California’s multibillion-dollar budget deficit could soon grow worse.
State tax revenue dropped over 14% in the recession that followed the dot-com bubble, nearly 14% during the Great Financial Crisis from 2008 to 2009, and almost 8% during the first year of the COVID-19 pandemic.
Now, with financial markets reeling thanks to the Trump administration’s tariff drama, Sacramento could see its tax take plummet by billions of dollars, as it has in the past.
Yet instead of charting a safer course through choppy economic seas, Governor Newsom seems determined to throw caution to the wind. He’s doubling down on his initiative to offer free health benefits to 1.6 million low-income undocumented immigrants — even though it has cost California taxpayers billions more than forecast.
Offering such generous benefits to non-citizens was irresponsible in the best of times. It’s downright senseless in a period of economic uncertainty.
Last year, California became the first state in the nation to extend full Medicaid benefits — known here as Medi-Cal — to all low-income undocumented immigrants. The Newsom administration initially claimed the expansion would cost $5.8 billion in 2024 and 2025. That estimate ballooned to $8.4 billion by mid-March.
Governor Newsom has already borrowed $3.4 billion from the state’s coffers to keep the program running. This month, he signed legislation that designates another $2.8 billion in funding for Medi-Cal.
This burden falls entirely on California taxpayers, since federal Medicaid dollars can’t be used for illegal immigrants, except in emergencies. Every dollar spent on this expansion is a dollar diverted from other critical needs, like roads, schools, and wildfire prevention.
This isn’t merely a budget problem. It jeopardizes legal residents’ ability to access care.
Medi-Cal reimburses doctors at some of the lowest rates in the nation. As of 2019, Medi-Cal reimbursements averaged about 73% of the rate that Medicare pays for the same services, according to a study published in Health Affairs. Nevada, Oregon, and Arizona reimbursed at 96%, 83%, and 82% of the Medicare rate, respectively.
As a result, many providers won’t accept Medi-Cal enrollees. So beneficiaries frequently face long waits for appointments and care. Children with Medi-Cal coverage are considerably less likely to secure specialty appointments than kids with commercial insurance. Children on Medi-Cal who need urgent psychiatric care have faced waits approaching 100 days, in some cases.
And among providers who accept Medi-Cal, nearly six in ten couldn’t schedule an appointment with kids facing mental health crises within the four-day window that is the state standard.
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Stretching California’s already fraying safety net even further, to cover people who aren’t here legally, is not compassion. It’s fiscal malpractice. If Gov. Newsom refuses to reconsider this reckless experiment, California could face a budget crisis of unprecedented proportions.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It” (Encounter 2025). Follow her on X @sallypipes.
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