On Friday, the Department of Finance unveiled Governor Gavin Newsom’s $348.9 billion budget proposal for the upcoming fiscal year. It projects a $2.9 billion shortfall—dramatically less than earlier forecasts, thanks in large part to a stock market windfall. Just months ago, the nonpartisan Legislative Analyst’s Office (LAO) had projected a deficit of $18 billion.
Health and Education Prioritized in Budget
The proposal includes $248.3 billion in General Fund spending, which is roughly $30 billion above the current year. Education and health care account for most of the increase.
The plan includes no cuts to K–12 education, while slightly raising per-pupil spending to around $27,400. The budget also proposes a $509 million increase in special education funding and an additional $1 billion for high-needs community schools.
Higher education would see notable funding hikes, with $350 million more for the University of California and $365 million for the California State University system.
Child care programs would receive an ongoing General Fund increase for cost-of-living adjustments totaling $89.1 million. The plan includes another $11.5 million in one-time Proposition 64 funding for child care infrastructure, targeted specifically to communities impacted by recent wildfires.
Sharp Pullback on Housing and Homelessness
For local governments, the budget’s approach to homelessness and housing represents the most controversial aspect by far. Newsom’s plan would reduce state funding for housing and homelessness by $1.3 billion. The blueprint allocates $500 million in Homeless Housing Assistance and Prevention (HHAP) funds to cities and counties instead of the previous $1 billion. That money is “contingent on enhanced accountability and performance requirements.” The plan also breaks with a multi-year trend of supplementing the federally funded Low Income Housing Tax Credit (LIHTC) program.
According to CalMatters, the changes amount to a reduction in overall state spending on housing and homelessness of more than 56%.
Another flashpoint involves Proposition 1 funding. Newsom is proposing to redirect $1 billion from mental health services to housing and treatment for the homeless. The move has alarmed some county behavioral health officials.
“While these one-time bricks-and-mortar investments are promising, the $1 billion in funding for ongoing housing subsidies under Proposition 1 comes at the expense of redirected mental health treatment and prevention programs,” Michelle Doty Cabrera, executive director of the County Behavioral Health Directors Association, told CalMatters.
Local Governments Push Back
City and county leaders expressed serious concerns with Newsom’s plan.
“This budget proposal does not in any way acknowledge the impact of H.R. 1 on counties and our local communities,” California State Association of Counties (CSAC) CEO Graham Knaus said in a statement, referring to the so-called “One Big Beautiful Bill Act” which was signed into law in July. “If the state doesn’t step up, communities across California will crumble.”
The League of California Cities (Cal Cities) said the following in a press release:
“The most notable takeaway from the Department of Finance’s budget proposal today is that there is no new funding for some of the most effective programs local governments have historically used to help promote affordable housing, including the Infill Infrastructure Grant Program, the Multifamily Housing Program, and the Low-Income Housing Tax Credits.
“Although today’s budget release from the Department of Finance includes some funding for affordable housing, it is not remotely enough. Local governments were anticipating up to $800 million in Cap-and-Invest funding to support affordable housing and sustainable communities. The proposed budget would provide up to $560 million through the program.”
Read the full budget proposal or click here for the summary.