State Leaders Must Respond Boldly to the Devastating Cuts in President Trump’s Budget Bill

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Introduction

On July 4, President Trump signed into law a budget bill that strips away health care, food assistance, and other basic supports from tens of millions of Americans — including Californians in every congressional district across the state —  while exploding funding for his immigration enforcement agenda and doubling down on costly tax cuts for corporations and the wealthy.

Trump’s budget “reconciliation” bill was opposed by every Democrat and supported by every Republican in California’s congressional delegation, including Reps. David Valadao (CA-22), Young Kim (CA-40), and Ken Calvert (CA-41), whose constituents are especially vulnerable to cuts in health care and food assistance.

The federal budget bill sets in motion massive reductions to federal funding for Medicaid health coverage (Medi-Cal in California) and SNAP food assistance (CalFresh in California) — cuts that will destabilize the state budget and harm millions of Californians, including children, older adults, and people with disabilities.

Trump’s bill also includes an unprecedented expansion of funding for detention and deportation, which will escalate the fear and intimidation that many Californians have already experienced in Los Angeles, the Central Valley, and other parts of the state — and that threatens local economies.

Just weeks after passing the reconciliation bill, congressional Republicans approved the president’s request to cancel more than $9 billion in spending for foreign aid and public broadcasting that Congress had previously authorized. The president is expected to send additional “rescissions” (cancellation) requests to Congress, building on the administration’s broader effort to unlawfully delay or block billions of dollars in appropriations from being spent.

Trump and congressional Republicans will ultimately bear responsibility for the harm caused by their massive spending cuts, detention and deportation agenda, and inequitable tax policies. However, California’s state leaders cannot stand idly by as the pain of these cruel federal policy choices radiates out across the state. State policymakers must commit to doing all they can to protect vulnerable Californians and ensure access to basic supports like health care and food assistance.

Unfortunately, the 2025-26 state budget signed by Governor Newsom in June fails to advance a bold vision to protect Californians and invest in the future of our state. In closing a roughly $7 billion budget deficit, state leaders avoided some of the harmful cuts that the governor proposed in his May Revision. However, the budget still includes major reductions that will harm the same populations targeted by federal policies.

Confronting the harm of Trump’s agenda requires bolder state action, including adopting major tax policy changes to raise the revenue needed to protect Californians from deepening hardship. As corporations reap billions in federal tax giveaways, California has a responsibility to claw back a share of that revenue through its own tax policies to reduce the suffering that Californians will experience due to harmful federal policies.

And addressing the harm to California’s communities can’t wait. The California Budget & Policy Center urges state leaders to reopen the state budget — in August or during a special session — to start making the necessary investments and raising the revenues needed to prepare for the devastating federal cuts that will roll out over the next several months and beyond.

With Californians and the state under increasing federal attacks on various fronts, Californians should be asking:

“Where are our state leaders and why aren’t their budget policies presenting a bolder vision to protect and invest in Californians and the future of our state?”

At the California Budget & Policy Center, we are committed to working with state leaders to ensure that California can offer the alternative vision — a government of care and inclusion — that Californians deserve.

Implementation Dates

Health Care

More than 1 in 3 Californians rely on Medi-Cal, the state’s Medicaid program that provides free or low-cost health coverage to people with low incomes. That’s nearly 15 million people in the state, including children, pregnant individuals, seniors, and people with disabilities. For those who don’t qualify for Medi-Cal but still need help affording coverage, Covered California offers private insurance plans with financial assistance from federal and state subsidies. About 1.8 million Californians get their coverage through Covered California.

Alongside Medi-Cal and Covered California, Medicare is a critical pillar of California’s health care system. Medicare is a federal program that provides health insurance to people age 65 and older and to younger individuals with long-term disabilities. About 6.6 million Californians are enrolled in Medicare, including 1.6 million people who are dually eligible for both Medicare and Medi-Cal due to their age and income.

Cuts to any of these health care programs can cause serious and lasting harm. Without health insurance, people are more likely to skip routine checkups, delay treatment, or avoid health care altogether. This increases the risk of preventable illnesses becoming more serious, drives up emergency room visits, and pushes more people into medical debt. Over time, losing access to coverage not only harms individual health but leads to overcrowded clinics, longer wait times for appointments, and fewer resources for providers to serve their communities.

How Does the Federal Budget Bill Affect Health Care in California?

Republicans in Congress and the Trump Administration recently enacted the deepest health care cuts in US history, slashing over $1 trillion from Medicaid over the next decade. These cuts, along with new burdensome red tape, put the health, financial security, and well-being of millions of Californians at risk. While some of the provisions in the federal bill won’t take effect right away, the long-term impacts amount to a partial repeal of the Affordable Care Act (ACA).

A major part of California’s progress to expand health coverage over the last decade was due to the ACA’s expansion of Medi-Cal, which California fully implemented in 2014. A key reform was extending Medi-Cal eligibility to low-income adults under age 65 without dependents, a group that was previously excluded from Medicaid in most states. Today, about 5 million Californians are part of this “ACA expansion population.” That coverage is now at risk, as the federal bill imposes harsh work requirements and stricter eligibility checks that could push many off Medi-Cal due to red tape.

As people lose health coverage, clinics and hospitals — especially in rural areas — will face additional financial strain. Health care providers will struggle to meet the growing demand for health care services with fewer resources. The result will be overcrowded clinics, fewer options for care in local communities, and rising health care costs that make it harder for people to get the care they need when they need it.

The federal budget bill includes a number of harmful changes that would weaken Medicaid (Medi-Cal) and put health coverage at risk for millions of Californians. Specifically, the bill:

• Takes Medicaid and CHIP (Children’s Health Insurance Program) coverage away from many immigrants starting October 2026. Under this change, only US citizens, US nationals, and a narrow group of immigrants would remain eligible: green card holders (excluding those in the US temporarily), certain Cuban and Haitian immigrants, Compact of Free Association (COFA) migrants, and immigrant children and pregnant adults who meet specific federal residency criteria. Refugees, asylees, humanitarian parolees, trafficking survivors, and other immigrants previously eligible under humanitarian protections would lose access to care — cutting off coverage for some of the most vulnerable people.
• Imposes new burdensome work reporting requirements for adults in the ACA expansion population, which could result in 3 million adults in California losing Medi-Cal coverage. Work requirements are essentially cuts that would cause significant health coverage losses. The exact timing for when California will implement work requirements has not been decided. Implementation is set to begin in January 2027, but states can start earlier with federal approval, or delay until January 2029 if they get an extension. This policy change requires certain adults (ages 16-64) to prove they are working, looking for work, or participating in job training programs for at least 80 hours per month in order to keep their Medi-Cal coverage. Some groups would be exempt, such as pregnant people, adults caring for someone with a disability, adults caring for a dependent child age 13 or younger, tribal members, foster and former foster youth under age 26, adults released from incarceration within the past 90 days, and veterans with a disability. However, it remains to be seen how these exemptions would be applied in practice, given limitations in the data used to determine who falls into these categories. The state Department of Health Care Services estimates that work requirements will result in up to 3 million adults losing coverage as well as a loss of $22.3 billion in federal funding for Medi-Cal.
• Makes it more challenging for adults in the ACA expansion population to maintain their Medi-Cal coverage due to increased eligibility checks — yet another tactic to push people from coverage. This change requires California to check Medi-Cal eligibility twice a year instead of once a year starting January 2027. Paperwork and documentation requirements can be burdensome for people to navigate. In addition, many Californians already experience long wait times when trying to contact county Medi-Cal workers to address eligibility questions or submit necessary information. The state Department of Health Care Services estimates that this policy change will result in 400,000 adults losing coverage, which will drive up the uninsured rate and raise costs for hospitals and clinics treating uninsured patients.
• Makes it more expensive for many adults to access health care by imposing new costs of up to $35 per service for certain adults beginning October 2028. This applies to adults in the ACA expansion population with incomes greater than 100% of the federal poverty level ($15,560 per year). In this context, these new costs refer specifically to copayments: the fixed out-of-pocket fees people must pay when they receive a health care service. Even modest costs can lead people to delay or skip needed care, putting their health at risk. Currently, most Medi-Cal enrollees do not pay copayments, and some services (e.g., emergency care, pregnancy-related care, and family planning) are fully exempt. Under this policy change, primary care and behavioral health services would be newly added to the list of exemptions, but states will now be required to charge copayments for most other services. Providers will also be allowed to turn people away if they can’t pay the new fee, creating yet another barrier for low-income adults trying to get care.
• Shortens Medi-Cal retroactive coverage for adults starting January 2027, leaving many people with less help paying for medical care they received before applying. Currently, Medi-Cal covers up to 3 months of past care, which is important for people who delay applying due to illness, paperwork, or other barriers. This policy change cuts that to just 1 month for ACA expansion adults and 2 months for all other applicants. This bill does allow states to provide up to 2 months of retroactive coverage for children in CHIP (Children’s Health Insurance Coverage). An estimated 86,000 Medi-Cal members per year would be affected by this policy and receive 1 month of retroactive coverage instead of 3 months.
• Severely reduces access to preventive care, primary care, and reproductive and sexual health care by defunding providers that offer abortion services. Specifically, the federal budget act prohibits Medicaid funding to be used to pay for services provided by Planned Parenthood for one year. More than 80% of Californians who seek care at Planned Parenthood health centers rely on Medi-Cal for their health coverage, meaning the large majority of Californians receiving critical care from Planned Parenthood will be severely restricted in their access to preventive care, primary care, and reproductive and sexual health care. Federal law already prohibits Medicaid from covering abortion services, except in certain circumstances. While this was set to take effect immediately, a federal judge has blocked this provision, which should allow — for the time being — approximately $300 million in federal funding to Planned Parenthood clinics in California to be restored.
• Keeps harmful policies in place that make it harder for people to access and maintain Medi-Cal health coverage. Specifically, the bill blocks implementation of a federal rule that would have made it easier for children, seniors, and people with disabilities to enroll and maintain health coverage. This rule was designed to reduce administrative barriers, prevent unnecessary coverage losses, and improve continuity of care.
• Reduces federal funding for emergency care for immigrants. Starting October 2026, California will no longer receive a 90% federal funding match for emergency services provided to individuals who would qualify for the ACA expansion group if not for their immigration status. This change means the state will either have to spend more from the General Fund to maintain current services or cut back on the emergency care covered through Medi-Cal. As a result, some immigrants may be denied life-saving care, and the financial burden on California’s safety net hospitals and clinics could grow.
• Restricts how California funds its Medi-Cal program by banning new provider taxes, imposing new uniformity rules, and capping existing tax rates. The ban on new provider taxes and the requirement that Medicaid plans and providers be taxed at the same rate as non-Medicaid entities take effect immediately, unless the US Health and Human Services Secretary grants a three-year transition period. Starting in October 2027, the law also begins phasing down the allowable provider tax rate from 6% to 3.5% of net patient revenue by 2032. Overall, these provisions directly threaten the Managed Care Organization (MCO) tax and Hospital Quality Assurance Fee — key tools California relies on to draw down federal funds and sustain Medi-Cal and other important health care investments. While the direction of these cuts is clear, the full impact will depend on how federal agencies implement the law and whether California can adjust its provider tax structures to comply with the new rules. If revenue from provider taxes are reduced or lost altogether, California could face major budget shortfalls that will likely put Medi-Cal coverage at risk, especially in communities that have long faced barriers to care.
• Caps how California can pay Medi-Cal providers through State-Directed Payments (SDPs), which are extra payments the state uses to help providers cover the cost of caring for Medi-Cal patients. The bill caps these payments at 100% of Medicare rates, which is below what California currently pays. While this is not a direct funding cut, this policy change limits how much federal Medicaid funding California can draw down. Some existing SDP arrangements may be temporarily protected, but those protections begin phasing out in January 2028. Due to these changes, California hospitals could lose billions in federal funding, which would strain safety-net providers and make it harder for Medi-Cal patients to get care.

The federal budget bill also undermines Medicare, the federal program that provides health coverage for older adults and people with disabilities, putting the care of millions of Californians at risk. The bill:

• Takes Medicare away from certain immigrants who currently qualify. Medicare is an earned benefit. People become eligible if they or their spouse have worked in the US for at least 10 years. Today, immigrants with legal permission to live and work in the US can qualify for Medicare if they meet the work criteria. This bill restricts access to Medicare to only US citizens, green card holders, Cuban-Haitian entrants, and individuals from COFA nations (Compacts of Free Association). As a result, many immigrants who have spent years contributing to Medicare would be permanently denied the benefits they’ve earned — an exclusion that is both unfair and deeply unjust. For those already receiving Medicare but who are no longer eligible under these new rules, the bill terminates their benefits no later than January 4, 2027.
• Keeps harmful policies in place that make it harder for low-income seniors and people with disabilities to afford health care and prescription drugs. Specifically, the bill delays the full implementation of a federal rule that would have allowed more low-income Medicare beneficiaries to enroll in the Medicare Savings Program, which covers Medicare premiums and often other out-of-pocket costs through Medicaid. The rule would have simplified the enrollment process and required states to automatically enroll people who receive Supplemental Security Income (SSI). While some provisions of the rule have already taken effect, the bill delays full implementation of the rule until October 1, 2034. This means many low-income older adults and people with disabilities will continue to face barriers to getting the financial help for which they qualify.
• Keeps unsafe nursing home conditions in place, putting seniors and people with disabilities at risk. The bill delays implementation of a federal rule, finalized in May 2024, that requires nursing homes to increase staffing levels and report more information about worker pay. These long-overdue reforms were designed to address dangerously low staffing levels that put patients at risk. Under new law, the Secretary of Health and Human Services is prohibited from implementing, administering, or enforcing the staffing requirements until October 1, 2034. This delay means many older adults and people with disabilities who rely on nursing homes for daily care will continue to face unsafe and understaffed conditions for the next decade.

The federal budget bill makes sweeping changes that will reduce access to Covered California and increase health care costs for many Californians, especially immigrants and people with unstable incomes. Losing health insurance isn’t just harmful for those who directly lose coverage — it also threatens the broader health care system. By pushing people, particularly younger and healthier individuals, out of coverage, the bill weakens the health insurance market and could lead to higher premiums for those who remain insured. Specifically, the bill:

• Takes Covered California support away from certain immigrants who currently qualify. The federal budget bill eliminates premium tax credits for lawfully present immigrants with incomes under the poverty line starting January 2026, and further restricts eligibility beginning January 2027 to only US citizens, green card holders, COFA migrants, and Cuban and Haitian entrants. As a result, refugees, asylees, DACA recipients, TPS holders, and others will lose access to subsidies. This exclusion targets people who have fled violence or instability and undermines their ability to stay healthy, support their families, and fully participate in their communities.
• Fails to extend enhanced premium tax credits, making Covered California coverage much more expensive. Without action, about 1.8 million Californians would face higher premiums and up to 400,000 people may lose coverage altogether when the credits expire at the end of 2025. Monthly premium costs would rise by an average of 63%, with even steeper increases for communities of color — up to 76% for Latinx enrollees and 71% for Asian enrollees.
• Raises health care costs and penalizes people with fluctuating incomes. Under current law, people who receive premium tax credits through Covered California have to repay only a portion if their income ends up higher than expected, but the bill removes those protections and requires full repayment, no matter their income level. It also ends cost-sharing assistance for people who enroll outside of the standard open enrollment window. These harmful changes will take effect for taxable years beginning January 1, 2026, making coverage more expensive and less stable for many Californians, particularly seasonal workers, gig workers, and others with incomes that vary from month to month.

How Does California’s 2025-26 State Budget Impact Health Care?

As Republicans in Congress were advancing a harmful federal budget bill, California policymakers approved state-level budget cuts that more immediately reduce access to health care, including budget decisions that restrict coverage for immigrants. While the state-level cuts are smaller in scale than those at the federal level, these state-level decisions still pose serious risks. Taken together, federal and state cuts threaten to reverse more than a decade of progress that brought California’s uninsured rate to a historic low.

The enacted 2025-26 state budget includes targeted cuts that roll back coverage for undocumented Californians, primarily adults ages 19 and older. It also affects some immigrants who are federally ineligible for Medicaid, such as lawful permanent residents subject to a five-year federal waiting period. Specifically, the state budget:

• Freezes new Medi-Cal enrollment for undocumented adults ages 19 and older starting in January 2026. Under this change, income-eligible undocumented adults who are not enrolled by that date would be barred from entering the program. There is a 90-day re-enrollment period if someone otherwise eligible loses coverage, but after that, this change blocks re-enrollment for those who lose coverage — even temporarily — due to changes in income, paperwork issues, or life circumstances. This change reduces General Fund spending by $77.9 million in 2025-26, increasing to $3.3 billion by 2028-29.
• Imposes a burdensome $30 monthly Medi-Cal premium for certain immigrants ages 19-59 starting in July 2027. Undocumented adults and certain other groups of immigrants will be required to pay $30 per month to keep their Medi-Cal coverage — a cost that will not apply to other Medi-Cal members. For many low-income Californians, this will make coverage unaffordable and lead to disenrollment. This change will reduce General Fund spending by $695.7 million in 2027-28 and $675 million in 2028-29 and ongoing.
• Eliminates Medi-Cal dental benefits for certain immigrants starting July 2027. This change ends full-scope dental coverage for undocumented adults and certain other groups of immigrants, but allows them to continue to have access to restricted-scope emergency dental coverage. This reduces access to basic health services and could lead to serious, untreated dental conditions. This change will reduce General Fund spending by $308 million in 2026-27 and $336 million in 2028-29 and ongoing.

The budget agreement also includes broader cuts that would affect all Medi-Cal enrollees, including seniors, people with disabilities, and individuals managing chronic health conditions. Specifically, the enacted budget:

• Reinstates Medi-Cal asset limits, which were eliminated in January 2024 and would return in January 2026. This policy change would require seniors and people with disabilities to limit their assets to $130,000 for individuals and $195,000 for couples. The asset test weakens a household’s financial stability and discourages savings as people may be compelled to spend down in order to qualify for Medi-Cal. This change reduces General Fund spending by $61.3 million in 2025-26, $562.9 million in 2026-27, and $827.4 million ongoing, inclusive of In-Home Supportive Services impacts.
• Ends coverage for GLP-1 drugs (e.g., Ozempic and Wegovy) for weight loss starting January 2026. This cut reduces General Fund spending by $85 million in 2025-26, growing to $790 million by 2028-29. In making this cut, state leaders overlook the potential long-term health and economic benefits of reducing obesity rates, such as lower rates of heart disease and other chronic conditions.
• Eliminates over-the-counter drug coverage. Specifically, the budget ends pharmacy coverage of certain drug classes including COVID-19 antigen tests, vitamins, and certain antihistamines including dry eye products. This could burden low-income individuals with additional out-of-pocket costs for managing everyday health needs. This change would reduce General Fund spending by $3 million in 2025-26 and $6 million in 2026-27 and ongoing.
• Adds new step therapy protocols and prior authorization for certain drugs starting January 2026. These changes would require Medi-Cal members to first try lower-cost medications (step therapy) and obtain approval before accessing some treatments (prior authorization), potentially delaying timely, clinically appropriate care and disrupting stable treatment for people with chronic conditions. State officials project these changes will reduce General Fund spending by $175 million in 2025–26 and $350 million in 2026–27 and ongoing.

The enacted budget also includes provider payment reductions and cuts to health care infrastructure that could destabilize the health care system, which already faces a health care workforce shortage. Specifically, the budget agreement:

• Cuts funding for Federally Qualified Health Centers (FQHCs) and rural health clinics. Specifically, the budget eliminates Prospective Payment System rates to clinics for services provided to undocumented adults and certain other groups of immigrants. Clinics serving undocumented populations would no longer receive enhanced reimbursement for care, straining the financial viability of safety-net providers. This change would reduce General Fund spending by $1 billion in 2026-27 and $1.1 billion ongoing.
• Cuts Proposition 56 supplemental payments for dental care. Eliminating this funding — $362 million in 2026-27 and ongoing — will likely result in fewer dental providers accepting Medi-Cal patients and lead to more patients not having dental care.
• Suspends the Proposition 56 loan repayment program. This program has been critical for recruiting and retaining health care professionals in underserved areas by helping repay student loans for providers who commit to serving Medi-Cal populations. Suspending the final cohort reduces the state’s ability to build a diverse and culturally competent workforce, particularly in rural and low-income communities. Without this incentive, fewer providers may choose to work in Medi-Cal, deepening workforce shortages. This change reduces General Fund spending by $26 million in 2025-26.
• Reduces support for skilled nursing facilities, jeopardizing the safety and well-being of medically vulnerable people. The budget agreement eliminates the Workforce and Quality Incentive Program, which incentivizes improvements in staffing, training, and patient care outcomes. It also suspends the requirement for facilities to maintain backup power systems capable of lasting at least 96 hours — a critical safeguard during wildfires, power outages, and heatwaves. These changes reduce General Fund spending by $168.2 million in 2025-26, $280 million in 2026-27, and $140 million ongoing.
• Establishes new prior authorization for hospice care, which could limit timely access to pain relief and supportive services. This policy change, effective July 1, 2026, requires providers to obtain prior authorization before delivering hospice services. Such administrative barriers could limit timely access to pain relief and supportive services. These changes are expected to reduce General Fund spending by $50 million in 2026-27 and ongoing.
• Caps payments to PACE (Program of All-Inclusive Care of the Elderly) providers, which care for seniors with complex health needs. PACE providers deliver care to seniors with complex health and social needs. This funding cap, effective January 1, 2027, may make it more difficult for providers to meet individualized care needs or expand services. This change will reduce General Fund spending by $13 million in 2026-27 and $30 million ongoing.

What Should State Policymakers Do Next?

Given the scale of both the federal and state budget cuts, California leaders need to take meaningful steps to minimize the harm to people’s access to health care, especially in how they implement harmful policies like work requirements and more frequent eligibility checks. For example, state leaders should invest in Medi-Cal eligibility and enrollment systems to help counties identify who qualifies for work requirement exemptions and make it easier for people to enroll in and keep their coverage. This is essential to ensure people don’t lose Medi-Cal coverage due to paperwork issues.

But more importantly, state leaders must do everything they can to preserve and, where possible, restore health coverage in the face of unprecedented loss of federal funding.

California stands to lose between $112 billion and $187 billion in federal health care funding over the next decade, according to the Kaiser Family Foundation. This represents an existential threat to all of the progress California has made in expanding health coverage over the past decade. A budget shortfall of this magnitude will have ripple effects throughout the health care system — from reduced access to care for low-income families, to financial strain on hospitals, to higher premiums and cost-sharing for people who purchase coverage through Covered California.

Addressing this challenge will require bold leadership and new, ongoing state revenue, particularly from corporations and wealthy individuals who will benefit the most from federal tax breaks (see Tax Policy section). Without additional revenue, the state will be forced to make even deeper, more painful cuts to Medi-Cal, such as by reducing benefits, limiting provider payments, or restricting eligibility. These should all be a last resort rather than a first response.

In the near term, state leaders should preserve, and where possible, restore access to health care. This means avoiding additional cuts to Medi-Cal eligibility and prioritizing support for safety-net providers like community clinics and public hospitals that serve a large number of Medi-Cal enrollees and uninsured patients. As more people lose health coverage, these providers will face growing demand with fewer resources. Without targeted support, they could be forced to scale back services or shut down entirely, leaving entire communities without access to essential health care. While these steps won’t fully offset the damage of federal cuts, they are critical to preventing a severe health care crisis.

Food Assistance

The Supplemental Nutrition Assistance Program (SNAP) — known as CalFresh in California — is the state’s most powerful tool in the fight against hunger. CalFresh provides modest monthly assistance to over 5.5 million Californians with low incomes to purchase food, bringing billions of federal dollars into the state each year that Californians spend in their communities, which helps boost local businesses and create jobs. In early 2023, CalFresh kept 1.1 million state residents out of poverty, reducing California’s poverty rate by 3 percentage points, according to the Public Policy Institute of California.

How Does the Federal Budget Bill Affect Food Assistance in California?

The federal budget package will dramatically raise costs and reduce food assistance benefits for millions of Californians by cutting federal funding for SNAP by nearly $200 billion — about 20% — across 10 years, the largest cut in the program’s history. These cuts will likely lead to increased poverty, food insecurity, and hunger among children, older adults, people with disabilities, and many others, as over 3 million California families are poised to lose some or all of their benefits. In total, cuts to SNAP are estimated to cost the state between $1.7 billion and $3.7 billion annually in lost federal funding. Here are some of the major direct impacts in California.

• Severely limits food assistance for older adults, caregivers, veterans, former foster youth, and people experiencing homelessness by restricting CalFresh benefits to three months across three years for these groups unless they can prove they are working 20 hours per week or qualify for an exemption, such as having a disability. The new federal law requires, for the first time, that parents and caregivers of school-age children as young as 14 meet burdensome and ineffective work reporting requirements, putting 125,000 Californians at risk of losing some or all of their food assistance. Additionally, 243,000 Californians in households with non-disabled older adults ages 55-64 would also be at risk of losing some or all of their food assistance as a result of the expanded time limits. The budget bill also rescinds previous exemptions to the time limits for veterans, former foster youth, and people experiencing homelessness. As a result, the Department of Social Services estimates a loss of nearly $500 million in federal funding per year. Additionally, thousands more could be impacted as the law also restricts the state’s ability to request a waiver of these provisions in the case of weak labor market conditions. This change could limit California’s current statewide waiver to just three counties.
• Puts the state on the hook for additional costs totaling billions of dollars annually. This cut to the SNAP program involves a fundamental change to the funding structure that will require states to pay a portion of SNAP benefits for the first time starting in federal fiscal year (FFY) 2028. In California, based on recent trends, the state will be responsible up to $1.84 billion annually to maintain current benefit levels unless it’s able to significantly decrease its payment error rate. Shifting a share of the cost of CalFresh benefits to California would likely make it impossible for the state to cover benefit costs during recessions when the need for food assistance rises but state revenues decline. Additionally, states will be required to pay for 75% of their program administrative costs starting FFY 2027 rather than the current 50%. In California, the state will have to pay an additional $685 million per year, based on current spending.
• Effectively cuts CalFresh benefits for all 5.5 million program participants. The budget package permanently freezes the cost of the Thrifty Food Plan (TFP) outside of inflation adjustments. Prior to a 2021 expansion, the TFP had not been updated since the 1970s to reflect current science-based dietary recommendations or the economic realities of buying and preparing food. The new law will prevent future revisions to the TFP that would require additional investments, effectively decreasing already limited benefits and making it significantly harder for families to afford groceries. Additionally, other provisions of the law increase the paperwork burden required to receive utility deductions and remove internet costs as a deductible expense, which will decrease the amount of assistance most households receive.
• Takes away food assistance from many lawfully present immigrants, including asylees, refugees, parolees, battered noncitizens, and trafficking victims. Most immigrants with humanitarian protections will immediately lose CalFresh eligibility, abandoning the federal government’s long-standing commitment to people fleeing danger. According to the Department of Social Services, this restriction will take benefits away from nearly 74,000 Californians and result in a loss of $133 million in federal funding per year. This change will also cut total federal monthly benefits for households with mixed immigration statuses that include US citizens.

What Are the Additional Federal Threats to Food Assistance in California?

Republicans may try to make additional spending cuts to non-defense “discretionary” programs that are funded through the annual appropriations process. Unlike with budget reconciliation, Democrats have leverage in the appropriations process because they are able to use the filibuster to block action in the Senate, which requires 60 votes to end. This means that decisions on discretionary spending require bipartisan support.

The appropriations process will:

• Determine the funding for the Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC. Both the White House and the House appropriations bills propose cuts to funding for WIC, even as uptake of the program has increased each year. In contrast, the Senate appropriations bill commits to fully funding WIC for the upcoming federal fiscal year. WIC is critical in supporting the health of pregnant and postpartum individuals, infants, and young children via food assistance and health and nutrition education.

In addition, other food assistance programs are facing potential cuts through agency guidance. Namely a recent notice sent out by USDA:

• Gives the state the option to reclassify programs in a way that would restrict immigrant eligibility for multiple food assistance programs in California (see Immigrants section). Some of the programs subject to this state option include The Emergency Food Assistance Program (TEFAP), Summer EBT/Sun Bucks, and WIC, which are essential in ensuring children have enough to eat and helps food banks reach those in need. It is highly unlikely that California leaders would choose to reclassify these programs as it would create more red tape for people trying to access food assistance and increase the administrative burden on food banks and county offices.

How Does California’s 2025-26 State Budget Impact Food Assistance?

The state budget maintains previous commitments to food assistance programs, but does not make new ongoing investments to directly mitigate the harm caused by the federal cuts. Specifically, the state budget:

• Maintains the implementation timeline to expand the California Food Assistance Program (CFAP) to eligible adults ages 55 and older, regardless of immigration status, starting October 2027.
• Provides a total one-time investment of $60 million to the CalFood program, which helps food banks purchase California-grown food.

What Should State Policymakers Do Next?

State leaders can take bold and proactive steps to ensure Californians in need can receive food assistance and mitigate harm caused by federal cuts. Recommended actions include:

• Investing in systems that reduce the SNAP/CalFresh payment error rate. There is a small window of time before the state will need to pay for a portion of CalFresh benefits. In order to minimize and even eliminate its liability, the state would need to reduce its FFY 2024 payment error rate of 10.98% to below 6% for either FFY 2025 or FFY 2026. The state can take swift action by investing in processes that streamline eligibility and benefit determinations to minimize overpayments and underpayments. If these investments are made before FFY 2027, the state could take advantage of the current 50% federal match for administrative funding to partly cover the costs. Administrative funds used after the start of FFY 2027 will only receive a 25% federal reimbursement.
• Ensuring a seamless transition of newly SNAP-excluded immigrants to CFAP. The California Food Assistance Program (CFAP) has been a key instrument in providing food assistance to certain noncitizens in California who are ineligible for SNAP. Given the new expanded immigrant restrictions, state leaders should ensure people do not lose their benefits by facilitating their transition to CFAP assistance.
• Preserving current commitments to food assistance. The recently enacted state budget preserves the commitment to expand CFAP. However, the implementation timeline has already been delayed before and was further at risk in earlier budget proposals. Ensuring the CFAP expansion moves forward as planned will help many Californians avoid hunger. Additionally, other essential programs like universal school meals, SUN Bucks, and CalFood, while not a replacement for CalFresh, can help fill gaps for families. Continuing to invest in these programs can help mitigate food insecurity.

Immigrants

California is home to the largest share of immigrants in the US and immigrants are an integral part of California’s social fabric, pay taxes, and contribute to its economic success. Over half of all California workers are immigrants or children of immigrants, and the more than 2 million Californians who are undocumented make significant contributions to state and federal revenues, contributing $8.5 billion in state and local taxes in 2022 in addition to a significant amount of federal taxes, despite their exclusion from most public benefits.

How Does the Federal Budget Bill Affect Immigrants in California?

Federal cuts and other harmful policies targeting immigrants will have severely harmful effects on families, communities, and the state’s entire economy. The federal budget act deprives children and families of nutrition and health care, while supercharging an immigration enforcement agenda that threatens constitutional protections. It provides billions in largely unrestricted funds for the Trump Administration’s immigration enforcement agenda and presents a generational threat to democratic rule of law, community safety, and local economies across the country. Here are some of the major impacts in California.

The federal budget act:

• Increases fear and danger for millions of Californians who are immigrants and their children, as over $170 billion in unrestricted funds are directed to immigration enforcement, with detrimental effects on families, communities, and the state’s entire economy. Restrictive and harsh immigration policies negatively impact how immigrants interact with public services and institutions through a “chilling effect,” result in negative health and financial outcomes, and harm key industries like housing, farming and food production, and caregiving. This unprecedented increase in enforcement would also negatively impact US-born workers: immigrants generate jobs for US-born workers directly as entrepreneurs and indirectly, as research has shown that for every 13 foreign-born workers who leave the labor force because of direct removals and the chilling effect of deportations, 10 US-born workers lose their jobs.
• Takes away Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) from certain groups of immigrants, including refugees, asylees, and some survivors of domestic violence and sex trafficking. Since workers contribute to Medicare through taxes from their paychecks, this means the federal budget act will take away health care from people who have paid for and earned this benefit, effective January 2027 (see Health Care section). The elimination of Medicaid and CHIP eligibility for many groups of immigrants is effective October 1, 2026.
• Bars certain groups of immigrants from qualifying for subsidies that help people afford health insurance in Covered California, effective January 1, 2026 (see Health Care section).
• Takes away SNAP food assistance — CalFresh in California — from immigrants who are not naturalized citizens or do not hold a green card. This means most refugees as well as immigrants who are trafficking survivors or survivors of domestic violence will be excluded from federal nutrition assistance. CalFresh benefits are completely funded by the federal government, so without state action to ensure access to state-funded benefits, this provision cuts off immigrants from a key tool to put food on the table for themselves and their families. There is no date specified for this provision so no action will be taken until implementation guidance is provided.
• Creates harsh and inequitable tax rules for immigrant filers and their US citizen family members. The federal budget act excludes nearly 460,000 US citizen and legal resident children in California from the Child Tax Credit if neither of their parents has a valid Social Security Number (SSN), even though these parents collectively pay billions in taxes every year (see Tax Policy section). This provision is effective starting in the 2025 tax year. It also prohibits immigrants without SSNs from receiving tax credits for college students, effective beginning in tax year 2026. And the law takes away Premium Tax Credits — which help people afford health coverage — from immigrants with certain legal statuses, including but not limited to refugees, asylees, and survivors of domestic violence and trafficking, effective January 1, 2027. The new law also imposes a 1% tax on remittances that US residents send abroad, increasing the costs for people sending support to family in other countries or encouraging them to send money through less secure means. While the tax applies to people sending remittances regardless of immigration status, it is a policy that is clearly aimed at discouraging immigration and making life more difficult for immigrants and their families. The new tax will be applied to transfers beginning in 2026.

What Are the Additional Federal Threats to Immigrants in California?

Since President Trump took office, he and his administration have taken additional actions outside of the federal budget act that threaten the safety of immigrants and their ability to survive. The legality of these actions continues to be challenged. Specifically, the Trump administration has:

• Reclassified programs as federal public benefits, which restricts these programs to “qualified immigrants.” Recent notices by the Department of Health and Human Services (HHS), Department of Education (ED), and the Department of Labor (DOL) reclassify several programs as federal public benefits, restricting eligibility to certain “qualified” immigrants, thus rescinding access to programs that many immigrant populations rely on to support themselves and their families. Another notice by the Department of Agriculture (USDA) gives states the option to reclassify programs in this way (see Food Assistance section). These notices threaten the ability of immigrants to access programs like food banks, Head Start, and Career and Technical Education (CTE) programs, and impact many groups of immigrants that were not previously subject to restrictions, such as individuals with temporary protected status and survivors of trafficking or domestic violence. Although these changes have all now taken effect immediately, they will all also require additional federal guidance to be effective. An additional order from the Department of Justice (DOJ) — effective August 15, 2025 — could also restrict many groups of immigrants from accessing services that are “necessary to protect life or safety.” Previously, these services were exempt from eligibility restrictions for immigrants, but that exemption has now been withdrawn. While it is not yet clear which services will remain available regardless of immigration status, it is clear that the Trump administration is continuing to take steps that threaten the ability of many groups of immigrants to access services such as those for survivors of violence and abuse and those needing mental health and substance use treatment.
• Agreed to share personal data of Medicaid enrollees with Immigration and Customs Enforcement (ICE) officials. This agreement between the Centers for Medicare and Medicaid Services and the Department of Homeland Security means that the US Department of Health and Human Services has now begun sharing private personal medical data of the 79 million Americans enrolled in Medicaid — which includes nearly 15 million Californians enrolled in Medi-Cal — with ICE. This includes sensitive personal information such as home addresses and racial and ethnic information. The purpose of this data sharing agreement is explicitly to track down immigrants who may be undocumented. This unprecedented breach of medical privacy threatens the ability of immigrant Californians, especially those who are undocumented, from seeking care for fear of deportation. Immigrant Californians will now be put in impossible positions where they may delay emergency medical care because they fear for their own safety, which will lead to worse health outcomes and jeopardize the lives and health of communities.

How Does California’s 2025-26 State Budget Impact Immigrants?

Unfortunately, at a time when the federal government is actively working to dismantle the rights and protections for immigrants, California is also cutting funding for key programs serving immigrants. Specifically, the 2025-26 state budget:

• Halts access to health programs for undocumented immigrants. The state budget implements an enrollment freeze for full-scope Medi-Cal expansion for undocumented immigrants ages 19 and over starting January 1, 2026, eliminates dental benefits for undocumented and certain other groups of immigrants beginning July 1, 2026, and implements a $30 monthly premium for undocumented immigrants and certain other groups of immigrants already enrolled in Medi-Cal starting on January 1, 2027.
• Does not include funding to bolster the safety net for California workers who lose their jobs and are undocumented, such as ensuring these workers can access unemployment insurance benefits.
• Includes only modest increases to legal services programs. The governor and legislators approved $25 million to defend immigrants against deportation, detention, and wage theft in a special session earlier this year, and the enacted state budget included $10 million increases each for two immigration legal services programs. However, given the threats immigrant communities are already facing and the large increase in funding for immigration detention and deportation, additional funding for immigration legal services is urgently needed.

What Should State Policymakers Do Next?

State leaders can take additional action to ensure the safety of immigrants in California and maintain prior commitments to making an equitable state for everyone, regardless of immigration status. Recommended actions include:

• Increase funding for legal services to protect and support immigrants at risk of deportation. Advocates and state policymakers called for an additional $60 million in funding for legal services programs to protect the safety and rights of the state’s immigrant communities, and this was before the large increase in federal funding for immigration enforcement.
• Continue to take legal action against the federal government to protect immigrant Californians from federal overreach and actions that threaten the lives, rights, and freedoms of immigrants. In a special session earlier this year, legislators and the governor approved $25 million in funding for legal resources to protect Californians against federal threats, and the state should continue to draw on this funding to protect against federal threats.
• Uphold previous commitments to health care for all. The state budget reverses years of progress towards health care for all regardless of immigration status. This harmful decision threatens the health and lives of immigrants in the state. It is critical now more than ever that California ensures the safety and well-being of all people, especially undocumented immigrants who are under attack by this hostile federal administration. State leaders should reverse their cuts and barriers to health care for undocumented Californians and other groups of immigrants.
• Ensure a seamless transition of newly SNAP-excluded immigrants to the California Food Assistance Program (CFAP). Given the new expanded immigrant restrictions in SNAP, state leaders should ensure people do not lose their benefits by facilitating their transition to CFAP assistance.

Tax Policy

Having sufficient tax revenues is critical for the federal and state governments’ ability to adequately fund programs and services benefiting households who are struggling financially and lack access to affordable health care, housing, food, and other necessities. One of the key motivations for the newly enacted federal budget package was to extend and expand the massive tax cuts provided in the 2017 Trump tax law, as most of the provisions impacting individuals and families were slated to expire at the end of 2025. With the newly enacted budget bill, federal leaders not only made permanent many costly provisions of the 2017 tax cuts that mostly benefit high-income people and provided additional tax cuts for corporations, they also used the high costs of the tax cuts to justify cruel cuts to health care, food assistance, and other benefits.

How Does the Federal Budget Bill Affect Taxes in California?

In total, the tax provisions of the new law will cost the federal government nearly $4.5 trillion in lost revenue over 10 years. The largest portion of those cuts will go to the richest Americans as well as large corporations. Additionally, the new law continues to leave out millions of low-income families from fully benefiting from the Child Tax Credit, strips the credit away from additional children in mixed-status families, and excludes immigrants from additional tax benefits.

Taking all the tax provisions together, the richest 5% of Americans will receive more than 40% of the total tax cuts. Meanwhile, the bottom 20% of Americans will receive less than 1% of the tax cuts, and the meager tax benefits received by low-income families will be wiped out by the impacts of tariffs and cuts to health and food assistance programs.

In California, the richest 1% (about 200,000 households with incomes above about $1 million) will receive an average tax cut of more than $35,000 in 2026, while the lowest-income 20% of Californians (nearly 4 million households with incomes below $31,000) will get just $100 on average. Again, this small benefit for low-income families is not nearly enough to offset the cost of price increases related to President Trump’s tariff policies or the cuts to basic needs programs that will harm many of these families.

Among its many tax provisions, the reconciliation bill will:

• Continue to exclude at least 2 million children with low incomes in California from receiving the maximum Child Tax Credit — a proven tool for improving economic security — simply because their families’ income is too low. The law permanently increases the maximum credit to $2,200, but this increase will only benefit moderate-to-higher income families, while leaving out families who are most in need.
• Take the Child Tax Credit away from mixed-status families where at least one parent doesn’t have a valid Social Security Number beginning with the 2025 tax year, which will increase child poverty. In California, nearly 460,000 children who are citizens or permanent residents will lose access to this income-boosting credit. This is in addition to the over 200,000 children who were already excluded from the credit under the 2017 tax cuts because they lack Social Security Numbers — an exclusion made permanent by the new law.
• Bar some immigrants and mixed status families from other tax benefits, including taking away tax credits that help students and their families afford higher education — the American Opportunity Credit and Lifetime Learning Credit — from tax filers who don’t have Social Security Numbers beginning with the 2026 tax year, and taking away Premium Tax Credits — which help people afford health coverage — from immigrants with certain legal statuses including but not limited to refugees, asylees, and survivors of domestic violence and trafficking beginning in 2027.
• Take a step toward dismantling the IRS Direct File program, a free tax filing option that was piloted in states including California in 2024 before being expanded. California has taken steps to integrate its existing free state filing system, CalFile, with Direct File in 2026 to make federal and state tax filing easier for Californians. While the final federal law does not eliminate the program entirely, it will create a task force on replacing Direct File.
• Give corporations and other businesses $165 billion in new tax breaks in 2026 alone, costing around $1 trillion over 10 years.
• Permanently gut the federal estate tax, allowing wealthy families to pass up to $30 million to their heirs tax-free, perpetuating wealth inequality and the racial wealth gap. Only 743 very large California estates were subject to the tax in 2022, and with the passage of this bill, a similarly small share of extremely wealthy families will be responsible for paying the tax.
• Permanently extend and make more generous a tax break for business income that disproportionately benefits rich households, who are most likely to have this kind of income. More than half of the tax benefits from this so-called “Qualified Business Income (QBI) deduction” or “pass-through deduction” go to millionaires. White families are also most likely to benefit from this deduction — a US Treasury department study estimated that 90% of the tax benefits go to white families. In California, the deduction was claimed by 70% of tax filers with incomes of at least $1 million in 2022, compared to just 11% of filers with incomes below $100,000.
• Make the 2017 bill’s “Opportunity Zone” program permanent, with modifications. The program provides tax breaks for individuals and businesses that make investments in low-income areas. The direct tax benefits go mostly to the wealthy, while there is little indication that the program has resulted in benefits for members of the affected communities. Most of the investment that has occurred has been in real estate developments such as market-rate housing and commercial developments in communities that were already showing signs of economic improvement — and there is no evidence that the investments have resulted in new job opportunities, more affordable housing options, or other benefits for low-income residents of Opportunity Zone communities. The new law changes the definition of eligible communities to focus more on lower-income neighborhoods, while newly including rural communities and offering more generous incentives for investments in rural communities. However, the law doesn’t include any provisions that would increase the likelihood of investments in the types of projects that would actually improve the lives of low-income residents of the targeted communities.
• Phase out tax credits for electric vehicles and renewable energy created by the Inflation Reduction Act, which will slow progress on combating climate change, reduce clean energy jobs, and increase household energy costs.
• Create temporary tax deductions for tips, overtime pay, and auto loan interest — populist-sounding policies proposed by President Trump to distract from how much the overall tax and budget package is skewed to the rich. These policies may provide some modest benefits to some workers and families, but are poorly targeted tools to help lower-income families. Tax deductions by definition leave out people who don’t owe any federal income tax because their incomes are too low, and the deductions for tips and overtime pay leave out low-paid workers who don’t have income from tips or overtime pay while encouraging exploitation of workers by employers. These deductions will expire after the 2028 tax year if not renewed by Congress.

How Does California’s 2025-26 State Budget Impact Taxes and State Revenues?

Despite the significant damage that the federal budget and tax package will do to California’s budget and California residents and the massive tax cuts that it will give to wealthy people and corporations, the enacted 2025-26 state budget package does not take steps to significantly increase state revenues to mitigate the harms that will be felt acutely by many Californians.

The tax policy changes included in the June budget package are in line with those proposed in the governor’s January proposal, and include:

• A more than doubling of the total allocation of tax credits for the film industry, from $330 million annually to $750 million annually for fiscal years 2025-26 through 2029-30. This expansion is estimated to cost $15 million in 2025-26, increasing to $209 million in 2028-29 and peaking after that.
• A change in the way banks are taxed, which is estimated to increase state revenues by $330 million in 2025-26 and by around $250 million or more in future years.
• A partial exclusion of military retirement income from taxable income, expected to reduce state revenues by $130 million in 2025-26 and by around $80 million in future years.
• An exclusion of settlement payments related to wildfires from taxable income for settlements received anytime from 2021 through 2029, estimated to reduce state revenues by $28 million in 2024-25, by $15 million in 2025-26, and by about $17 million across the rest of the exclusion period.

What Should State Policymakers Do Next?

Given the immense harms that will be done as a result of the recently enacted federal budget bill, state leaders must develop plans to significantly raise state revenues — particularly from the corporations and wealthy individuals that stand to gain the most from the federal tax cuts — in order to balance the state budget and protect California residents that are vulnerable to serious harms from the federal cuts to health care, food assistance, and other federal policies. State leaders can start by:

• Closing the “water’s edge” loophole that allows large multinational corporations to avoid billions in state taxes by shifting their domestic profits abroad into tax havens.
• Increasing the tax rate on the most profitable corporations, which represent a small share of corporate tax filers but reap the vast majority of profits and are subject to the same tax rate as smaller, less profitable corporations.
• Tightening and making permanent limitations on corporate tax credits so that corporations cannot use stockpiled tax credits to wipe out their taxes, including the additional taxes they would owe from other corporate tax reforms.
• Exploring options to recapture a share of the federal tax cuts that high-income and high-wealth households are receiving at the federal level, such as increasing top income tax rates and pursuing reforms to better tax the wealth these households have accumulated.

Early Childhood & Education

Children’s education begins in their earliest years, creating a pipeline into K-12 and onto higher education. All educational programs play a critical role in the development, learning, and well-being of children in California. Investing in youth from cradle-to-career helps to ensure that young children are prepared for school and life, promoting academic success for children through higher education. Multiple federal actions are already harming cradle-to-career programs, jeopardizing the existence and sustainability of these important programs.

How Does the Federal Budget Bill Affect Early Childhood and Education in California?

The federal budget bill will harm California students and the systems that serve those students. As detailed in the Health and Food Assistance sections, millions of Californians, including students across the educational pipeline, will potentially lose access to food and essential services that allow them to attend school and learn. The main direct threat to TK-12 education is a national school voucher program to expand private schools and  weaken public education in states across the country. The final version of the bill, however, largely limits the reach of a national school voucher program by making it optional for states to participate in it. It is highly unlikely that California leaders would choose to participate, but there’s likely to be ongoing pressure from supporters of school vouchers for California to sign on to this damaging policy change.

The federal budget bill will mostly impact higher education by making it harder for students to finance their degrees and repay their loans, including:

• Making several changes to student loan programs, particularly for graduate students. Starting July 1, 2026, the Graduate PLUS loan program will be eliminated. This program helps graduate and professional students cover costs not covered by other aid. Additionally, the federal law sets limits on loans for graduate and professional students: $20,500 per year and a total limit of $100,000 for graduate students, and $50,000 per year and a total limit of $200,000 for professional students. Total loan amounts for all borrowers will also be capped at $257,500 and will include loans already paid or forgiven. These limits will impact many students, especially those pursuing high-cost degrees such as medicine and law. In California, given that the total cost of attendance for students across all segments has increased rapidly, students may need to rely on private loans or choose not to pursue their degree.
• Drastically overhauling the federal student loan repayment system. For new loans issued after July 1, 2026, borrowers will have just two repayment options: a new fixed-payment option called the “standard” plan and a new income-based plan called “Repayment Assistance Plan” (RAP). Current borrowers may remain in existing plans or opt into RAP. Limits to repayment options will likely cause financial hardship for the nearly 4 million Californians who carry student debt.

What Are the Additional Federal Threats to Early Childhood & Education in California?

Republicans may also try to make additional spending cuts to non-defense “discretionary” programs that are funded through the annual appropriations process. Unlike with budget reconciliation, Democrats have leverage in the appropriations process because they can use the filibuster to block action in the Senate, which requires 60 votes to end. This means that decisions on discretionary spending require bipartisan support in order to be approved by Congress. Additionally, since President Trump took office, he has withheld  funding from key programs. The legality of these actions continues to be challenged. Key federal threats to early childhood and education programs outside of the reconciliation process are as follows:

• The president’s administration continues to unlawfully withhold more than $5 billion for TK-12 programs. On June 30, 2025, the US Department of Education sent letters to states that the funding they were expecting on July 1 would not be disbursed due an internal review. These funds had  already been approved by Congress in March for 2025. The harm of the freeze has been immediate, forcing school districts to make adjustments to their budgets for the upcoming school year. Impacted programs support English learners, migrant students, and teacher professional development — funding for afterschool programs was initially frozen and released to states as of July 18. The withholding of these funds created a funding gap of nearly $1 billion for California, impacting school districts’ budgets and the nearly 6 million students across all regions of the state.
• The administration is looking to reduce federal education funding by 15%. The president’s budget proposal would impact roughly $6 billion in funding to states as it would eliminate a number of programs, including funding supporting English language learners, migrant education, teacher preparation and professional development, community schools, among others. This budget proposal also includes cuts to higher education, particularly for programs that help students pay for college. It proposes eliminating the Federal Supplemental Educational Opportunity Grant (FSEOG) and significantly reducing the Federal Work-Study (FWS) program. The proposal would also reduce the maximum Pell Grant award by nearly $1,700 from the current fiscal year. In California, Pell Grant awards support 818,000 students across California’s higher education institutions.
• The president’s budget request proposes to eliminate the Child Care Access Means Parents in Schools (CCAMPIS) program. CCAMPIS provides funding to several institutions of higher education to help student parents with low incomes afford child care. In federal fiscal year (FFY) 2023, CCAMPIS awarded grants to 44 institutions of higher education in California, totalling $16.6 million to support California’s student parents afford child care.
• Additionally, the president’s budget request puts funding at risk for preschoolers with disabilities. Specifically, the budget request proposes to consolidate the Individuals with Disabilities Education Act (IDEA) Part B for Preschool into IDEA Part B School Age. In FFY 2024, $420 million was appropriated for IDEA Part B for preschool-age children. In FFY 2026, this appropriation would be zeroed out for preschool-age children and instead moved into the school-age group. As a result, there would be no guarantee that preschool-age children with special needs would receive IDEA resources if the president’s proposal becomes law.
• The notice from Health and Human Services (HHS) regarding the interpretation of “federal public benefit” (see Immigrants section) undermines access to Head Start/Early Head Start. Specifically, this notice impacts certain immigrants’ ability to access these effective early learning programs as well as promotes a chilling effect that may result in qualified immigrants choosing not to enroll in Head Start/Early Head Start. The implementation of this notice may be delayed by challenges in court.

How Does California’s 2025-26 State Budget Impact Early Childhood & Education?

The 2025-26 state budget provides additional context for understanding how California’s early childhood and education programs are impacted by federal actions. Key state budget actions are outlined as follows:

• The 2025 enacted budget maintains TK-12 education programs. Estimates of Proposition 98, which funds TK-12 education and the community colleges, set the minimum funding guarantee at $114.6 billion for 2025-26. This funding guarantee and budgetary actions allows the state to fulfill existing commitments, including fully funding a 2.3% cost-of-living adjustment for the Local Control Funding Formula and other programs and carrying out program expansion such as Universal Transitional Kindergarten and expanded learning. Additionally, the budget provides a significant amount of one-time funds to schools, including $1.7 billion for a new discretionary block grant that will go out to school districts based on a per-pupil calculation.
• The state budget defers additional funding commitments for the state’s university systems to future years. The final agreement includes deferrals of 3% of base funding for the California State University (CSU) and University of California (UC). The 3% in deferrals translates to $144 million for the CSU and $130 million for the UC.  These deferrals are in addition to the deferred funding commitment the state was not able to meet as part of the compacts with the two university systems. While these budgeting strategies help close overall budget shortfalls, it adds pressure to future budgets starting in 2026-27. Additionally, deferrals create uncertainty for the two systems which further complicates their budgets given ongoing attacks from the federal government.
• Funding increases and other budget actions allow the state to meet financial aid caseloads. The enacted budget provides more than $323 million in ongoing and one-time funds across the budget window to meet an increased number of students eligible for Cal Grant awards. The budget also makes the Middle Class Scholarship more predictable for students by setting fixed award levels and ensuring colleges get the funds they need on time.
• The state continues to delay the process of finalizing and implementing a child care provider payment system based on the true cost of care. While the 2025-26 budget agreement includes a $59.4 million increase (ongoing) for a child care provider cost-of-living adjustment, no contract agreement was reached with Child Care Providers United (CCPU). CCPU represents family child care and family, friend, and neighbor providers (i.e., home-based providers), and their contract expired on July 1, 2025. Without a new contract, the same contract terms from the expired contract remain in place. Therefore, until a new agreement is reached, home-based providers will not see an increase in their rates, despite what is in the budget agreement. This stalemate puts additional strain on an already fragile early childhood system and perpetuates historical inequities rooted in racism and sexism.

What Should State Policymakers Do Next?

Given federal actions, the state has an opportunity to mitigate harm to early childhood and education programs. Recommended state actions are as follows:

• Continue to maintain a commitment to resource equity in the education budget. The state has made progress in establishing programs that increase educational opportunity for students in California for those that need it the most. Given ongoing federal attacks on California’s TK-12 funding, state solutions should not involve cuts to programs to backfill lost federal funds, and that involves continuing to pressure the federal government to fulfill their commitments. 
• Accelerate efforts to make college more affordable for Californians. The limits on student loans and fewer options to loan repayment will reduce opportunities to finance a postsecondary education. While the state budget maintains current financial aid caseload levels, it does not address longstanding affordability issues, which may worsen as a result of federal actions. State leaders could revisit Cal Grant reform as they plan for future budgets to mitigate the harm coming for the federal government on college affordability and access.
• Maintain health care and retirement benefits for home-based providers and resume CCPU negotiations. Given the harms to health care and exacerbation of income inequality resulting from the recently enacted federal bill, maintaining these benefits for home-based providers participating in the state child care subsidy system is paramount to ensuring that providers can meet their own basic needs.
• Fulfill commitment to add 44,000 new subsidized child care spaces in the 2026-27 budget agreement. The 2024-25 budget committed to a timeline for fulfilling the promised 200,000 new subsidized child care spaces promised in 2021. Subsidized space expansion has been on pause for the last three years, with expansion expected to resume in 2026 with 44,000 slots. Given the threats to child care in recent federal actions, it is critical for the state to fulfill this commitment.

Housing & Homelessness

Over half of California’s 6 million renter households face unaffordable housing costs. This reality is especially true for low-income families with children, older adults on fixed incomes, and workers whose wages haven’t kept up with rising expenses. When rent takes up most of a paycheck, essentials like food, child care, gas, and medical care fall out of reach. These pressures contribute to the scale of homelessness in the state, with more than 350,000 Californians experiencing homelessness receiving support from service providers last year. Yet despite great need, state and federal leaders prioritized cuts to housing, food, and medical benefits — leaving many with even fewer resources to stay healthy and housed.

How Does the Federal Budget Bill Affect Affordable Housing in California?

The federal budget act makes key changes to the federal Low-Income Housing Tax Credit (LIHTC) program starting in 2026. LIHTC is a core tool for financing affordable housing in California, and while the changes will support more development, they fall short of meeting the state’s overall housing needs. They also come alongside cuts to essential safety net programs that will harm families and leave them struggling to afford other basic necessities, including housing.

Key federal LIHTC changes include:

• A permanent 12% increase in the 9% LIHTC allocations, which are typically used for new construction and cover about 70% of eligible project costs. 
• A permanent reduction in the bond financing threshold from 50% to 25% for the 4% LIHTC, which is commonly used for acquiring and rehabilitating buildings.

In practical terms, California will have more tax credits to allocate, which will help fund more affordable housing, but this increase will only cover a very small portion of the 2.5 million affordable homes the state needs. Plus, these gains can be undermined if they come at the expense of the very basic necessities that the same low-income families rely on to survive. Even if Californians may have a chance to access affordable housing, higher out-of-pocket costs for essentials like health care and food will leave them worse off.

The federal budget act also modifies and extends the Opportunity Zones program which provides federal tax breaks for long-term investments in designated low-income neighborhoods through projects such as housing and small businesses. While the program was intended to bring investment into these communities, the results have been mixed. Much of the housing built in these zones has been market-rate since there are no housing affordability requirements tied to the tax benefits (see Tax Policy section).

What Are the Additional Federal Threats to Housing and Homelessness in California?

Republicans may also try to make additional spending cuts to non-defense “discretionary” programs that are funded through the annual appropriations process — which include key affordable housing, rental assistance, and homelessness programs. Unlike budget reconciliation, Senate Democrats have leverage in the appropriations process because they are able to use the filibuster to block action in the Senate, which requires 60 votes to end. This means that decisions on discretionary spending require bipartisan support in order to be approved by Congress. Additionally, since taking office, President Trump has withheld funding from key programs, and the legality of those actions is being challenged in court.

However, federal threats to key affordable housing and homelessness programs outside of the reconciliation process remain. The House Appropriations Committee approved its FFY 2026 Transportation, Housing, and Urban Development (THUD) spending bill on July 16. The Senate Appropriations Committee will be considering its own version of the spending bill. The House bill allocates $67.8 billion to HUD, a $939 million decrease from FFY 2025. This could mean cuts to already underfunded programs for rental assistance, affordable housing, and community development. In some cases, maintaining the funding level from the previous year is proposed, which amounts to a cut in real terms due to rising housing and maintenance costs. Key concerns include:

• Cuts for Tenant-Based Rental Assistance which currently only serve 1 in 4 eligible households and maintains the same funding from FFY 2025 to renew existing Housing Choice Voucher contracts. Housing vouchers will be lost if funding is cut or maintained at a flat level.
• Fails to include ongoing or increased funding to fully integrate Emergency Housing Vouchers recipients into the Housing Choice Voucher program which serves 15,000 Californians.
• A small funding increase to Homeless Assistance Grants — which fund the Continuum of Care program and Emergency Solutions Grants that support homeless services in California — falls short of meeting the scale of homelessness or investing in permanent solutions.
• A proposal to give HUD broad authority to allow local housing agencies to increase rents and impose time limits and work requirements on families and individuals receiving assistance.

How Does California’s 2025-26 State Budget Impact Housing and Homelessness?

The 2025-26 state budget provides limited, one-time allocations for affordable housing and homelessness — signaling that lawmakers continue to sideline core issues at the heart of California’s affordability challenges. This year, policymakers focused on reforms to increase housing production through reducing construction time, streamlining, and state administrative coordination. This is primarily through reforms to reduce construction timelines by making the California Environmental Quality Act (CEQA) optional for many urban projects and establishing a new California Homelessness and Housing Agency, effective July 2026. In addition to these legislative reforms, the 2025-26 budget includes the following:

What Should State Policymakers Do Next?

California must lead with strong, sustained state investments to protect progress and meet urgent housing needs of communities across the state — especially at a time when local governments, service providers, and affordable housing developers face growing uncertainty due to depleting state funds and proposed federal cuts. 

California has the resources to ensure ongoing funding for homelessness services and affordable housing development so that all Californians have a safe, stable place to call home. Focus should remain on funding and promoting real, compassionate solutions that aren’t rooted in criminalization, discrimination, or further displacement of unhoused Californians. Proactive efforts can also ensure renters have the protections and resources they need to stay housed, especially during economic hardship or when federal supports are at risk.

Resource Roundup

The Budget Center and our partners have produced a number of key resources that provide additional analyses and details on the impacts of the federal budget  bill. Select resources are listed below. Please see our Federal Policy page for all federally focused publications. Key partner resources summarizing and highlighting the impact of the recently passed budget bill are listed below.

General information about the recently passed federal budget bill

• Federal Funds Information for States (FFIS) Summary of the One Big Beautiful Bill Act
• FFIS Spreadsheet of Key Program Changes and Cuts

Resources related to SNAP

• Urban Institute’s Analysis of SNAP in the Senate Bill
• Center on Budget and Policy Priorities (CBPP) Analysis of Work Requirements and SNAP

Resources related to Medicaid

• Kaiser Family Foundation (KFF) Analysis of Federal Medicaid Spending Reductions
• CBPP’s Analysis of Work Requirements and Medicaid

Resources related to tax policies

• Institute for Taxation and Economic Policy (ITEP) Analysis of Tax Provisions in the One Big Beautiful Bill Act

Resources related to housing and homelessness

• National Low Income Housing Coalition Analysis of House Appropriations Committee Draft FY26 Spending Bill