Gov. Gavin Newsom's office on Friday forecast a "modest shortfall" of $2.9 billion for the upcoming fiscal year, down sharply from previous estimates in a nearly $349 billion budget proposal that relies heavily on continued windfalls from tech and AI stocks. The governor's 2026-27 budget proposal projects $9 billion more in revenue than anticipated, banking on the AI-driven economy to last. It's significantly rosier than the grim outlook by the nonpartisan Legislative Analyst's Office, which in November projected an $18 billion deficit.