Newsom Budget Revise Unsatisfactory for Small Businesses, Despite Some New Investment

“It’s encouraging to see Gov. Newsom ask for a new tax cut that would make it easier for aspiring entrepreneurs to start new small businesses by reducing the cost of California’s first-year LLC filing tax from $800 to $400. While this is a positive development for new startups, the Revise otherwise offers a mixed bag for existing small business owners at a time when the divide between large and small business owners continues to grow due to skyrocketing healthcare costs, downward pressure on prices paid for goods and services in the supply chain, and increased consolidation in nearly every industry.

California’s decision not to offer additional support to small businesses, including small farms, could have a significant and lasting impact on diverse entrepreneurship, particularly given that cuts resulting from HR 1, The One Big Beautiful Bill Act, will soon have a notable impact on statewide programs that small businesses rely on, such as Medi-Cal. The pain could be especially acute for immigrant Californians, as they continue to struggle with healthcare access as a result of the proposal to maintain the enrollment freeze and cuts to services that were initiated last year. Amid these financial strains, the governor could make matters worse due to his proposed increase on premiums for individuals with Unsatisfactory Immigration Status from $30 to $50. What’s more, we are deeply disappointed the governor did not address the fact that California’s existing market-rate methodology significantly underestimates the actual cost of care, with a recent study from the state showing that providers earned just 30% of the cost of care in 2024.

The Revise also did not include additional funding for the Capital Infusion Program and the Technical Assistance Program (with asks of $17 million and $6 million respectively), despite the governor reporting greater than expected revenues. Without investment, small business priorities will need to advance through avenues like competition and predatory pricing-enforcement reforms such as AB 1776 and AB 2116 to ensure small business owners can compete on a level playing field, or through reallocations. 

Although we are concerned about these shortcomings, we applaud Gov. Newsom’s appointment of former U.S. Consumer Financial Protection Bureau Director Rohit Chopra to head the new Business and Consumer Services Agency, which houses the Department of Financial Protection and Innovation (DFPI). While DFPI doesn't enforce antitrust law, it has authority to examine anticompetitive conduct like automated underwriting and algorithmic pricing. Director Chopra’s history of enforcement is a benefit to small businesses, and we are confident this is a signal that DFPI will continue to be fully funded.

As we noted previously, California’s budget constraints are the result of ongoing revenue volatility, structural deficits and lingering uncertainty on the federal level. In this challenging small business climate, we support multi-billion dollar revenue-generating measures like ending the Water’s Edge Election and increasing large employer contributions to Medi-Cal, which would generate an estimated $8 billion combined. We hope that lawmakers will find ways to prioritize small business investment going forward, even as California is forced to make hard choices about budgetary priorities.”