoded. TOP TALKERS PLAY TO PAY — San Jose Mayor Matt Mahan is pushing forward with his proposal to tie part of city councilmembers' pay to their performance, modifying it to now withhold five percent of salaries and pay it back based on how well they meet specific goals, The Mercury News reports. 'I'm very hopeful that San Jose will be the city — as the capital of Silicon Valley — that leads the way in demonstrating what public sector focus, transparency, clear goal-setting, (and) performance management accountability looks like,' he said. RIYADH READER — Dr. Patrick Soon-Shiong, billionaire owner of the Los Angeles Times and biotech entrepreneur, was spotted on Tuesday with Trump during his visit to Saudi Arabia, POLITICO's Will McCarthy writes. The doctor says he and Saudi Crown Prince Mohammed bin Salman have a 'common goal to cure cancer.' AROUND THE STATE — A judge reduced the Menendez brothers' murder sentences, making them eligible for parole. (AP) — Attorney General Rob Bonta is investigating two San Diego County juvenile detention halls, alleging civil rights abuses. (The San Diego Union-Tribune) — California state workers used an AI-generated image of Newsom in a billboard off Interstate 80, saying Newsom's back-to-work order is going to cause more traffic. (The Sacramento Bee) Compiled by Nicole Norman PLAYBOOKERS IN MEMORIAM — Jennifer Barraza Mendoza, former chief of staff to LA Councilmember Kevin de León, died Tuesday morning after a prolonged battle with cancer. She was 37. Among the many roles she held in her career, Barraza Mendoza was organizing director for SEIU Local 99, deputy director for the state Senate Democratic Caucus, a top adviser on De León's 2018 campaign for the U.S. Senate, a principal at Hilltop Public Solutions and served on the campaigns team at the National Education Association. 'Jennifer lived with purpose, led with courage, and never backed down from a fight worth having,' De León said in a statement. 'In a world often marked by conflict and uncertainty, she was a beautiful soul, anchored by conviction, guided by compassion.' PEOPLE MOVES — Josh Escovedo has been named co-managing shareholder of Buchalter's Sacramento office. He was previously a shareholder. — Lathrop GPM has expanded with a new office in downtown Sacramento, marking another milestone in its West Coast growth following the 2024 combination with Silicon Valley firm Hopkins Carley. BIRTHDAYS — Stephanie Estrada of Cruz Strategies … Mark Zuckerberg … former Reps. Mimi Walters and Jackie Speier … Sam Newton … Erwin Chemerinsky WANT A SHOUT-OUT FEATURED? — Send us a birthday, career move or another special occasion to include in POLITICO's California Playbook. You can now submit a shout-out using this Google form.