The Democratic leader’s proposed $297 billion budget includes cuts in areas traditionally pushed by progressives, such as housing and climate change initiatives. Newsom also explained the shortfall was largely the result of wealthy Californians not paying as much in personal income taxes due to losses in capital investments.

During his presentation to the press, Newsom displayed a chart on capital gains as a percentage of personal income. He said personal income tax withholding receipts contracted by 4.5 percent on average on a year-over-year basis from July to November while revenue from capital gains as a percentage of total tax revenue is expected to further decline in 2023.

Money from capital gains taxes is projected to be about 5.5 percent of the state’s revenue, down from 9.7 percent last year, according to Newsom.

“It’s an EKG, and that sums up California’s tax structure,” Newsom said of the effect capital gains and personal income has on the state economy. “It sums up the boom-bust.”

Bloomberg cited a number of factors for wealthy Californians taking financial hits, including inflation, supply chain disruptions and the state dwindling down money from federal pandemic relief funds.

Meanwhile, Newsom may face pressure from some Democratic lawmakers to tap into California’s $22.4 billion budget reserve account.

“Stock market and tech sector business trends are driving state revenues even lower,” Assembly Speaker Anthony Rendon said in a statement. “This June, the large reserves built over the last decade may be important for protecting California’s progressive investments.”

State Republicans have already laid blame at Newsom and Democrats for past spending on the progressive agenda.

Newsom said on Tuesday that for the time being the reserve will not be touched, but he did not rule out the possibility at a later date.

“We’re not touching the reserves because we have a wait-and-see approach to this budget in terms of being cautious and being prepared,” the governor said.

As for his commitments to spending on education, climate change and responding to emergencies caused by nature, Newsom said, “We’re keeping our promises.”

Newsweek reached out to Newsom for comment.