Issue Brief Archives

key takeaway

California’s behavioral health system depends on Medi-Cal to serve adults and children. Changes under H.R. 1 threaten Medi-Cal’s core funding and eligibility, putting at risk the state’s investments in behavioral health and housing and leaves more Californians without access to needed care.

California has made historic progress in transforming its behavioral health system, ranging from expanding access, integrating care, and linking success with housing and community supports. But looming federal cuts to Medi-Cal (California’s Medicaid program), enacted under H.R. 1 — the harmful Republican mega bill — threaten to strip care away from children, youth, adults, and older Californians, causing lasting harm and long-term costs for California communities.

More than one in three Californians rely on Medi-Cal for essential health care, including life-saving behavioral health services, which encompass mental health care and substance use disorder treatment. These services are critical at every stage of life — from school-based mental health services for kids to care for adults navigating trauma, chronic illnesses, or recovery.

Yet, H.R. 1 has implemented Medicaid cuts, harmful red tape and administrative barriers, and discriminatory restrictions based on age or immigration status, undermining the very foundation of care millions of Californians need.

The erosion of coverage and Medi-Cal funding restrictions could also destabilize the major interconnected behavioral health reforms state leaders have advanced in recent years, such as CalAIM, BH-CONNECT, the Children and Youth Behavioral Health Initiative, and the voter-approved Behavioral Health Services Act (BHSA), each of which heavily rely on leveraging federal dollars.

As Medi-Cal enrollment is poised to decline, the effects will be felt across California’s behavioral health system and these key reforms. Counties and health providers will lose critical Medi-Cal reimbursements that sustain community-based services, which will lead to weakened capacity and even more forced reductions in care. In practice, H.R.1 threatens to erode the behavioral health system from both sides — reducing coverage while stripping away the funding needed to continue serving those who remain — leaving Californians with mental health and substance use needs with even fewer pathways to treatment.

These harmful consequences also extend beyond health care. Federal cuts and restrictions will weaken California’s homelessness response by making it harder for unhoused people with behavioral health needs to access and maintain Medi-Cal funded services that help them find and keep stable housing. They may also impair the state’s ability to pair state funds with federal dollars to bridge behavioral health and housing supports, disrupting the continuity of care and housing for many.

Ultimately, as Medi-Cal faces deep reductions, with millions of people poised to lose coverage, so too will the services that support Californians’ health, housing, and well-being. This report provides an overview of who California’s behavioral health system serves, why Medi-Cal is integral to its success, and how the Republican mega bill, H.R.1, could undermine key state reforms. As state leaders confront these challenges, it’s critical for policymakers to protect proven policies, reduce harm, and ensure all Californians receive the essential care they need to be healthy and thrive.

Behavioral Health Care Needs Across Ages for Californians
Republican Mega Bill H.R. 1 Threatens Californians’ Access to Behavioral Health Care
Federal Financing Restrictions Undermine Behavioral Health Services
H.R. 1 Eligibility Changes Will Limit Behavioral Health Coverage for Californians
Federal Changes Put Interconnected State Behavioral Health Initiatives At Risk
State Leaders Can Act to Protect Californians’ Right to Comprehensive Behavioral Health Care

Key Terms

Any mental illness

Medi-Cal Specialty Mental Health Services

Serious emotional disturbance

Serious mental illness

Californians of All Ages and Backgrounds Need Behavioral Health Care

Medi-Cal is the foundation of California’s behavioral health system, providing mental health and substance use treatment for Californians of all ages. In 2023, over half of all people enrolled in Medi-Cal — roughly 8.25 million people or every 1 in 5 Californians — accessed mental health services.

Adults

Nearly 1 in 5 California adults experience some form of mental illness, and about 1 in 20 have a serious mental illness that makes it difficult to carry out daily activities. Substance use disorders are also notable, affecting roughly 1 in 6 adults in the state. However, these conditions often overlap, with 1 in 14 California adults experiencing both a mental illness and a substance use disorder. People with co-occurring conditions often face greater barriers to care and benefit most when services are integrated and address both needs together. In 2021-22, nearly 345,000 adults over the age of 21 had at least one Medi-Cal Speciality Mental Health Services visit, reflecting how essential Medi-Cal has become in serving Californians with the most acute need to care.

For adults experiencing homelessness who have a behavioral health condition, Medi-Cal is often the only pathway to consistent care and stability. Among unhoused Californians, roughly 75% were covered by Medi-Cal, although even more are likely to qualify. Data quantifying the number of unhoused people with behavioral health conditions are not precise, but there is strong evidence that homelessness can trigger or worsen mental health conditions and push people toward coping behaviors like substance use. The UCSF Statewide Study of People Experiencing Homelessness found that over 80% of participants had experienced a mental health condition for a significant period of time that impaired their life function, mainly anxiety or depression, and nearly 65% reported using substances regularly at some point. These issues often co-occur, but the full extent is not reported.

Children and Youth

Medi-Cal covers every 3 in 7 California children, providing critical behavioral health care for those facing anxiety, depression, or trauma. In 2021-22, 5.8 million children and youth under the age of 21 were eligible for Medi-Cal Specialty Mental Health Services in California, and more than 246,000 received care. In 2024-25 alone, California schools received over $1 billion in Medi-Cal payments for services rendered to students, which includes school-based mental health services.

Still, the need continues to grow. Previous research shows that 1 in 14 children has an emotional disturbance that limits daily functions, a figure likely higher today given the lasting effects of the COVID-19 pandemic on children’s mental health. A recent survey found that 94% of Gen Z youth reported having mental health challenges in a typical month, with youth of color and LGBTQ+ youth reporting very high rates of stress and fear of discrimination.

These challenges are also not carried equally. Black, Latinx, Native American, and Pacific Islander children and youth face the highest rates of serious emotional disturbances because of the compounding factors that increase the risk of behavioral health conditions. This includes the effects of generational trauma, economic insecurity, barriers to care, and the impacts of historical and ongoing racism and discrimination towards them and their families.

Despite the great need for increased behavioral health services, new cuts and restrictions to Medicaid will limit access to life-saving care.

Portrait of child girl eating on snack time at school

H.R. 1 and the Federal Budget

H.R. 1, the harmful Republican mega bill passed in July 2025, will deeply harm Californians by cutting funding for essential programs like health care, food assistance, and education.

See how California leaders can respond and protect vital supports.

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Recently Enacted Harmful Republican Mega Bill, H.R. 1, Will Impede Californians’ Access to Behavioral Health Care

Medi-Cal is the backbone of public mental health and substance use services in California. Federal matching funds — drawn down through Medi-Cal reimbursements — form the core of financing for behavioral health care, which counties administer and deliver throughout the state.

In July 2025, Republicans in Congress and the Trump Administration enacted H.R. 1, a sweeping law that delivers the deepest health care cuts in U.S. history. The bill slashes roughly $1 trillion from Medicaid over the next decade. For California, the consequences are especially severe. As many as 3.4 million Californians could lose Medi-Cal coverage and the state could lose up to $30 billion in federal Medicaid funding each year.

These cuts will destabilize Medi-Cal and threaten core health services, including behavioral health care, in two major ways. The new law:

Imposes financing restrictions that strip billions of dollars in federal support to states.
Creates eligibility and access barriers that make it harder for Americans to enroll in and keep their coverage.

No matter the mechanism, these changes amount to deep cuts that will ripple across all Medi-Cal services and hit behavioral health care especially hard.

How H.R.1 Financing Restrictions Will Impact Californians with Behavioral Health Conditions

California has long used provider taxes — most notably the Managed Care Organization (MCO) tax — to raise state revenue that is then matched with federal Medicaid dollars. These revenues sustain Medi-Cal and support behavioral health services.

H.R. 1 undermines this model by banning new provider taxes and imposing rules that invalidate California’s current MCO tax structure. The law also caps provider tax rates over time and lowers the federal cap on Medicaid managed care payments, further restricting California’s ability to draw down federal funds.

While not all provider tax revenues are dedicated to behavioral health, Proposition 35 (approved by voters in 2024) earmarks a portion of MCO tax revenue for behavioral health facilities, workforce expansion, and other investments in mental health and substance use treatment. With H.R. 1 now law, these investments are at risk because California’s MCO tax is out of compliance with new federal restrictions.

If provider tax revenues are significantly reduced or eliminated, California will face major budget shortfalls that threaten Medi-Cal coverage and funding streams counties and providers depend on. The result: less revenue, fewer federal matching dollars, and diminished resources for behavioral health care — particularly in communities that already face barriers to treatment.

How H.R. 1 Eligibility and Access Restrictions Will Limit Behavioral Health Coverage for Californians

H.R. 1 introduces sweeping eligibility and access restrictions that will push Californians off Medi-Cal and disrupt reliable coverage for behavioral health services. Losing Medi-Cal coverage could disrupt access to psychiatric medications, counseling, and treatment programs, heightening the risk of crisis, hospitalization, or incarceration. The new law:

Excludes immigrant groups from Medi-Cal coverage. Refugees, asylees, humanitarian parolees, trafficking survivors, and other immigrants previously eligible under humanitarian protections will lose Medi-Cal, which would take away access to Medi-Cal behavioral health care from some of the most vulnerable people in the state.
Imposes burdensome work requirements for adults in the Affordable Care Act (ACA) expansion population, which could result in 3 million adults in California losing Medi-Cal coverage. These reporting requirements create barriers for people with a behavioral health condition who may struggle to maintain steady employment and complete complex paperwork. The barriers posed are especially acute for people experiencing homelessness. While exemptions exist — for example, for individuals considered “medically frail” due to a disabling mental health condition or substance use disorder — it remains unclear how these will be applied or what documentation will be required.
Increasing Medi-Cal eligibility checks for adults in the ACA expansion population, which will make it more challenging for them to maintain their Medi-Cal coverage even if they remain eligible. Disruptions in coverage can interrupt treatment plans and destabilize recovery for people managing chronic mental health or substance use conditions.
Limits retroactive Medi-Cal coverage from 3 months to 1 month for ACA expansion adults and to 2 months for all other adults. This change may leave people who enter treatment during a behavioral health crisis, such as a psychiatric emergency or overdose, without financial protection for care received before enrollment.

Overall, this new law will not only strip health coverage from millions of Californians but also undermine the stability of the behavioral health care system. People with mental health conditions and substance use disorders depend on stable, continuous access to care. Under H.R. 1, more people are likely to lose access to healthcare coverage, experience worse health outcomes, and turn to emergency rooms as substitutes for care.

Note: The ACA expansion population refers to adults under age 65 without dependents who qualify for Medi-Cal based on income (up to 138% of the federal poverty level) and immigration eligibility criteria. California fully implemented this expansion in 2014 under the Affordable Care Act.

The consequences of these cuts to financing, as well as eligibility and access, will have a significant impact on the health care system. As Medi-Cal enrollment declines, so too will reimbursements that counties and providers depend on to sustain behavioral health services. This loss of revenue will weaken provider capacity, reduce the availability of community-based programs, and further strain county behavioral health systems that are already stretched thin.

In effect, H.R. 1 squeezes the system from both sides — fewer people insured and fewer dollars to care for those who remain — leaving Californians with mental health and substance use needs with even fewer pathways to treatment.

H.R. 1 Puts Interconnected State Behavioral Health Initiatives At Risk

H.R. 1 jeopardizes California’s significant behavioral health reforms that were designed to support the state’s most vulnerable residents and are fundamentally dependent on Medi-Cal’s flexibility and federal funding. This includes efforts such as CalAIM, BH-CONNECT, the Children and Youth Behavioral Health Initiative (CYBHI), and voter-approved reforms to the Behavioral Health Services Act (BHSA). Each is a strategic, interconnected effort designed to create a more equitable and coordinated system of care that supports the well-being of vulnerable Californians.

Initiatives like CalAIM and BH-CONNECT rely on federal waivers to use Medicaid funding for flexible purposes such as housing navigation. While the federal government has the authority to rescind or modify waivers or withhold funding, doing so would require navigating complex legal and administrative processes. Plus, such actions could provoke legal challenges from state officials and advocacy organizations.

However, by weakening Medicaid financing and eligibility, H.R. 1 still undermines the financial foundation that makes all of these initiatives possible. It threatens essential supports ranging from intensive case management to in-school mental health services for children to wrap-around housing supports and transitional rent that help unhoused individuals with behavioral health conditions move into stable housing. It also undermines billions of dollars the state has already invested in transforming care and reducing homelessness.

Medi-Cal is the common thread tying together these reforms, making its stability essential to sustaining these supports.

CalAIM’s Homelessness-Ending Housing Supports and the BHSA Rely on Medi-Cal

CalAIM (California Advancing and Innovating Medi-Cal) is targeted to enhance care coordination, improve health outcomes, and address social determinants of health for Medi-Cal enrollees — particularly for those facing complex challenges such as homelessness, chronic medical conditions, and justice system involvement. Two key components of CalAIM are particularly important for serving unhoused or at risk Californians: Enhanced Care Management and Community Supports. Together they ensure robust case management is paired with non-clinical services like housing navigation, security deposits, and transitional rent, interventions proven to help people move into and stay in stable homes.

Between January and March 2025 alone, these supports served 68,000 adults and nearly 13,000 children experiencing homelessness, with providers serving youth nearly doubling. Altogether, nearly 430,000 Californians have accessed CalAIM Community Supports, with 1.1 million services delivered since 2022.

CalAIM Community Housing Supports are also integral to the Behavioral Health Services Act (BHSA), which requires counties to dedicate 30% of their BHSA dollars to housing interventions. Counties must first leverage Medi-Cal housing-related supports before using BHSA funds, making Medi-Cal fundamental to this system. However, if people lose or experience lapses in coverage, or if federal approvals that allow these services to be reimbursed are weakened, the state risks losing the foundation that makes these interventions possible.

BH-CONNECT Strengthens Behavioral Health Care Through Medi-Cal

BH-CONNECT (Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment) builds on the reforms spearheaded by CalAIM to strengthen California’s behavioral health system for Medi-Cal members living with significant behavioral health needs. Approved by the federal government in 2024, it expands community- and evidence-based services for children, youth, and adults with behavioral health conditions, especially for at-risk Californians like those experiencing homelessness, children in the child welfare system, and people leaving institutional care. It also invests in workforce development and incentivizes counties to improve access, outcomes, and system performance.

CYBHI Improves Medi-Cal Behavioral Health Supports for Youth Amid BHSA Shifts

CYBHI (Children and Youth Behavioral Health Initiative) expands prevention and early intervention supports for children through schools and community settings, many of which are delivered or reimbursed through Medi-Cal. CYBHI’s focus on youth is especially critical now as recent changes to the BHSA are forcing counties to restructure existing funding allocations. This shift will require cuts to certain behavioral health services — particularly in prevention and early intervention, innovative programs, and other core services that primarily support children and youth. Moreover, when parents or guardians lose coverage, their children are often left vulnerable to losing their access to care too. This not only disrupts care for children but also creates additional administrative challenges for schools and providers.

Federal Policy

The federal government plays a major role in shaping California’s budget, economy, and the well-being of its people.

Learn how federal policies shape California’s budget, economy, and vital programs — and how state leaders can respond to protect and support Californians.

Explore Federal Resources

State Leaders Can Act to Protect Californians’ Right to Comprehensive Behavioral Health Care

Massive cuts in the Republican mega bill, H.R. 1, threaten Medi-Cal financing and the behavioral health care that it provides, and California risks losing the progress it has made to connect care, housing, and recovery for Californians of all ages statewide. Addressing the federal cuts will require state leaders to do everything possible to protect communities and minimize harm.

The California Health and Humans Services Agency has announced plans to pursue administrative solutions to minimize disenrollment, such as using existing databases to automatically qualify individuals for exemptions and expand public education on the new requirements. Still, even with these efforts, many Californians will inevitably lose coverage unless the state provides additional funding to protect those most at risk.

Policymakers have a path forward to ensuring California remains a national leader in providing comprehensive behavioral health care. By raising significant, ongoing revenue, state leaders can fund the investments needed to protect care and support the well-being of Californians, especially those who rely on critical behavioral health services.

Health & Safety Net

Housing & Homelessness

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key takeaway

Nearly half of California’s preschoolers are dual language learners, yet inconsistent and short-term funding limits statewide support. Sustained investments in professional development for educators are essential to meet these children’s linguistic and cultural needs while strengthening retention and system-wide collaboration.

Multilingual children are one of California’s greatest assets, their skills enrich communities and make the state’s economy more competitive. Supporting these children effectively is an investment in California’s future. Among this group are dual language learners (DLLs), a term used in early childhood education to refer to young children learning two or more languages.¹ DLLs make up roughly half of all California children attending preschool. Research shows that DLL children benefit when supported by educators trained in language development and culturally responsive practices across early learning settings.

In the 2017-18 school year, the state adopted the English Learner Roadmap, which outlines the state’s commitment to supporting multilingual learners, including preschool-age children. Yet the state of California lacks a coherent, sustained strategy to support educator skill development across school and non-school-based settings that serve DLLs.²

California’s Preschool-Age DLLs: A Demographic Overview

Tens of thousands of 3- and 4-year-old children in preschool live in homes where a language other than English is spoken. In 2023, for example, out of the estimated 377,043 children attending preschool, almost 50% lived in a home where a language other than English was spoken.³That percentage has stayed largely consistent over time, at around 50% from 2016 to 2023, as shown in the chart below. The exact number of DLLs enrolled in preschool programs is unknown due to inconsistent identification and reporting requirements across programs.⁴ Among those identified as DLLs, the majority (56%) are from low-income households, a characteristic that further compounds systemic barriers children and their families face.⁵ The large percentage of DLL children, particularly from low-income households, underscores the need to prioritize this population in early learning services, including investing in a workforce prepared to meet their linguistic and cultural needs.

The Case for State Investment in DLL Professional Development

Given the large share of California’s children who live in multilingual homes, state leaders have called for increased investments in professional development in prior efforts. State plans and reports such as California’s Master Plan for Early Learning and Care, the English Learner Roadmap, the Universal PreKindergarten (UPK) Mixed Delivery Quality and Access report, and the California Assembly Blue Ribbon Commission on Early Childhood Education report recommend increasing professional development opportunities for educators across programs to better support DLLs. Across these state policy recommendations, several key themes emerge:

Professional development is a key area to build educator capacity to support DLLs. As part of comprehensive support systems, ongoing professional development that targets the needs of specific populations should be part of capacity building strategies for all educators.
Professional development can allow educators to center the cultural and linguistic assets of DLLs. Effectively supporting the language development of children requires a specific focus on the language and cultural assets children and their families bring with them, and professional development opportunities can provide the specific tools and skills educators can use to support children.

Investments and Gaps in Support for Educators Serving DLLs

Despite the rationale and recommendations noted above, periodic state investments in professional development for early educators have lacked consistency, scale, and equitable access for all programs across the system. Since 2017-18, when the state began reemphasizing bilingual education in state policy, a series of one-time grants included some state funding to support DLL-responsive practices. The table below shows these investments. For example, the 2021-22 budget included $100 million to increase qualified teachers and provide training in inclusive, culturally responsive, and supportive practices for State Preschool, Transitional Kindergarten, and kindergarten classrooms. While these grants have provided needed resources, no stable dedicated funding source exists to support early educators serving DLLs across all programs.

Lack of ongoing investment in these programs has been a missed opportunity for the state, as these programs have been shown to have a positive impact for DLLs in California, namely:

Programs reach a wide range of educators. Most programs have offered professional learning to not only lead teachers, but also paraprofessionals, instructional aides, and administrators. This approach recognizes that effective bilingual and DLL instruction involves entire teams to build systemic change.
Professional learning strengthens educator retention. Professional development not only helps build skills, it also strengthens educators’ commitment to working in bilingual settings.
Programs are actively working toward more coordinated efforts to provide professional learning opportunities. Grants have fostered collaboration across agencies and programs to align resources and supports. These efforts provide examples for a more unified system, though major challenges remain.

Implications for Policymakers to Support DLLs

Given the landscape of DLL-related professional development over the past several years, coupled with the well-researched need to support educators in this area, the state’s current inconsistent investments point to key implications.

Current investments have been uneven across early education settings. Early educators outside school systems, such as those working in centers and family child care homes, have largely been excluded from these investments. The grants included in the table above, for example, were only available to school districts, charter schools, and county offices of education. Non-school-based settings are primarily reliant on federal funds.
Most professional development grants are not specific to preschool. While grants may be open to preschool educators, there are often no requirements that preschool educators are prioritized. The closest approach to better targeting a broader group of educators was a 2018 allocation of $5 million to support DLL-specific training, which supported 1,400 early childhood educators.
One-time funding and short-term grants do not create conditions for sustained professional learning supports. One-time grants often last a few years, which may not be enough to fully implement a professional development program and meet major goals. A key element of effective professional development approaches is that it should be of sustained duration, which involves ongoing resources.
Professional development opportunities are key to educator retention. In addition to supporting teachers with instructional practices, ongoing professional development opportunities can also create the working conditions that support educators staying in the field longer, helping address retention challenges, especially in bilingual classrooms.
Professional development efforts should be coupled with other systemic-wide efforts to support the workforce. Three key areas include implementing effective recruitment strategies and developing viable pathways, ensuring providers are paid fair wages, and developing the infrastructure to ensure effective implementation of professional development opportunities at the local level (e.g., building professional development into workday or ensuring substitutes are available).

California has committed to a system that ensures every child, regardless of their background, has access to high-quality early education. For DLLs — many of whom are also children from immigrant families — quality includes culturally and linguistically responsive environments. Yet, efforts to support professional development in this area have been fragmented, underfunded, and disproportionately focused on school-based settings. A high-quality, preschool mixed-delivery system must center DLL-responsive teaching and ensure all educators, across all program types, have access to sustained professional development. As federal support continues to destabilize, strong state leadership will be essential to advance a coherent path toward bilingualism for California’s youngest learners.

Laura Pryor contributed to this report.

Support for this report was provided by The Sobrato Family Foundation.

Child Care & Preschool

1
“Dual language learner” means children whose first language is a language other than English or children who are developing two or more languages, one of which may be English.
2
Programs serving preschool-age children include, CalWORKS stages 1, 2, and 3, Alternative Payment Program, General Child Care, State Preschool, Head Start, and Transitional Kindergarten.
3
The American Community Survey defines preschool attendance as enrollment in a preschool or nursery school program.
4
Currently, only the California State Preschool Program (CSPP) systematically identifies DLLs and their educational needs. Within CSPP, 58% of children are DLLs, suggesting that other programs may serve similar proportions. Recent legislation will extend DLL identification practices to some child care and development programs that also serve preschool-age children.
5
A low-income household is defined as a family at or below 100% of the state median income in 2023-24, which is also the income eligibility threshold for state preschool.

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key takeaway

California’s poverty rate remains among the highest in the nation (17.7%), with children, people of color, and renters most affected. Recent federal actions threaten to worsen these trends, highlighting the urgent need for bold state leadership.

California’s poverty rate, at 17.7%, continued to be the highest (alongside Louisiana) in the United States in 2024, with no tangible improvement from 2023. Racial poverty gaps also remain stark, with Black and Latinx Californians experiencing poverty at approximately ten percentage points higher than white Californians, according to new Census data. California’s poverty rate means that about 7 million state residents lacked the resources to meet basic needs last year — roughly equivalent to the populations of Los Angeles, San Diego, San Jose, and San Francisco combined.

These figures reflect a troubling trend that began with the rollback of historic anti-poverty investments that were created to mitigate the harm of the COVID-19 pandemic —underscoring that poverty is a policy choice. Bold investments in the federal Child Tax Credit (CTC) and other economic security-promoting policies during the pandemic were associated with a historic drop in poverty in 2021. When Congress allowed these effective policies to expire, they immediately reversed progress, causing the largest increase in the national poverty rate in 50 years, and a significant spike in California’s poverty rate.

Recent federal and state cuts to life-saving programs will likely contribute to an even greater rise in poverty and increased economic inequality across California next year and beyond, unless policymakers take bold action to respond. On July 4, 2025, President Trump, with the support of every Republican in California’s congressional delegation, signed a federal budget into law that strips away health care, food assistance, and other basic supports for millions of Americans, driving up living costs and making it harder to make ends meet. This shift in federal policy diverges from established evidence on effective strategies to reduce poverty, which emphasize sustained investments in public supports. The 2025-26 California state budget also includes significant reductions in health care that will harm the same populations targeted by federal policies, particularly immigrants, seniors, and people with disabilities.

Confronting the harm to California’s communities requires bolder action from state leaders. With 7 million Californians already living in poverty even before these extraordinary budget cuts fully take effect, state leaders should do everything possible to support investments that help Californians afford essential needs, including health care, food, child care, and housing. These investments are possible if leaders raise significant, ongoing revenue, particularly from the corporations and wealthy individuals that are overwhelmingly benefiting from recent massive federal tax cuts.

Poverty Remains Alarmingly High Following Repeal of Pandemic-Era Policies

Nearly 7 million Californians lived in poverty in 2024, according to new US Census data based on the Supplemental Poverty Measure — a more comprehensive reflection of economic well-being than the Official Poverty Measure. The poverty rates of 17.7% for all Californians and 18.6% for children were statistically unchanged from 2023 levels, but reflect a drastic increase from the recent historic low of 11% overall poverty in 2021.

This alarmingly high level maintains the trend in increased poverty over the last few years since the expiration of many pandemic-era policies that expanded public benefits and their reach. The last of those expansions expired in early 2023 with the end of Supplemental Nutrition Assistance Program (CalFresh in California) emergency allotments, which temporarily increased nutrition benefits for program participants. The post-relief trend underscores the significant role that federal supports like safety net and social insurance programs play in reducing poverty.

H.R. 1 and the Federal Budget

H.R. 1, the harmful Republican mega bill passed in July 2025, will deeply harm Californians by cutting funding for essential programs like health care, food assistance, and education.

See how California leaders can respond and protect vital supports.

Learn More

Poverty Increased Across All Age Groups, Especially for Younger Californians

Poverty rose significantly across all age groups from 2021, though rates vary among children, adults, and older adults. Notably:

Child poverty more than doubled, reflecting the sunset of the expanded federal Child Tax Credit. Child poverty has risen since 2021 from 7.5% to more than double that in 2024 at 18.6%. In general, the poverty rate is higher for children than for adults given the costs associated with raising children (such as child care) and the low wages for parents and caregivers, particularly women and women of color. Additionally, at the national level, the expanded federal CTC kept 2.9 million children out of poverty in 2021. When Congress let the expanded CTC expire in 2022, more children in California fell into poverty. This trend will only worsen with recent federal budget decisions to take the child tax credit away from mixed-status families.
Poverty remains highest for older adults in California. As displayed in the chart above, poverty is highest for adults ages 65 and older, at 21.1%. This trend is largely due to higher out-of-pocket medical expenses for older adults and mirrors national poverty trends. Both the federal and state budgets include harmful policies and cuts to health care programs that will make accessing health care for older adults even more expensive, further pushing older adults into poverty.
Poverty rates for adults are significantly higher in 2024, as compared with 2021. Sustaining a trend from last year, poverty continues to be on the rise for the largest age group in California. Specifically, poverty for Californians ages 18 to 64 rose from 11.1% in 2021 to 16.5% in 2024.

Racial Inequities Persist, Further Highlighting How Federal Actions Disproportionately Impact Californians of Color

Poverty increased across all racial and ethnic groups from 2021 to 2024. These increases were most pronounced for Black and Latinx Californians, further widening racial disparities in the state. Such disparities reflect generations of systemic racism that continue to persist. Racial discrimination in housing, access to banking, education, and taxation have all contributed to a racial wealth gap that is reflected in today’s poverty estimates.

Recent federal actions will disproportionately harm Californians of color and immigrants and are likely to push more Black and Latinx Californians into poverty in future years. Federal cuts to Medicaid would take health coverage away from millions of Californians of color, forcing families to delay or forgo care, take on medical debt, and face greater risks of falling into poverty. More than one in three Californians — nearly 15 million people — rely on Medi-Cal, the state’s Medicaid program, for health coverage. Latinx Californians represent more than half of Medi-Cal enrollees and Black Californians make up nearly 7% of enrollees.

At the same time, monthly premium costs for Covered California, the state’s health insurance marketplace for people who do not qualify for Medi-Cal, are projected to rise by an average of 66% due to the expiration of enhanced premium tax credits, with even steeper increases for communities of color.

Federal actions also 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.

Without strong state policy interventions, recent federal actions will deepen racial and ethnic disparities, leaving Californians of color with fewer resources to stay healthy, build wealth, and achieve economic security. Protecting Medi-Cal and advancing more equitable tax policies are critical to ensuring all Californians can share in the state’s prosperity.

California Renters Experience Higher Levels of Poverty, Particularly Latinx and Black Renters

Housing is the single largest cost in most family budgets, and high housing costs are pushing more people, especially those already facing systemic barriers, into deeper hardship. California renters are particularly likely to experience poverty due to unaffordable housing costs, which threaten their economic and housing stability.

More than one-quarter (27.1%) of California renters experienced poverty in 2024, compared to 11.1% of homeowners. The 2024 poverty rate for renters is not statistically different from the 2023 rate, but it is significantly higher than the rate in 2021 (15.8%), when pandemic assistance for renters was still available.

Renters with the lowest incomes come from different walks of life and include older adults, people with disabilities, families, and single caregivers. Many also work or are pursuing their education while trying to stretch their budgets to make ends meet. Latinx and Black renters experienced the highest rates of poverty in 2024, at 30.9% and 30.5%, respectively. This is consistent with the fact that these groups of renters are most likely to have unaffordable housing costs that account for more than 30% of their income.

Future federal policy choices may lead to increases in poverty among renters. Proposals from the Trump administration and the House for the upcoming federal fiscal year included cuts to rental assistance and affordable housing funds. Meanwhile, the Senate proposed level funding for Housing Choice Vouchers — the main federal rental assistance program — which is still not sufficient to fully fund voucher renewals for current participants, and could result in an estimated 14,400 households, encompassing 31,600 people, losing housing vouchers in California. Additionally, neither the House nor Senate has proposed sufficient funding for fully transitioning Emergency Housing Voucher recipients into the Housing Choice Voucher program, which currently serves over 15,000 people in California.

The lack of federal and state investments in affordable housing and rental assistance, combined with the enacted federal cuts to health and food assistance, will mean more families and individuals will face impossible choices between having enough food, accessing needed medical care, and paying rent.

Tackling Deep Poverty Requires Bolder Expansions

In 2024, nearly 2 million Californians lived in deep poverty. Deep poverty, which is representative of severe economic hardship and extreme poverty, is defined in this analysis as a household with total resources below 50% of the supplemental poverty measure threshold. For a family of two adults and two children, this is equivalent to approximately $20,000 per year, inclusive of public assistance.

Over the past few years, the deep poverty rate has remained relatively stable, even during historic drops in the overall poverty rate in response to expanded pandemic-era relief. The trend in the deep poverty rate among children appears to have been more responsive to increased federal supports in 2021, which coincided with significant expansions to the child tax credit, but rose to pre-pandemic levels after these expansions were repealed.

Research shows that since the 1990s, following sweeping reforms to the safety net, public assistance has shifted from helping the poorest households toward work-based assistance. The emphasis on policies like work reporting requirements to obtain assistance minimizes the complex barriers to work for people facing this level of economic hardship, often categorically excludes people in need from accessing programs, and has contributed to a rise in deep poverty. As a result, investments in traditional public supports often don’t reach the people who experience deep poverty. To truly support Californians living in deep poverty, policymakers must go beyond simply maintaining existing safety net programs and expand them so families currently blocked from accessing supports can afford food, health care, and rent.

Californians Need State Leaders to Address Poverty with Bold Action

Poverty in California remains extremely high, and recent federal budget cuts will cause a steeper rise in hardship in years to come as millions of Californians lose health care and food assistance, further straining household budgets and pushing them deeper into poverty. Faced with this looming crisis, Californians need state leaders to take bold action to mitigate the harm and hardship of federal cuts. State leaders should particularly focus on ensuring that the corporations and wealthy individuals, who were recently showered with massive federal tax cuts, contribute more in state taxes. This is because these federal tax giveaways are largely financed by deep federal cuts to health care and food assistance — the very cuts that are likely to cause poverty and hardship to rise for years to come — and because corporate profits have skyrocketed in recent years while workers’ wages have stagnated. As a start, state leaders should:

End California’s most costly corporate tax break — the water’s edge loophole — which allows corporations to avoid around $3 billion in California taxes each year and deprives the state of needed resources to address the most pressing concerns facing Californians.
Prevent profitable corporations from completely wiping out their tax bills by placing reasonable limits on their tax credits and deductions, ensuring they contribute to state services just like all Californians.
Institute a graduated corporate tax rate to ensure California’s most profitable corporations pay their fair share to support services all Californians need.

Improving the economic security of Californians not only lifts families out of poverty, it also supports a more equitable state and a robust economy. Racial/ethnic and gender disparities in California continue to persist, which will further widen without action from state leaders. For California to be a state for all to thrive — regardless of race or ethnicity, gender, and other identities — state leaders should take bold action to mitigate the rise in poverty and present a different vision for California than the one the federal government has put forth in recent months. State leaders have the tools to hold a California for all as the vision, the goal, and the promise.

Poverty & Inequality

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In California, workers’ wages have stagnated and families struggle to keep up with the rising costs of living, while corporate profits have skyrocketed. Yet many profitable corporations in California pay zero or very little in state taxes year after year.

Big corporations have also benefited greatly from the 2017 Trump tax cuts and are poised to receive more benefits from the federal tax and budget bill just enacted by the Trump administration and congressional Republicans. Large tax breaks for corporations widen economic and racial inequality because they largely benefit corporate shareholders, who are disproportionately wealthy and white.

California policymakers should ensure that profitable corporations pay their fair share in state corporate taxes — which represent a tiny share of their expenses — to support the public services that Californians need and help mitigate the harms of federal cuts to health care, food assistance, and other basic needs programs.

State leaders can prevent profitable corporations from completely wiping out their tax bills with amassed tax credits by instituting permanent annual caps on business credits and deductions. In practice, this would ensure that corporations contribute to the state services and infrastructure they rely on to operate their business, just like all Californians do.

As state leaders look to blunt the harm of the federal budget on Californians with low incomes and the state’s finances, it’s clear that California’s corporate tax structure is in need of repair. While large, profitable corporations benefit from new federal tax breaks, California policymakers must ensure these businesses pay their fair share in state taxes. There is no one-size-fits-all solution: different options can all complement each other. For example, limits on business tax credits and net operating loss (NOL) deductions are key to preventing the erosion of the potential revenues that could be generated from eliminating the water’s edge tax loophole and increasing the tax rate on highly profitable corporations.

MORE IN THIS SERIES

To learn more about the water’s edge election, net operating losses, tax credits, corporate tax rates, and options for common-sense reform, see the other fact sheets in this series:

Highly Profitable Corporations Can Largely Avoid State Taxes With Tax Credits and Net Operating Loss Deductions

A large share of corporations in California pay nothing above the meager $800 minimum franchise tax that most businesses that are incorporated, registered, or doing business in California are required to pay. Nearly half of all profitable corporations filing tax in California in 2023 — more than 300,000 corporations — paid nothing more than the $800 minimum tax, even though they collectively had $11.7 billion in state profits, according to preliminary data from the state’s Franchise Tax Board. This means they were able to eliminate their regular tax liability by either zeroing out their taxable income with net operating loss deductions, zeroing out their tax bill with tax credits, or some combination of the two. This number does not include corporations that were able to greatly reduce their tax bills but still paid some amount above the minimum tax. Unfortunately, there is no public data available indicating the number of corporations that pay minuscule shares of their profits in state taxes, or which corporations they are. However, public data show that many profitable corporations are able to avoid paying taxes at the federal level. While there are some differences in tax avoidance opportunities for corporations between federal and state law, some corporations paying low or no federal taxes may also be able to reduce or zero out their state taxes using similar state-level tax breaks.

How can corporations pay next to nothing in state taxes when they are profitable?

While business tax calculations can be very complicated, in general a corporation¹:

Determines its final tax bill by subtracting any tax credits it has available.
Determines its total profits by subtracting business expenses from its total revenues/sales. For corporations that are part of a group of affiliated corporations, this calculation includes the profits of the entire combined group. However, multinational corporations can choose to use the “water’s edge election” and exclude the profits of their foreign subsidiaries, which can reduce their profits subject to state taxes and therefore their tax bill.
Determines the share of these total profits that is attributable to California and to each member of the corporate group by multiplying profits by a “sales” factor — the ratio of the corporations’ California sales to total sales.
Determines its taxable income for state tax purposes by deducting any net operating losses (NOLs) it has available.
Determines its taxes due before applying tax credits by multiplying its taxable income by the applicable tax rate.²

A net operating loss occurs when a business experienced losses in prior years, meaning its expenses exceeded its revenues. Those losses can be carried forward and used to reduce its taxable income in future years, and thus its tax bill.³ NOLs, if large enough, could reduce taxable income to zero, in which case the business would pay no more than the state’s $800 minimum franchise tax.

If a business still has taxable income after subtracting NOLs, the applicable tax rate — 8.84% for C corporations and 1.5% for S corporations — is then applied to determine its tax liability. But many businesses can then reduce their tax liability on a dollar-for-dollar basis if they have research and development (R&D) credits, film production credits, or other types of business credits. Some may even reduce their regular tax bill down to zero and would only pay the $800 minimum tax.

Like NOLs, business tax credits can also be carried forward to future years if their credits exceed the taxes they owe in the current year. According to data last reported by the Franchise Tax Board for the 2020 tax year, corporations had more than $40 billion in unused R&D credits that could be used to offset their future tax bills.⁴

The R&D credit is by far the state’s largest business tax credit. The credit cost California more than $2.5 billion in 2023 and was claimed by over 4,600 corporations across various industrial sectors, according to preliminary Franchise Tax Board data. While research has generally found state R&D tax credits to increase the amount of R&D taking place in a state, the evidence is mixed on the size of the impact and their overall economic effects. Additionally, California’s credit has never been rigorously studied. The California State Auditor noted nearly ten years ago that, because there is no regular oversight or evaluation of the credit, the auditor’s office could not determine whether the credit was fulfilling its purpose or benefitting the state’s economy. Thus, it is unclear whether the billions of dollars the state spends on the credit each year are an effective use of public funds — especially given that those dollars are not available to spend on other public services that could potentially provide greater economic benefits.

While the Franchise Tax Board does not report tax credit data for individual corporations, some of these corporations do report in their public financial filings the amount of California credits — particularly R&D credits — they have available to offset future tax liability. For example, Alphabet (Google’s parent company) and Apple report that they have $6.4 billion and $3.5 billion, respectively, in California R&D credits that they can use to reduce their California taxes in the future. This means that even if companies like this with large stockpiles of credits were subject to a higher tax rate in the future, some of them could largely avoid paying more in tax as long as they still have sufficient credits available for use.

Profitable Corporations Shouldn’t Be Able to Wipe Their Entire Tax Burden: State Policymakers Should Place Annual Limits on Net Operating Loss Deductions and Tax Credits

California policymakers can make sure profitable corporations pay their fair share in state taxes by enacting permanent annual limits on NOL deductions and tax credits.

State leaders have temporarily limited NOLs and tax credits multiple times in response to budget shortfalls. In 2020, in response to the COVID-19 economic crisis, state leaders enacted a $5 million limit on tax credits that businesses could use in a given year and a pause on the use of NOL deductions for businesses with state profits above $1 million. Those limitations were in effect for tax years 2020 and 2021. However, even with those limitations in place, a large share of profitable corporations still paid nothing more than the $800 minimum tax in those years, as shown in the first chart above.

The Legislative Analyst’s Office estimated in 2022 that the $5 million tax credit limit likely impacted fewer than 100 corporations, since most businesses claim tax credits below that amount. The credit limit is estimated to increase state revenues by $2 billion or more annually in years when it’s in effect.

Faced with another shortfall in 2024, policymakers still re-enacted these limits for tax years 2024, 2025, and 2026.

BAD BUDGETING

Breaking from tradition — and likely to appease corporate opponents to these limits — policymakers also included a provision in the 2024-25 budget that will allow businesses impacted by the temporary tax credit limitation to claim refunds after 2026 for the credits that they were prohibited from taking during the limitation period. In other words, they can receive cash back if their delayed credits exceed the taxes they owe in those years. Historically, refundable tax credits have only been available for low-income families and individuals in California as a way to boost their incomes. Allowing corporations to claim refunds for these credits will cost the state more than $1 billion annually for several years beginning in 2027, as the corporations electing to receive refunds must spread the refund out over several years. Policymakers could avoid these costs in the out years by repealing this refundability provision.

Policymakers have several options to limit business tax credits to a reasonable amount on an ongoing basis. They could opt to make the current temporary $5 million limit permanent instead of letting it expire in 2027. They could also reduce that limit in the near term to generate additional revenues immediately. Another option is to limit the total credits that a business can use in any year to a percentage of the taxes it would otherwise owe that year. In the longer term, rigorous analyses on the efficacy and the cost-effectiveness of specific business tax credits — such as the R&D credit and the film tax credit — are warranted, which would inform future policy reforms such as eliminating or restructuring credits determined to be ineffective or where the costs exceed the benefits.

Similar to limiting tax credits, state leaders could limit the amount of NOL deductions that can be taken in a given year as a percentage of the business’ state profits. While there are legitimate reasons to allow businesses to use NOL deductions to “smooth out” their income over multiple years, since income may be volatile for some businesses, there is also an argument to be made that businesses should not be able to pay nothing or next to nothing in years when they are generating significant profits. So it is reasonable to impose annual limits to prevent corporations from entirely wiping out their taxable income and in turn, their tax bill. At the federal level, NOL deductions are limited to 80% of a corporation’s taxable income. California could adopt that limit or enact a tighter limit to raise additional revenue and ensure corporations are paying taxes on more than 20% of their profits.

Placing reasonable caps on business credits and deductions — particularly in combination with the other corporate tax reforms such as eliminating the water’s edge loophole and increasing the tax rate on the most profitable corporations — will ensure corporations contribute a fair share of their profits in California taxes to support the state services and infrastructure that allow companies, their workers, and their consumers to thrive.

California Budget

Taxes & Revenue

1
This is a simplified example that does not include all the complexities of corporate tax calculations.
2
While the state does have an “alternative minimum tax” for C corporations that utilize certain tax preferences, this does not prevent corporations from wiping out their taxes with credits, and impacts very few corporations. In 2022 and 2023,only around 1% of C corporation filers paid the alternative minimum tax, generating $100 million or less in state revenues (data is preliminary for 2023).
3
NOLs can be carried forward for up to 20 years after the loss occurred, at which time any unused NOLs expire. In total, corporations reduced their taxable income by around $30 billion in 2023 and had more than $1.3 trillion in unused NOLs that can be carried forward and deducted from profits in future years, according to preliminary Franchise Tax Board data.
4
This information is no longer reported by the Franchise Tax Board.

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Corporate profits have soared in recent years, especially among a small share of large corporations. Yet because California does not have a graduated corporate income tax, large corporations pay the same tax rate as smaller ones and often have more resources to exploit tax loopholes.

Big corporations have also benefited greatly from the 2017 Trump tax cuts and are poised to receive more benefits from the federal tax and budget bill recently enacted by the Trump administration and congressional Republicans. Large tax breaks for corporations widen economic and racial inequality because they largely benefit corporate shareholders, who are disproportionately wealthy and white.

At the same time, workers’ wages have stagnated, families struggle to keep up with the rising costs of living, and funding for federal programs like Medicaid and food assistance have been slashed.

California policymakers can ensure that profitable corporations pay their fair share in state corporate taxes — which represent a tiny share of their expenses — to support the public services that Californians need and help mitigate the harms of federal cuts to health care, food assistance, and other basic needs programs.

One option for state leaders is to modify the state’s flat corporate tax rate to apply higher tax rates to corporations with higher profit levels, similar to California’s progressive tax system for personal income taxes. State leaders could either establish a single surtax on profits above a certain threshold or transition to a graduated tax rate with several brackets.

As state leaders look to blunt the harm of the federal budget on Californians with low incomes and the state’s finances, it’s clear that California’s corporate tax structure is in need of repair. While large, profitable corporations benefit from new federal tax breaks, California policymakers must ensure these businesses pay their fair share in state taxes. There is no one-size-fits-all solution: different options can all complement each other. For example, limiting corporate tax credit usage and ending the “water’s edge” loophole will make it harder for profitable corporations to avoid their tax liability from an increase in their corporate tax rate.

MORE IN THIS SERIES

To learn more about the water’s edge election, net operating losses, tax credits, corporate tax rates, and options for common-sense reform, see the other fact sheets in this series:

Corporate Profits are Highly Concentrated, Yet Corporations are Taxed at the Same Rate Regardless of Profit Level

Unlike the state’s personal income tax system, which is a graduated tax structure with higher rates applied to higher levels of income, the state’s corporate tax system applies the same tax rate regardless of profit level. But the lion’s share of profits is earned by a small number of large corporations. In 2022, “C corporations” with at least $10 million in California profits received more than four-fifths of the total profits in the state — $180 billion in the aggregate — while making up less than 1% of tax returns for all C corporations (see box describing types of corporations).

Types of Corporations and their California Tax Rates

There are two main types of corporations for tax law purposes: C corporations and S corporations, so named for the sections in the federal tax code governing them.

C corporations

C corporations are taxed on their profits at the business level. Their owners are subject to personal income tax when they receive corporate distributions as dividends and when they sell shares of corporate stock. Large corporations that trade their shares on public stock exchanges are organized as C corporations. In California, C corporations are subject to an 8.84% tax rate regardless of profit level.

S corporations

S corporations are not subject to federal tax at the business level, but their profits (or losses) are passed through to the individual shareholders, who pay federal and state taxes on their shares of business income through the personal income tax, whether or not that income is distributed to them as payments. S corporations have a limited number of shareholders and their stock is not traded on public stock exchanges. In California, S corporations are also subject to a 1.5% tax at the business level.

Other California Business Types and Their Taxes

In addition to the regular state rates, there is an additional 2% tax on banks and other financial institutions — both C corporations and S corporations — because these corporations are exempt from certain local taxes.

Some businesses — including most small businesses — are not structured as corporations and pay no business-level taxes. Like S corporations, the individual owners of these businesses pay taxes on their business income (and are thus known as “pass-through” businesses). However, these businesses are not subject to an income tax at the business level and are not included in state corporate tax data.

These businesses can be organized as sole proprietorships (for example, a typical “mom-and-pop shop”), partnerships (for example, many law firms, medical practices, and other professional service firms), or limited liability companies (LLCs). Some of these business types are subject to the state’s $800 minimum tax, and LLCs are subject to a capped, tiered fee based on income level.

Learn more about California’s taxation of various business types from the Franchise Tax Board.

Policymakers Can Require Greater Tax Contributions from Top-Earning Corporations

In contrast to California’s flat corporate tax system, thirteen other states already have graduated corporate tax systems with multiple rates based on profit levels. Notably, in recent years, New York and New Jersey lawmakers have approved or extended surtaxes (additional taxes beyond regular tax rates) on the most profitable corporations in those states. New York applies a tax rate to corporations with state profits of more than $5 million that is 0.75% higher than the regular corporate tax rate. In comparison, New Jersey applies a 2.5% surtax on the state profits of corporations with profits above $10 million in the state.

Some California policymakers proposed a two-rate corporate tax system in 2023; this proposal would have increased the 8.84% C corporation tax rate to 10.99% on California taxable income above $1.5 million and decreased the rate to 6.63% on taxable income up to $1.5 million. The tax rate for S corporations would have been reduced from 1.5% to 1.125% on taxable income up to $1.5 million. At the time, it was estimated that a total of around 2,500 corporations would have seen a tax increase and that the increased rate would have raised around $6 billion annually, falling to around $4 billion annually after accounting for the revenue losses from the proposed lower rate on lower income levels.

While the 2023 proposal excluded S corporations from a rate increase — and while S corporation profits are less concentrated among the largest corporations than C corporation profits — there are large and profitable S corporations as well. In 2022, there were more than 13,000 S corporations with California profits of at least $1.5 million, representing just 1.8% of S corporations and receiving more than half of S corporation profits in the state. Policymakers could raise additional revenue by applying a higher rate on very profitable S corporations as well.

Finally, if policymakers pursue corporate tax rate changes, it is also critical to pair this with other corporate tax changes to reduce the ability of corporations to avoid the tax increase, which can significantly reduce the revenue potential of increases to the tax rate alone. Namely, policymakers should also address corporations’ use of offshore tax havens by eliminating the water’s edge loophole and put reasonable annual limits on business tax credits and deductions. These actions will help ensure corporations contribute a fair share of their profits in California taxes to support the state services that allow companies, their workers, and their consumers to thrive.

Taxes & Revenue

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key takeaway

Federal budget proposals threaten to cut funding for essential programs like Medi-Cal and CalFresh, trading away Californians’ health care and food security to fund massive tax breaks for the wealthy — with devastating consequences for millions of families across the state.

All Californians deserve access to resources that allow them the opportunity to thrive in their communities. Vital health, nutrition assistance, and other basic need programs are facing multiple federal threats, jeopardizing the existence and sustainability of these lifelines. These threats are being advanced through the federal budget reconciliation process, which is being championed by Republicans in Congress. These unprecedented cuts to vital health care and food access will inflict significant harm and fear on California’s most vulnerable communities.

The billions of dollars in cuts to Medicaid and SNAP will be used, in part, to pay for $4 trillion in tax cuts for the already wealthy and profitable corporations. If these proposed cuts are enacted, millions of Californians may delay treatment, go hungry, and face impossible tradeoffs as a result of basic support being pulled from under them.

Cuts to Medi-Cal Will Leave Millions with Impossible Choices

Medicaid — or Medi-Cal in California — is facing over $800 billion in cuts across the next 10 years, reversing much of the recent progress that helped more people across the United States access health care. Medi-Cal currently provides health coverage for over one-third of the state’s population, covering children, pregnant individuals, seniors, and people with disabilities. The reconciliation bill aims to deprive millions of health care by imposing ineffective work requirements and adding new barriers to the program. The following table presents the everyday choices individuals and families would be forced to make in order to afford vital medical services and medication.

Threats to CalFresh Will Deprive Millions of Californians of Food

Congressional House Republicans are poised to significantly cut the country’s anti-hunger program, SNAP — known as CalFresh in California — by $300 billion over the next 10 years which is equivalent to a 30% cut to the program. If the reconciliation bill is passed, this would be the largest cut in the program’s history and would force California to bear up to 25% of the cost of CalFresh benefits for the first time in the program’s history. For a family of three in California, a 30% cut to their benefits would mean a loss of $165 per month for groceries, on average. The following table displays the bundle of groceries that families in different localities across the state may no longer be able to afford due to this CalFresh reduction.

Proposed Federal Cuts Will Directly Harm California’s Most Vulnerable Communities

Programs like Medi-Cal and CalFresh help ensure millions of Californians have adequate resources to thrive. They ensure families can put food on the table and can readily access basic, but life-saving, health care. Republicans in Congress are pushing for cuts to these programs that will make it even harder than it already is for millions of Californians to make ends meet. Budgets reflect our collective values and priorities. Yet, recent proposals in Congress would take our country in the wrong direction — threatening access to essential health care and food assistance for millions, while advancing costly tax breaks that primarily benefit wealthy individuals and large corporations. These choices make clear whose interests are being prioritized — and it’s not everyday people.

In California, state leaders should present an opposing vision that prioritizes ensuring the economic security and well-being of all Californians by increasing revenues to mitigate the harm and increased inequality that federal leaders intend to cause.

Federal Policy

Health & Safety Net

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key takeaway

State policymakers should invest in community-led efforts to improve the health and well-being of Californians. This includes raising rates for community health workers, promotoras, and community health representatives (CHW/P/Rs) and improving data reporting.

California’s health care system cannot meet the needs of its communities without the people who serve as trusted messengers and health navigators: community health workers, promotoras, and community health representatives (CHW/P/Rs). These frontline workers bring deep cultural knowledge and lived experience to their roles, helping them connect with patients and deliver critical care. Many are women of color who have supported their communities for decades. Yet despite their vital contributions, they remain underpaid, under-recognized, and under-supported.

In recent years, state leaders have taken steps to better integrate CHW/P/Rs into the health system. The most significant was the launch of a new Medi-Cal benefit in 2022, which allows CHW/P/Rs and service providers to be reimbursed for specific services delivered through Medi-Cal (Medi-Cal is California’s Medicaid program). This year, state policymakers have the opportunity to support the long-term sustainability of this essential workforce by increasing rates and improving data reporting.

Community Health Workers Bridge Gaps in Access

CHW/P/Rs are trusted members of the communities they serve. They help people navigate complex health and social service systems, often in ways that are culturally and linguistically responsive to their communities. Their work spans health education, chronic disease management, behavioral health navigation, enrollment in programs like Medi-Cal, and outreach during public health emergencies such as wildfires and the COVID-19 pandemic.

They are especially effective in communities of color, where medical mistrust, language barriers, and systemic discrimination often prevent individuals from accessing the care they need. CHW/P/Rs help close these gaps not just by providing services, but by building relationships grounded in trust, cultural understanding, and lived experience.

“

I used to be in their shoes — working the fields, overlooked and unheard. Now I bring farmworkers not just food and water, but trust, care, and a voice.

”

Arrely Caranza

Hijas Del Campo, Contra Costa/San Joaquin County

Community Health Workers Make a Difference: A Case Study

During the COVID-19 pandemic, El Sol Neighborhood Educational Center played a vital role in supporting communities across the Inland Empire — a story highlighted in a blog post by the California Health Care Foundation. El Sol mobilized quickly to assess community needs and provide timely support. Community health workers reached out to residents across San Bernardino and Riverside Counties, making more than 16,000 phone calls to check in with families and identify the assistance they needed most.

As part of their outreach efforts, community health workers distributed more than 1,360 hygiene kits, 50,000 face masks, and 12,450 food boxes. They also helped individuals who tested positive for COVID-19 connect with health care services and other essential supports. When dedicated funding became available, the organization expanded its team of community health workers and began training other community-based groups to launch similar campaigns.

In addition to direct outreach, the organization used creative approaches like comic books, community theater, and music videos to deliver accurate, culturally relevant health information. These efforts helped combat misinformation, promote vaccine confidence, and build stronger connections between public health systems and the communities they serve. This case shows how CHW/P/Rs can drive high-impact, community-led responses when they have the tools and resources to succeed.

“

I work with everyone from survivors of domestic violence and their children, to UC Santa Cruz students who are unhoused, to people leaving substance use treatment, doing whatever it takes to get them housing resources.

”

Corina Gitmed

Salud Para La Gente, Santa Cruz

State Leaders Have Taken Initial Steps to Integrate CHW/P/Rs

State leaders have taken initial steps to integrate community health workers and promotoras into the Medi-Cal workforce. In July 2022, the California Department of Health Care Services (DHCS) established a community health worker benefit within Medi-Cal, allowing community health workers, promotoras, and community representatives to be reimbursed for certain services. This benefit was intended to better integrate CHW/P/Rs into California’s health delivery system and support their work as trusted messengers. It allows CHW/P/Rs to be reimbursed for activities such as:

Preventing and managing chronic and infectious diseases.
Supporting behavioral health and mental well-being.
Providing perinatal, sexual, and reproductive health education and support.
Assisting with oral health care.
Addressing aging-related health needs.
Promoting safety and providing support related to domestic violence and community violence prevention.
Responding to environmental and climate-related health risks.

While this was an important first step, implementation can be improved. During an informational hearing in 2023, the California Department of Health Care Services reported that fewer than 6,000 Medi-Cal members had used the benefit and less than $1 million in reimbursements had been issued statewide. This limited uptake raises concerns about barriers to accessing the benefit, particularly for community-based organizations that may lack the administrative infrastructure to bill Medi-Cal.

Underinvestment in CHW/P/Rs Threatens the Workforce and Their Impact

Despite their central role in advancing health equity — the principle that everyone should have a fair and just opportunity to be healthy — CHW/P/Rs remain underpaid and undervalued. Many positions are funded through short-term grants, and the Medi-Cal reimbursement rates are not enough to support community-based organizations sustainably. This makes it difficult for organizations to recruit, retain, and fairly compensate CHW/P/Rs.

“

People don’t do this work for the money — they do it because helping their community is who they are. But a better wage would mean not having to have a second job to make ends meet. Higher reimbursement rates would mean we could support a bigger team to deliver high-quality care to more patients.

”

Diana Chung

Asian Youth Center, San Gabriel/Los Angeles

In recent years, health advocates successfully advanced a budget proposal to increase reimbursement rates for community health workers. The 2024 Budget Act included $5 million from the state’s General Fund Managed Care Organization (MCO) tax to fund a modest, regionally adjusted rate increase in the first year. However, the increase was ultimately eliminated after voters approved Proposition 35 in November 2024, which redirected MCO tax revenue toward other health care investments. As a result, any future rate increase would depend on General Fund support.

Without meaningful increases, many plans are now re-evaluating their own CHW/P/R compensation structures, and some community-based organizations are finding that the current reimbursement is not cost-effective due to high administrative overhead. A rate study is currently being requested by advocates to better understand how the state can sustain the CHW/P/R workforce and enhance uptake and utilization of the Medi-Cal benefit, but without immediate action, the benefit risks becoming symbolic rather than substantive.

Additional ongoing investments are needed to develop a strong pipeline of community health workers and also to ensure that workers are paid fair wages. Without reliable funding and workforce infrastructure, the state risks losing ground on efforts to improve community health and equity.

Latino Coalition for a Healthy California Promotora/CHW Fortina Hernández shares emergency preparedness resources while canvassing in the Los Angeles community.

Better Data Is Key to Expanding Access

A major challenge in evaluating and expanding the CHW/P/R workforce is the lack of reliable, centralized data. Policymakers and advocates don’t have access to key information, including how many CHW/P/Rs are delivering Medi-Cal services, who they’re reaching, and what outcomes they are achieving. While the federal Bureau of Labor Statistics collects limited data, it does not capture specific roles, pay sources, or population reach.

New proposed legislation aims to address some of these information gaps by requiring the California Department of Health Care Services (DHCS) to report on Medi-Cal benefit utilization. The bill aims to increase the Legislature’s understanding of the CHW/P/R benefit’s status through an annual report on the utilization data, which will enhance legislative oversight and inform any future legislation needed to strengthen and fund this vital program.

While this is an important step, the legislation alone is not enough. California lacks consistent, disaggregated workforce data across counties and managed care plans. DHCS has said it cannot collect some data, such as a health plan’s negotiated rate for CHW/P/R services, due to its contractual relationships with health plans, highlighting the need for greater transparency and accountability.

Without better data, the state cannot measure the benefit’s effectiveness or track whether the workforce is growing. Early signs suggest limited progress, and stakeholders are concerned that the benefit is not living up to its original promise of building and sustaining a robust CHW/P/R workforce.

Conclusion

Community health workers, promotoras, and community health representatives (CHW/P/Rs) are central to achieving health equity in California. They are trusted, experienced, and deeply embedded in the communities they serve. However, current policies and funding structures fall short of recognizing and sustaining their contributions to keeping communities healthy.

Promotoras and community health advocates at the State Capitol during Latino Coalition for a Healthy California’s 2024 Day at the Capitol.

To deliver on California’s commitment to health equity, state leaders should support better pay and career pathways for these essential health care workers. Policymakers can do this by raising reimbursement rates under Medi-Cal, implementing AB 403 with transparency, and investing in workforce data infrastructure. Policymakers should also support career pathways and certification processes that honor the lived experience and skills that CHW/P/Rs bring to the table.

CHW/P/Rs are not a new idea — they are a proven solution that supports access to health care, improves health outcomes, and builds trust in underserved communities. What they need now is real investment.

Health & Safety Net

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key takeaway

Protecting Medi-Cal’s funding and access to gender-affirming care is essential to safeguard the health, mental well-being, and dignity of California’s low-income transgender, gender-expansive, and intersex communities. However, this is currently threatened by federal budget cuts and policy proposals that would exacerbate existing disparities and costs.

Every Californian should be able to make decisions about their own medical care. This is especially important for transgender, gender expansive, and intersex (TGI) people who rely on gender-affirming care to ensure that they can access treatments that align with their gender identity without unnecessary restrictions or interference from others. For the 36,000 TGI Californians with low incomes who qualify for Medi-Cal, California’s Medicaid program serves as a lifeline that provides them with free or low-cost health coverage. Policymakers should protect Medi-Cal and access to gender-affirming care so that all Californians are able to access life saving care, have better mental health outcomes, and live with dignity.

What Are Current Threats to Medicaid and Gender-Affirming Care?

Congressional Republicans are actively pushing federal budget and policy proposals that threaten the ability of TGI people on Medicaid to access crucial gender-affirming care. Gender-affirming care improves mental and physical health outcomes, reduces disparities, and helps provide better health care access for TGI people. Denying access to this care can lead to untreated mental health issues, substance abuse, and other health issues that will only increase costs for the state and health care systems in the long run.

Federal budget proposals would cut funding for Medicaid in favor of tax breaks for the wealthy. Congressional Republicans are also pursuing policy proposals that would prevent Medicaid funding from being used for gender-affirming care. Such cuts and proposals would be harmful for all Californians, as gender-affirming care supports procedures like breast reduction surgery and IUDs. For TGI people, who are already facing significant health disparities due to historic and ongoing discrimination, these proposed cuts would be devastating.

For many, Medi-Cal is the only way to access vital health services, from gender-affirming care to mental health supports. Out-of-pocket costs for gender-affirming care can range from $72 to $3,792 per year, meaning that without Medi-Cal, many TGI Californians would be unable to afford out-of-pocket expenses for this critical care.

Cutting funding for Medi-Cal means taking critical care away from people who already face long-standing barriers to care, such as:

Lack of health coverage,
Limited access to treatments that align with gender identity,
Limited health care resources,
Lack of culturally competent and linguistically appropriate care, or
Other forms of discrimination.

These barriers to care are rooted in systemic transphobia and racism that TGI people face in health care and in society, which have systematically denied TGI people equitable access to quality care and resources. Cutting funding for Medicaid and enacting discriminatory policy proposals would reinforce systemic transphobia and put the health and well-being of our trans, non-binary, and intersex neighbors at risk.

Key Terms

Health Inequities

TGI

Cisgender

Gender-Affirming Care

Transphobia

Transgender and Gender Expansive Californians Are Already Facing Increased Risks

Mental health is essential for overall health and well-being. Yet, half of TGI Californians experienced serious psychological distress in the past year. That is much higher than the rate for cisgender people (14%). Experiences with health care stigma, family or social rejection, and internalized oppression that many TGI people face contribute to worse mental health outcomes.

TGI people are not only facing disparities in mental health, they are also enduring worse health outcomes overall. A history of discrimination and stigma in health care faced by TGI people have resulted in inequitable health outcomes. Approximately 1 in 4 TGI people in California are in fair or poor health, which is significantly higher than cisgender Californians (16%).

It is critical that everyone, especially TGI Californians, has access to timely and equitable health care that aligns with their gender identity without unnecessary restrictions. However, TGI people in California are delaying medical care or getting prescriptions at high rates. Over 40% of TGI people in the state delayed receiving medical care between 2019 and 2023, which is significantly higher than the average for cisgender people in the state (18%).

Forgoing preventive care or treatment for health conditions is harmful to health and well-being. Avoiding or delaying care also threatens the ability of people to thrive in the state. However, TGI people face unique barriers in accessing care, such as discrimination or fears of discrimination as well as a lack of competent providers and gender-affirming care. For example, providers may refuse to use the names and pronouns that correspond with an individual’s gender identity. Cutting funding for Medicaid and preventing Medicaid recipients from accessing gender-affirming care would increase the cost of health care for millions of Californians, and TGI people are already unable to afford out-of-pocket expenses due to employment discrimination and harassment or being unhoused. Increased costs would cause even more TGI people to delay receiving critical care.

Gender-affirming care saves lives. Policymakers should protect Medi-Cal to ensure all Californians — regardless of their income or gender identity — have access to affordable, quality, and affirming health care. Cutting Medi-Cal would take critical care away from some of our most vulnerable neighbors who rely on Medi-Cal to stay healthy and access care that allows them to survive.

Rather than cementing discriminatory policies and deepening inequities, state and federal policymakers should strengthen Medi-Cal to better meet the needs of TGI people and ensure that they can receive the care they need.

Federal Policy

The federal government plays a major role in shaping California’s budget, economy, and the well-being of its people.

Learn how federal policies shape California’s budget, economy, and vital programs — and how state leaders can respond to protect and support Californians.

Explore Federal Resources

Federal Policy

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H.R. 1 Jeopardizes Californians’ Access to Behavioral Health Care and Key State Reforms

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Key Terms

Californians of All Ages and Backgrounds Need Behavioral Health Care

Adults

Children and Youth

H.R. 1 and the Federal Budget

Recently Enacted Harmful Republican Mega Bill, H.R. 1, Will Impede Californians’ Access to Behavioral Health Care

How H.R.1 Financing Restrictions Will Impact Californians with Behavioral Health Conditions

How H.R. 1 Eligibility and Access Restrictions Will Limit Behavioral Health Coverage for Californians

H.R. 1 Puts Interconnected State Behavioral Health Initiatives At Risk

CalAIM’s Homelessness-Ending Housing Supports and the BHSA Rely on Medi-Cal

BH-CONNECT Strengthens Behavioral Health Care Through Medi-Cal

CYBHI Improves Medi-Cal Behavioral Health Supports for Youth Amid BHSA Shifts

Federal Policy

State Leaders Can Act to Protect Californians’ Right to Comprehensive Behavioral Health Care

You may also be interested in the following resources:

The State of Health Coverage in California: Progress, Disparities, and Policy Threats

USDA Refusal to Fund November CalFresh Benefits Threatens Food Security for 5.5 Million Californians

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key takeaway

California’s Preschool-Age DLLs: A Demographic Overview

The Case for State Investment in DLL Professional Development

Investments and Gaps in Support for Educators Serving DLLs

Implications for Policymakers to Support DLLs

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Preschool-Age Enrollment Trends Across California’s Early Learning Programs

Higher Wages for Early Care and Education Workers Builds a Stronger System

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key takeaway

Poverty Remains Alarmingly High Following Repeal of Pandemic-Era Policies

H.R. 1 and the Federal Budget

Poverty Increased Across All Age Groups, Especially for Younger Californians

Racial Inequities Persist, Further Highlighting How Federal Actions Disproportionately Impact Californians of Color

California Renters Experience Higher Levels of Poverty, Particularly Latinx and Black Renters

Tackling Deep Poverty Requires Bolder Expansions

Californians Need State Leaders to Address Poverty with Bold Action

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How Federal and State Budget Cuts Threaten Latinx Californians

Equity on the Line: The Dangerous Cost of Cutting Support for Black Women

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MORE IN THIS SERIES

Highly Profitable Corporations Can Largely Avoid State Taxes With Tax Credits and Net Operating Loss Deductions

How can corporations pay next to nothing in state taxes when they are profitable?

Profitable Corporations Shouldn’t Be Able to Wipe Their Entire Tax Burden: State Policymakers Should Place Annual Limits on Net Operating Loss Deductions and Tax Credits

BAD BUDGETING

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A Graduated Corporate Tax Ensures California’s Most Profitable Corporations Pay Their Fair Share

Water’s Edge: Closing the Largest Corporate Tax Loophole in California

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MORE IN THIS SERIES

Corporate Profits are Highly Concentrated, Yet Corporations are Taxed at the Same Rate Regardless of Profit Level

Types of Corporations and their California Tax Rates

C corporations

S corporations

Other California Business Types and Their Taxes

Policymakers Can Require Greater Tax Contributions from Top-Earning Corporations

You may also be interested in the following resources:

Legal Loopholes: How Corporations Reduce Their California Tax Bill

Water’s Edge: Closing the Largest Corporate Tax Loophole in California

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key takeaway

Cuts to Medi-Cal Will Leave Millions with Impossible Choices

Threats to CalFresh Will Deprive Millions of Californians of Food

Proposed Federal Cuts Will Directly Harm California’s Most Vulnerable Communities

You may also be interested in the following resources:

H.R. 1 Jeopardizes Californians’ Access to Behavioral Health Care and Key State Reforms

The State of Health Coverage in California: Progress, Disparities, and Policy Threats

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key takeaway

Community Health Workers Bridge Gaps in Access

Community Health Workers Make a Difference: A Case Study

State Leaders Have Taken Initial Steps to Integrate CHW/P/Rs

Underinvestment in CHW/P/Rs Threatens the Workforce and Their Impact

Better Data Is Key to Expanding Access

Conclusion

You may also be interested in the following resources:

H.R. 1 Jeopardizes Californians’ Access to Behavioral Health Care and Key State Reforms

The State of Health Coverage in California: Progress, Disparities, and Policy Threats