California’s state budget reserves, including the “rainy day fund” and other reserve accounts, serve as a financial safety net for services like education, health care, and child care during economic downturns. The rules for depositing and withdrawing funds are complex, and policymakers should consider reforms, such as excluding reserve deposits from the Gann Limit spending cap, to strengthen the state budget’s resilience during a recession.
Introduction
California has several state budget reserves. These reserves help to maintain essential public services — like education, health care, and child care — when revenues fall short, such as during recessions. Reserves aren’t for everyday spending, but rather a financial safety net for the state.
This report describes California’s state budget reserves, explains how funds can be accessed and used, and discusses proposals to reshape these reserves that have been floated in recent years.
state budget Reserves in a nutshell
The Budget Stabilization Account (BSA), or “rainy day fund,” holds revenues to support any program funded through the state budget.
The Public School System Stabilization Account (PSSSA), or schools reserve, periodically holds revenues to support K-12 schools and community colleges.
The Safety Net Reserve periodically holds revenues intended to support the CalWORKs and Medi-Cal programs.
The Special Fund for Economic Uncertainties (SFEU) holds revenues to cover unexpected state budget costs during a fiscal year.
The Projected Surplus Temporary Holding Account can be used to temporarily set aside some anticipated surplus revenues and avoid spending funds that may not materialize.
Budget Stabilization Account (BSA): California’s Largest Reserve
The BSA is California’s largest state budget reserve. Deposits into and withdrawals from this “rainy day fund” are based on complex rules that were added to the state Constitution by Proposition 2 of 2014.1Prop. 2 was placed on the November 2014 statewide ballot by the Legislature; voters approved the measure by a more than 2-to-1 margin. Prop. 2’s rules are found in the California Constitution (Article XVI, Sections 20 to 22). Key rules include the following:
An annual deposit is required. Prop. 2 requires that 1.5% of General Fund revenues be set aside every year. Until 2029-30 half of these revenues must be deposited into the BSA and the other half must be used to pay down certain state debts.2Revenues that are set aside for paying down state debts may be used for several types of debt, including reducing unfunded liabilities associated with state-level pension plans and prefunding other retirement benefits, such as retiree health care. Beginning in 2030-31, the entire amount must be deposited into the BSA, although state leaders will have the option of redirecting up to one-half of each year’s deposit to pay down debts.
In some years, the state must set aside additional General Fund revenues. This occurs in years when estimated General Fund revenues that come from personal income taxes on capital gains exceed 8% of total General Fund proceeds of taxes.3A capital gain is the increase in the value of an asset — like stock market shares — between the date of purchase and the date of sale. This increase represents income to the asset holder and is subject to the personal income tax in California. The share of these “excess” capital gains revenues that is not owed to K-12 schools and community colleges under the state’s Prop. 98 funding guarantee must be used for BSA deposits and debt repayments, following the same requirements as the mandatory 1.5% deposit. Since Prop. 2 was enacted, capital gains tax revenues have exceeded the 8% threshold in most years, but could fall below the threshold in years when there are downturns in the stock market.
State leaders may also make discretionary deposits. In addition to the mandatory annual deposits required by Prop. 2, policymakers have the option of saving additional, discretionary revenue in the BSA.
The required annual deposit may be reduced or suspended in the event of a “budget emergency. If the governor declares a budget emergency, the state may reduce or suspend the required BSA deposit with a majority vote of each house of the Legislature.4In contrast, the portion of General Fund revenues that is required to be used for debt payments cannot be reduced or suspended under any circumstances. Prop. 2 defines a budget emergency as a situation where:
Conditions of disaster or extreme peril are present5A budget emergency that is declared in response to a disaster or extreme peril must meet the definition provided in Article XIII B, Section 3(c)(2) of the state Constitution. This section refers to the existence of “conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof” and defines these conditions as being “caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.”; or
The state has insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living.6General Fund expenditures for the prior three fiscal years would be based on the level of spending “estimated at the time of enactment” of the budget bill for each fiscal year. The change in the “cost of living” would be measured using the California Consumer Price Index.
BSA funds may be withdrawn in the event of a budget emergency, but the entire balance cannot be removed at once. If the governor declares a budget emergency and the Legislature agrees with a majority vote of each house, funds may be taken out of the BSA.7The BSA balance may be reduced for another reason unrelated to a budget emergency. Specifically, Prop. 2 requires revisions to prior calculations of “excess” capital gains revenues — once in each of the two subsequent years — as updated revenue estimates become available. If a revision of “excess” capital gains revenues determines that a prior-year deposit to the BSA was greater than required, then the amount of funds equal to the over-deposit must be withdrawn from the reserve and returned to the General Fund. Alternatively, if a prior-year deposit was smaller than required, then funds must be added to the BSA to make up the difference. This after-the-fact “true-up” process does not apply to the portion of “excess” capital gains revenues that is used to pay down state debts each year. The true-up process also does not apply to the 1.5% of General Fund revenues that are required to be set aside each year. However, the entire balance cannot be removed immediately. Only the amount needed to address the budget emergency may be withdrawn, subject to the additional limitation that a withdrawal may not exceed 50% of the BSA balance in the first year of a budget emergency. In the second consecutive year of a budget emergency, all of the funds remaining in the BSA may be withdrawn.
Funds that are taken out of the BSA may go toward any purpose determined by the Legislature. For example, these dollars could be used for health care services, subsidized child care for working families, cash assistance for people with low incomes, K-12 schools, and any number of other public services and systems.
Funds in the BSA cannot exceed 10% of General Fund tax revenues. Prop. 2 caps the balance of the BSA. Once the balance — excluding any discretionary deposits — reaches 10% of General Fund tax revenues, any revenue that would otherwise have been required to go into the reserve must be instead spent on infrastructure, which includes housing. Prior to 2026, the BSA balance reached the cap twice — in 2022-23 and 2023-24 — but then dropped below the cap as state leaders withdrew funds in some years to address budget shortfalls.
Public School System Stabilization Account (PSSSA): The Reserve for K-12 Schools & Community Colleges
Prop. 2 of 2014 also established the PSSSA, the state’s budget reserve for California’s K-12 schools and community colleges. Prop. 2 does not require an annual deposit into this reserve. Moreover, Prop. 2 restricts the circumstances under which transfers to the PSSSA can occur. For a PSSSA deposit to be required, all of the following conditions must be met:
General Fund revenues that come from personal income taxes on capital gains are relatively strong;8Specifically, capital gains revenues must exceed 8% of total General Fund proceeds of taxes.
Growth in General Fund revenues leads to relatively strong growth in the state’s annual minimum funding guarantee for K-12 schools and community colleges;9A PSSSA deposit can only occur in so-called “Test 1” years under the state’s Prop. 98 minimum funding guarantee for K-12 schools and community colleges. Test 1, which guarantees K-14 education a percentage of General Fund revenues. However, even in certain Test 1 years, the amount of growth in state per capita personal income from the prior year can prevent a deposit to the PSSSA. and
The Legislature does not suspend the annual K-14 education minimum funding guarantee.
Even under these restricted circumstances, Prop. 2 limits the size of the deposit to the schools reserve when such a deposit is required.10For example, Prop. 2 specifies that transfers to the PSSSA may not exceed the difference between the Test 1 funding level under Prop. 98 and the “Test 2” funding level, which is determined by year-to-year growth in state per capita personal income. Prop. 2 also limits the size of the deposits to the PSSSA by prioritizing funding for K-14 education cost-of-living adjustments over deposits to the PSSSA.
Deposits to the PSSSA may be reduced or suspended in the event of a budget emergency under the same rules that govern reductions or suspensions of deposits to the BSA (see the prior section of this report). Similarly, funds may be withdrawn from the schools reserve if the governor declares a budget emergency and the Legislature agrees with a majority vote of each house.11Prop. 2 requires funds to be withdrawn from the PSSSA, even without a declaration of a budget emergency, when prior-year PSSSA deposits were greater than required. Prop. 2 also requires a withdrawal of funds from the PSSSA in any year when the Prop. 98 minimum funding guarantee is less than the prior-year Prop. 98 funding level, adjusted for changes in student attendance and the cost of living. In this case, the required withdrawal would be limited to the amount needed to reach the prior year’s funding level. Prop. 2 defines change in “cost of living” as the higher of 1) the percent change in California per capita personal income from the preceding year or 2) the cost-of-living adjustment applied to school district and community college district general purpose apportionments.
In contrast to the rules governing the withdrawal of funds from the BSA, all of the PSSSA funds may be withdrawn in one year. Moreover, funds withdrawn from the PSSSA must be used to support K-12 schools and community colleges.
Safety Net Reserve: Funds to Protect the Medi-Cal and CalWORKs Programs
The Safety Net Reserve was created in 2018 to set aside funds to help cover the costs of two programs that often see increases in enrollment during recessions: Medi-Cal and California Work Opportunity and Responsibility to Kids (CalWORKs).12The Safety Net Fund is authorized in California Welfare and Institutions Code, Section 11011. Both of these programs serve Californians with low incomes — with Medi-Cal delivering health coverage, and CalWORKs providing modest cash assistance to families with children. During economic downturns, more people become unemployed and temporarily rely on these programs to cover their basic needs, increasing state costs.
The Safety Net Reserve is not a constitutional reserve, so there are no binding requirements governing deposits or withdrawals. This means that funds can be transferred into and withdrawn from the reserve at the discretion of the Legislature. In fact, state policymakers voluntarily deposited $900 million in the Safety Net Reserve before draining all of those funds in 2024 to help address a $55 billion state budget problem.
Moreover, while state law specifies that the funds are to be used only for Medi-Cal and CalWORKs costs during economic downturns, state policymakers could decide to modify this language and use the funds for other purposes. However, in establishing this reserve, policymakers clearly recognized the need to protect critical services for Californians with low incomes from budget cuts — cuts that would undermine Medi-Cal and CalWORKs at the very time that these programs are needed most.
Dive Deeper Into California’s Budget Reserves
For a deeper understanding of California’s reserve accounts, explore the Budget Center’s companion resources:
Special Fund for Economic Uncertainties (SFEU): The Discretionary Reserve
The SFEU is the state’s discretionary General Fund budget reserve, meaning policymakers have a great deal of latitude in spending the funds in the reserve.13The SFEU (originally called the “Reserve for Economic Uncertainties”) was created through the 1980-81 Budget Act and is authorized in California Government Code, Section 16418. The amount of money in the SFEU is equal to the difference between General Fund resources and General Fund spending in a given fiscal year.14Specifically, the SFEU balance is equal to the General Fund balance carried over from the prior year, plus revenues and transfers, minus expenditures and encumbrances. Legislative Analyst’s Office, The 2020-21 Budget: Structuring the Budget (February 10, 2020), p. 11.
The SFEU acts as a buffer against unanticipated revenue shortfalls or spending increases. Due to California’s constitutional balanced-budget requirement, which requires the state to enact a budget in which spending does not exceed available resources, the projected SFEU balance cannot be less than zero at the time the annual budget is adopted. However, if state revenues come in lower than projected and/or spending unexpectedly rises, the SFEU balance will decline, and may become negative as spending begins to exceed revenues.
The Legislature can appropriate funds from the SFEU at any time and for any purpose. Additionally, in the event of a disaster, the governor can allocate funds from the SFEU without the prior approval of the Legislature. Specifically, when the governor declares a state of emergency, the Department of Finance (DOF) can transfer funds from the SFEU into a subaccount called the Disaster Response-Emergency Operations Account (DREOA).15The amount that may be transferred to the DREOA is limited to the amount necessary to cover disaster-related claims that exceed the available balance in the account. California Government Code, Section 8690.6(d). These funds are allocated to state agencies for costs that are “immediate and necessary to deal with an ongoing or emerging crisis.”16The DOF is required to notify the Joint Legislative Budget Committee as well as the fiscal committees in each house before any funds may be allocated from the SFEU in response to a disaster. Funds in the DREOA can be spent for disaster response costs that occur within 120 days of the Governor’s emergency proclamation. The DOF can extend this time period in up to 120-day increments upon notifying the Legislature, subject to certain limitations. California Government Code, Section 8690.6.
Projected Surplus Temporary Holding Account: A Place to Set Aside Anticipated Surplus Revenues
State leaders created the Projected Surplus Temporary Holding Account in 2024. This account gives policymakers a place to temporarily set aside anticipated surplus revenues, “ensuring that funds are only spent once they are realized.”17Office of Governor Gavin Newsom, press release (September 30, 2024).
State leaders have broad authority to determine whether or how to use this holding account. The only requirement is that revenues that go into the account cannot remain there for longer than one year. If state revenues materialize as projected, the revenues in the account may be spent for any purpose or transferred back to the General Fund for future use.18California Government Code, Section 16418.7.
This holding account is a “pilot budgeting project” that expires at the end of 2030, although state leaders could approve an extension as well as potentially modify the rules.
What’s Next for California’s State Budget Reserves?
The rules that govern California’s budget reserves can be amended by voters or state policymakers. Changing the reserve rules established by Prop. 2 (2014) would require voters to approve a constitutional amendment.19Amendments can be placed on a statewide ballot through a citizens initiative or by the Legislature. Other reserve rules can be changed by state policymakers without the need for voter approval.
In recent years, state policymakers and others have advanced proposals to revise California’s reserve policies, although none have moved beyond the conceptual stage. Common proposals for changing state reserve policies include the following:
Proposals to increase the share of state General Fund revenue deposited into the Budget Stabilization Account (BSA), or rainy day fund.
Proposals to require a substantially larger share of General Fund revenue to go into the BSA raise concerns. Such changes would reduce annual funding available to address Californians’ growing needs. While saving for a rainy day is important, it shouldn’t come at the cost of meeting people’s needs today.
If policymakers want to increase state reserves, they can do so without requiring more revenue to be deposited into the BSA. State leaders currently have the authority to make discretionary deposits into the rainy day fund and other reserves, like the Safety Net Reserve. Discretionary deposits can be made periodically and can be accessed more easily than the BSA’s mandatory deposits, which are subject to stricter withdrawal conditions.
State leaders also can build up the rainy day fund through policies that increase General Fund revenue. This is because higher revenue would automatically boost annual deposits into the BSA under current Prop. 2 rules.
Proposals to allow the balance of the BSA to grow beyond 10% of annual state General Fund revenue.
Increasing the maximum size of the BSA above the current 10% cap would be an acceptable change — but only if the proportion of General Fund revenue that must be deposited into the BSA does not also increase substantially. Raising the 10% cap while also shifting a larger share of revenue into the rainy day fund would leave less funding to support the critical services that Californians need.
Proposals to exclude reserve deposits from California’s spending cap, or “Gann Limit.”
Excluding reserve deposits from California’s spending cap would be a sensible change. Currently, deposits into the BSA and other state budget reserves are classified as “expenditures” under the Gann Limit, which voters created by passing Prop. 4 in 1979.
Counting reserve deposits as “spending” increases the likelihood that the state will exceed the spending cap in years when revenues are strong. When revenues go over the Gann Limit, state leaders lose the ability to spend those dollars in ways that address Californians’ most pressing needs. Therefore, excluding deposits from the limit would allow state policymakers to build up budget reserves in years when revenues are particularly strong — which is exactly when the state is most likely to exceed the spending cap.
Changes to the rainy day fund or the Gann Limit would require amending the state Constitution. This means that voters would have the last word on the most significant proposals to modify California’s state budget reserves.
Prop. 2 was placed on the November 2014 statewide ballot by the Legislature; voters approved the measure by a more than 2-to-1 margin. Prop. 2’s rules are found in the California Constitution (Article XVI, Sections 20 to 22).
2
Revenues that are set aside for paying down state debts may be used for several types of debt, including reducing unfunded liabilities associated with state-level pension plans and prefunding other retirement benefits, such as retiree health care.
3
A capital gain is the increase in the value of an asset — like stock market shares — between the date of purchase and the date of sale. This increase represents income to the asset holder and is subject to the personal income tax in California.
4
In contrast, the portion of General Fund revenues that is required to be used for debt payments cannot be reduced or suspended under any circumstances.
5
A budget emergency that is declared in response to a disaster or extreme peril must meet the definition provided in Article XIII B, Section 3(c)(2) of the state Constitution. This section refers to the existence of “conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof” and defines these conditions as being “caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.”
6
General Fund expenditures for the prior three fiscal years would be based on the level of spending “estimated at the time of enactment” of the budget bill for each fiscal year. The change in the “cost of living” would be measured using the California Consumer Price Index.
7
The BSA balance may be reduced for another reason unrelated to a budget emergency. Specifically, Prop. 2 requires revisions to prior calculations of “excess” capital gains revenues — once in each of the two subsequent years — as updated revenue estimates become available. If a revision of “excess” capital gains revenues determines that a prior-year deposit to the BSA was greater than required, then the amount of funds equal to the over-deposit must be withdrawn from the reserve and returned to the General Fund. Alternatively, if a prior-year deposit was smaller than required, then funds must be added to the BSA to make up the difference. This after-the-fact “true-up” process does not apply to the portion of “excess” capital gains revenues that is used to pay down state debts each year. The true-up process also does not apply to the 1.5% of General Fund revenues that are required to be set aside each year.
8
Specifically, capital gains revenues must exceed 8% of total General Fund proceeds of taxes.
9
A PSSSA deposit can only occur in so-called “Test 1” years under the state’s Prop. 98 minimum funding guarantee for K-12 schools and community colleges. Test 1, which guarantees K-14 education a percentage of General Fund revenues. However, even in certain Test 1 years, the amount of growth in state per capita personal income from the prior year can prevent a deposit to the PSSSA.
10
For example, Prop. 2 specifies that transfers to the PSSSA may not exceed the difference between the Test 1 funding level under Prop. 98 and the “Test 2” funding level, which is determined by year-to-year growth in state per capita personal income. Prop. 2 also limits the size of the deposits to the PSSSA by prioritizing funding for K-14 education cost-of-living adjustments over deposits to the PSSSA.
11
Prop. 2 requires funds to be withdrawn from the PSSSA, even without a declaration of a budget emergency, when prior-year PSSSA deposits were greater than required. Prop. 2 also requires a withdrawal of funds from the PSSSA in any year when the Prop. 98 minimum funding guarantee is less than the prior-year Prop. 98 funding level, adjusted for changes in student attendance and the cost of living. In this case, the required withdrawal would be limited to the amount needed to reach the prior year’s funding level. Prop. 2 defines change in “cost of living” as the higher of 1) the percent change in California per capita personal income from the preceding year or 2) the cost-of-living adjustment applied to school district and community college district general purpose apportionments.
12
The Safety Net Fund is authorized in California Welfare and Institutions Code, Section 11011.
13
The SFEU (originally called the “Reserve for Economic Uncertainties”) was created through the 1980-81 Budget Act and is authorized in California Government Code, Section 16418.
14
Specifically, the SFEU balance is equal to the General Fund balance carried over from the prior year, plus revenues and transfers, minus expenditures and encumbrances. Legislative Analyst’s Office, The 2020-21 Budget: Structuring the Budget (February 10, 2020), p. 11.
15
The amount that may be transferred to the DREOA is limited to the amount necessary to cover disaster-related claims that exceed the available balance in the account. California Government Code, Section 8690.6(d).
16
The DOF is required to notify the Joint Legislative Budget Committee as well as the fiscal committees in each house before any funds may be allocated from the SFEU in response to a disaster. Funds in the DREOA can be spent for disaster response costs that occur within 120 days of the Governor’s emergency proclamation. The DOF can extend this time period in up to 120-day increments upon notifying the Legislature, subject to certain limitations. California Government Code, Section 8690.6.
17
Office of Governor Gavin Newsom, press release (September 30, 2024).
18
California Government Code, Section 16418.7.
19
Amendments can be placed on a statewide ballot through a citizens initiative or by the Legislature.
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California has several budget reserves that help to manage annual state revenues and protect services when the state faces a budget deficit. California’s Constitution and state law govern when funds may be withdrawn from the state’s reserves, the amount that can be withdrawn, and how funds may be used.
TWO RESERVE ACCOUNTS ARE ESTABLISHED IN THE STATE CONSTITUTION:
Budget Stabilization Account (BSA)
Public School System Stabilization Account (PSSSA)
Three reserve accounts are established in state law:
Safety Net Reserve
Special Fund for Economic Uncertainties (SFEU)
Projected Surplus Temporary Holding Account
The following table answers five key questions about California’s budget reserves:
Is the state required to make an annual deposit?
Can a required deposit be reduced or suspended — and by who?
When can the funds be withdrawn?
Is there a limit on the amount of funds that can be withdrawn?
How can the funds be used by the state?
Dive Deeper Into California’s Budget Reserves
For a deeper understanding of California’s reserve accounts, explore the Budget Center’s companion resources:
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Communities across California face many challenges during President Trump’s second administration, from deep federal budget cuts that threaten to undermine Californians’ health, economic security, and well-being, to mounting affordability pressures and persistent inflation that have exacerbated communities’ longstanding unmet need for more affordable housing, health care, and child care. People with low incomes, immigrants, communities of color, and other marginalized Californians are bearing the brunt of these challenges, as harmful and discriminatory federal policies compound existing inequities based on race and wealth.
State leaders have an opportunity to chart a different path for California, and they have both the responsibility and the ability to respond. This report shows that:
Policymakers have the tools to better meet Californians’ needs and the evidence to prove it. Recent progress — from improvements in health coverage, to gains in affordable housing and declines in homelessness, to increased child care enrollment and lower child poverty — shows that when the state invests in people’s essential needs, quality of life improves.
Progress is now under threat from federal cuts and policy rollbacks. Federal cuts are targeting the very programs that have improved Californians’ lives, hitting the most vulnerable communities hardest and widening existing inequities.
Policymakers have the resources and revenue solutions to fight back. California has the fourth-largest economy in the world and is home to a large share of the nation’s wealthy as well as some of the largest, most profitable corporations, all of which benefit from the state’s public services and infrastructure. Yet California loses billions of dollars each year due to tax breaks and loopholes that benefit corporations and the wealthy — resources that could be better spent meeting the needs of California families.
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.
Tax Revenue Funds the Public Investments That Improve Californians’ Lives
Every Californian deserves affordable housing, health care, and child care, well-paying jobs, and the resources to build a secure future — and public investment is how we get there. Recent experience shows that when policymakers invest in meeting people’s essential needs, Californians’ quality of life improves. In recent years:
California’s uninsured rate fell to a historic low following investments to expand access to health coverage
In 2014, California fully implemented federal health care reform, which, along with more recent state initiatives to expand full-scope Medi-Cal to all income-eligible Californians regardless of immigration status, helped the state reach a historically low uninsured rate of 5.9% in 2024.
case Study: How a Tax on Wealthy Households Funds Schools, Health Care & More
Voters asked the top 2% of earners to contribute more — generating $9 to $10 billion per year for education, tax credits for families with low incomes, and a stronger, more resilient state budget.
Expanding Medi-Cal to undocumented children led to significant improvements in their health
Undocumented children in California became eligible for full-scope Medi-Cal in 2016, and coverage was fully expanded to cover all income-eligible Californians in 2024. Research shows that after the expansion to undocumented children took effect, the percentage of non-citizen children who reported being in excellent health increased by 10 percentage points from 20% to 30%, suggesting that investing in health coverage for all contributed to significant improvements in people’s health.
More Californians are exiting homelessness — thanks to public investments
This is in large part due to significant state investments in the Homeless Housing, Assistance and Prevention (HHAP) program, which allows communities across California to fund solutions tailored to their local needs. In 2024 alone, homeless service providers assisted over 330,000 Californians experiencing homelessness. HHAP has helped drive a 24% decline in youth homelessness since 2019 and supported more than 90,000 Californians in moving into permanent housing since 2023. These and other state homelessness investments have led to a statewide 9% drop in unsheltered homelessness in 2025.
California has doubled the production of new affordable homes in recent years
According to the California Housing Partnership, California produced more than 17,900 units in 2024. This increase was largely driven by major state investments in various affordable housing programs between 2019 and 2023, which helped thousands of developments pencil out and open their doors. More homes are still needed — but the gains are spreading, with more counties becoming affordable for California households with middle and lower incomes.
Enrollment in publicly funded child care has steadily increased following the partial expansion of subsidized child care spaces
In 2021, the Newsom administration promised to expand affordable child care to more than 200,000 children. Around 60% of that promise has been fulfilled: the share of eligible children enrolled in publicly funded child care grew from 11% in 2022 to 16% in 2024. That means thousands more children are getting the care that supports their healthy development and thousands more families have the economic security to thrive.
California’s child poverty rate dropped by 40% in one year following the significant temporary expansion of the federal Child Tax Credit
In 2021, the federal Child Tax Credit was increased and made fully refundable, allowing millions of families with very low incomes to access the full credit for the first time. This expansion drove a 40% drop in California’s child poverty rate and was associated with reductions in food insecurity and racial income inequities. This demonstrates that poverty is a policy choice and that a significant expansion of California’s own tax credits could have a widespread impact for families and individuals experiencing poverty.
case Study: Clever Strategy Allowed California to Raise New Revenue Following Federal Tax Cuts
In 2019, California selectively conformed to parts of the federal Tax Cuts and Jobs Act, enacted during President Trump’s first term, and raised over $1 billion in new, ongoing annual revenue — boosting K-14 education and expanding tax credits for working families.
There are still 1.8 million children in California who are eligible for publicly funded child care but not enrolled, underscoring the state’s need to fulfill its promise or risk forcing tens of thousands of families to make the impossible decision between going to work or caring for their child.
When COVID-era investments expired, the child poverty rate rapidly increased, and California continues to have the highest poverty rate of the 50 states, tied with Louisiana, pointing to the need for state leaders to do more to help Californians meet basic needs.
Yet recent and projected budget shortfalls make clear that California’s tax system isn’t generating enough resources even to maintain recent progress — let alone build on it. And now, deep federal funding cuts and other harmful actions are upending California’s progress toward a more equitable future.
Federal Cuts Are Threatening California’s Hard-Won Progress
The progress California has made didn’t happen by accident — it took sustained public investment. Now federal cuts are targeting the very programs that made that progress possible, and the communities bearing the greatest burden are those that were already struggling most.
If state leaders fail to raise additional revenue and expand public investments, here’s what’s at risk for California families:
Up to 2 million Californians may lose their Medi-Cal coverage
Federal cuts to health care could cause up to 2 million Californians with low and modest incomes, who are disproportionately Latinx and other Californians of color, to lose their Medi-Cal coverage. While this will impact all Californians, immigrants’ access to care is specifically restricted, including the elimination of health insurance coverage for many immigrants, such as refugees, asylees, and trafficking survivors. This is estimated to leave 200,000 Californians without crucial health insurance they need to survive. Recent state action to restrict coverage for immigrants will add to the harm by reversing progress made towards providing health care for all.
As people lose health insurance, clinics and hospitals — especially in rural areas — will face additional financial strain, leading to overcrowded clinics, fewer options for care in local communities, and higher premiums, among other ripple effects that will impact the entire health care system. Proposed additional state cuts to health care access for immigrants would further exacerbate the harm by causing even more Californians to lose coverage.
Over 3 million California households are at risk of losing some of all food assistance
Federal cuts to food assistance could put more than 3 million households with very low incomes, disproportionately Black, Latinx, and other people of color, at risk of losing some or all assistance. The harshest cuts target some of the most marginalized state residents, including refugees, asylees, and other humanitarian immigrants, as well as former foster youth, veterans, and people experiencing homelessness. Without state action to offset the cuts, food insecurity and poverty will rise, and an entire ecosystem of jobs and businesses connected to the food economy will be damaged.
At least 75,000 Californians could fall into homelessness
Federal threats to housing and homelessness programs, combined with inadequate state support, could undermine California’s progress in reducing homelessness and supporting housing stability for Californians with the lowest incomes, a large share of whom are older adults and people with disabilities. Harmful changes to federal Continuum of Care funding are expected, and current federal appropriations still fall short of covering nearly 15,000 California families with an Emergency Housing Voucher — putting homelessness services and households who have already secured housing at risk of falling back into homelessness. At the same time, a proposed federal rule targeting mixed-status households could put roughly 7,190 California families at risk of losing HUD-assisted housing, most of which include children, and impose new red-tape on more than 820,000 U.S. citizens in California. Proposed cuts to HHAP and the failure to provide new General Fund investments in affordable housing add to these challenges.
State Leaders Have Common-Sense Options to Raise Revenues and Protect Californians From Federal Harm
The choices state leaders make will determine who bears the burden and who benefits from H.R. 1. Maintaining the status quo means choosing to protect tax breaks for corporations and the wealthy at the expense of everyone else. Without bold action, people with low incomes, immigrants, communities of color, and other marginalized Californians will be left to bear the full brunt of federal cuts. California has commonsense options to minimize the harm, including:
Closing the “water’s edge” loophole, the most costly state corporate tax break
The “water’s edge” loophole allows global corporations that shift US profits to tax havens to avoid $3 to $4 billion in state taxes each year, at the expense of everyday people. This tax break rewards large profitable corporations that engage in aggressive tax planning by making it appear they are less profitable in the US and in California than they actually are — something small domestic businesses and individuals working for a living cannot do.
Putting reasonable limits on corporate tax credits and deductions
Reasonable caps on corporate tax credits and deductions would ensure corporations cannot use them to reduce their tax bill to the mere state $800 minimum tax. Policymakers can continue the temporary limit on business tax credits put in place by the 2024-25 budget agreement — which capped the use of credits to $5 million per business each year from 2024 through 2026 — and reverse course on the provision allowing businesses to claim refunds for the credits that exceeded the cap after the temporary limit expires. These refunds are estimated to cost the state $6.8 billion across fiscal years 2026-27 and 2034-35, a time when millions of Californians will be dealing with the harms of the federal budget cuts and the state will be ill-positioned to protect Californians without substantially raising revenue.
Ensuring that wealthy individuals inheriting valuable assets don’t escape taxation
This can be done by eliminating the state’s “basis step-up” tax break so that people inheriting assets pay tax on the full increase in value of those assets when they sell them and reinstating an estate or inheritance tax on large estates or inheritances. Most California estates go untaxed due to California’s lack of a state-level estate or inheritance tax and the overly generous exemption from the federal estate tax, which allows wealthy families to pass up to $30 million to their heirs tax-free ($15 million per individual). The basis step-up tax break is estimated to cost the state around $5 billion each year — although revenue gains from repealing it would start small and accrue over time. The potential revenue from enacting an estate or inheritance tax — which would have to be approved by state voters — would depend on the design, but by one estimate could raise between about $900 million and $3.6 billion, depending on the size of estates that would be subject to the tax.
The Path Forward: Equitable Revenue, Public Investment, and a California Where Everyone Thrives
Strengthening California’s revenue base is long overdue — and now, as the federal government abandons its responsibility to support the health and well-being of all Americans, it is more urgent than ever. California can and must chart a different course. By ensuring the most profitable corporations and wealthiest Californians pay their fair share, state leaders can generate the resources needed to protect communities from federal harm, build on hard-won progress, and move toward a California where everyone can thrive.
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key takeaway
AANHPI women’s experiences vary widely across ethnicities, making disaggregated data essential to understanding the impacts of recent federal and state decisions. By examining the Women’s Well-Being Index indicators across multiple AANHPI ethnicities, this report highlights distinct challenges facing AANHPI women in California and identifies key steps state and local leaders can take to advance equity and well-being.
Recent federal and state budget cuts threaten to undermine the health and well-being of Californians, including those with AANHPI identities. The 2024 Women’s Well-Being Index (WWBI) points to long-standing disparities between men and women in California, suggesting that women — especially those facing intersecting barriers shaped by race, income, and immigration status — will face even greater hardship as a result of harmful budget actions.
AAPI ForCE-EF is a statewide network that builds progressive Asian American and Pacific Islander governing power in California through campaign organizing, policy advocacy, integrated voter engagement, and narrative change.
Asian Americans, Pacific Islanders, and Native Hawaiians (AANHPI) have a rich history in California and reflect a wide variety of backgrounds and experiences with over 50 ethnic groups. However, data collection using the “umbrella label” of AANHPI often homogenizes this diversity into a misleading single story about the experiences of AANHPIs. Aggregated data perpetuates the model minority myth and hides the struggle of working-class AANHPIs by obscuring differences between subgroups. Given the unique experiences among AANHPI ethnicities, to meaningfully understand the impact of recent federal decisions, it is paramount to understand unique impacts for individual identities within the AANHPI umbrella. Moreover, state leaders’ current response to federal actions further jeopardizes the well-being of AANHPI Californians. AANHPI women in California therefore face the compounding factors of federal threats and state inaction.
This report takes the Women’s Well-Being Index one step further by exploring key indicators of well-being across multiple AANHPI ethnicities to understand how recent federal and state decisions may influence this California population (see Technical Appendix for more information about the ethnicities reflected in this report). This report also highlights key steps that state and local leaders can take to address pressing challenges among AANHPI women and the several organizations that are leading the way.
How might recent federal and state action impact AANHPI Californians?
The harmful Republican megabill (referred to as H.R. 1), passed in the summer of 2025, includes historic cuts to health care and food assistance to fund tax breaks for the well-off. These cuts fall particularly hard on immigrants, with several of the most vulnerable classes of legally documented immigrants — like refugees, asylees, humanitarian parolees, and trafficking survivors — losing access to care.
Around a third of the California state budget comes from federal funding, and a projected multi-year budget deficit means the state — without bold action — may be unable to backfill some or all of these cuts. Rather than pursuing revenue solutions, the state has instead balanced its budget on the backs of its most vulnerable residents.
Immigrant Californians, many of whom are AANHPI, have borne the brunt of cuts to the social safety net in the state budget. The 2025-26 state budget included an enrollment freeze for undocumented Californians in Medi-Cal, a cut to dental benefits for certain groups of immigrants, and the introduction of unaffordable premiums for certain groups of immigrants.
The impacts of H.R. 1 and state budget policies stand to exacerbate the economic security challenges AANHPI women already face. Importantly, different AANHPI ethnicities face distinct challenges in health, economic mobility, and economic security, and policy approaches must account for these disparities.
Native Hawaiian and Pacific Islander Women Face Barriers to Accessing Quality, Affordable Health Care
Affordable, accessible health care is critical for all Californians to be healthy and thrive. Health insurance helps lower out-of-pocket expenses and ensures access to preventive care, which in turn supports workforce participation and education. While California has made historic progress towards lowering the rate of people without health insurance, significant racial disparities persist. As seen in the chart below, access to health care differs among AANHPI women, Native Hawaiian and Pacific Islander women in particular.
The Central Valley Pacific Islander Alliance (CVPIA) is an organization dedicated to service, cultural work, civic engagement, and advocacy for NHPIs across eleven counties in California’s Central Valley. Founded in 2021 by eight NHPI volunteers responding to urgent community needs during the COVID-19 pandemic, CVPIA hosted the region’s first NHPI vaccine site, where about 150 community members were vaccinated and received resources for groceries. CVPIA continues to offer critical NHPI resource navigation surrounding leadership development for youth and young adults, higher education, employment, support for elders, and community access to housing, Calfresh, and health insurance.
Racial disparities in health coverage highlight the enduring impact of racism, which blocks Californians of color from equal access to health care. Addressing the racial disparities in health coverage requires targeted outreach and education efforts along with other antiracist policy actions to improve health and well-being for Californians of color.
However, federal budget cuts from H.R. 1 and state budget cuts restrict access to health care for many Californians, particularly for immigrants and other low-income Californians. Stricter federal restrictions on who is eligible for Medicaid, new burdensome reporting requirements, more frequent eligibility checks, and state Medi-Cal premiums for certain groups of immigrants all jeopardize health care access for Californians, including AANHPI women who are more likely to be immigrants.
As a result of state and federal cuts, we estimate:
Nearly 300,000 employed Asian American and 16,000 employed Pacific Islander adults ages 26-64 in California will be at risk of losing Medi-Cal due to monthly premiums and burdensome recertification requirements
Nearly 50,000 unemployed Asian American adults ages 26-64 and 4,000 Pacific Islander unemployed adults on Medi-Cal are at risk of losing coverage due to work requirements1Steven Ruggles, Sarah Flood, Matthew Sobek, Daniel Backman, Grace Cooper, Julia A. Rivera Drew, Stephanie Richards, Renae Rogers, Jonathan Schroeder, and Kari C.W. Williams. IPUMS USA: Version 16.0. 2019-2023, ACS 5-year. Minneapolis, MN: IPUMS, 2025. Analysis by Cevadne Lee, OCAPICA.
Together, these cuts will likely worsen existing health disparities, especially for Pacific Islander women.
Central Asian and Pacific Islander Women Face Significant Barriers to Economic Mobility
Over half (55.7%) of Central Asian women and over 40% (43.1%) of Pacific Islander women are paid low wages. These are both significantly higher than the statewide average, where roughly 37% of women in California are paid low wages. AANHPI women are overrepresented in low-wage work and in service jobs that typically earn much less than white men, such as home care workers and nail salon workers. This concentration in low-wage work widens the wage gap between AANHPI women and white men, as shown in the following chart.
Central Asian women are paid only $0.53 for every $1 white men are paid, and Pacific Islander women earn only $0.56. AANHPI women are over-represented in low-wage work and underrepresented in higher-paying jobs. Even when AANHPI women can access higher-paying jobs, the earnings gap persists.
Occupational Segregation Pushes AANHPI Women into Low-Wage Service Jobs That Limit Economic Mobility and Fair Pay
Occupational segregation pushes many AANHPI women into low-wage service jobs. Many AANHIPI women — especially those who are undocumented — are relegated to jobs where they are easily exploited, that lack labor protections, and have limited pathways to upward economic mobility.
Service-based occupations have been shown to have the largest wage gaps, demonstrating the larger disparity for AANHPI women.
Native Hawaiian and Pacific Islander women are more likely to work as personal care aids, waitresses, and cashiers, working long hours for low wages.
In California, AANHPI women make up the largest share of nail salon and personal care workers. In addition to health and safety risks — particularly exposure to chemicals in cosmetics products linked to reproductive harm, respiratory issues, and cancer — this predominantly Vietnamese refugee women workforce face ongoing wage and hour labor violations, including pay below the minimum wage and misclassification as independent contractors.
The California Healthy Nail Salon Collaborative (CHNSC) — a statewide grassroots organization that addresses health, environmental, reproductive justice, and labor issues faced by its low-income, female, Vietnamese immigrant and refugee workforce — has made notable strides to protect the nail salon workforce. In the state legislature they championed bills like AB 647 (Kalra, 2019) requiring manufacturers to post Safety Data Sheets for cosmetics and disinfectants on their websites in Spanish, Vietnamese, Korean, and Chinese; AB 2762 (Muratsuchi, Wicks, & Quirk, 2020) banning 24 commonly used toxic chemicals in cosmetic products; and HR 5540 (Schakowsky & Blunt-Rochester, 2022) requiring product ingredient disclosure and translated Safety Data Sheets access, and research grants to develop safer alternatives to chemicals of concern.
High Poverty and Housing Costs Threaten Economic Security for AANHPI Women
Different AANHPI ethnicities face distinct poverty challenges. Namely, East Asian and Pacific Islander women have relatively higher poverty rates, and East Asian women have a significantly higher poverty rate as compared with all women. While there are many reasons contributing to poverty among AANHPI women in California, affordability challenges are paramount.
Central to affordability challenges is the high cost of housing in California. As shown in the chart below, women in California spend approximately 38% of their income on rent and are thus rent burdened. Rent burden is even more extreme for some AANHPI women.
Key points specific to AANHPI women include:
Most AANHPI ethnicities are rent burdened. Most AANHPI ethnicities spend over 30% of their income on rent. Housing affordability is therefore a central issue for AANHPI women when it comes to meeting basic needs. H.R. 1 will further strain AANHPI women’s budgets, exacerbating the high cost of housing challenges these women already face.
Rent burden estimates are likely underestimated.Housing overcrowding is a known issue among some AANHPI communities. More specifically, many AANHPI women live in housing that is considered ‘overcrowded’ in order to reduce rent burden and other housing costs. Overcrowding can result in negative outcomes, including increased exposure to environmental hazards, lower educational outcomes, poor physical health, and mental health challenges.
AANHPI women are less likely to seek support for precarious housing situations. As shared in the University of California, Los Angeles AANHPI Housing Report, one Orange County community leader described this situation as follows: “The other thing [AANHPI Californians] don’t use is free and reduced lunch, and they don’t use the McKinney-Vento Act to get additional resources for their kids because they’re worried. They’re worried the authorities will say they’re not taking care of their kids and take them away.” As a result, AANHPI women and families are less likely to see and utilize available services to address rent burden, even if they are available.
Overall, state and federal cuts will negatively impact affordability challenges for all Californians, including AANHPI women. State leaders should work to mitigate the harm of these cuts to all Californians and collaborate with their AANHPI constituents to ensure policy solutions are responsive to the unique needs of AANHPI women.
What can state leaders do to help mitigate the potential impacts from federal actions?
California’s state leaders can make budget and policy choices that actively address federal actions that will harm AANHPI women. State leaders should pursue revenue solutions to invest in vital programs and services that mitigate the harm caused by federal actions to AANHPI women and all vulnerable Californians. For example, state leaders can focus on ensuring that corporations and wealthy individuals, who were recently showered with massive federal tax cuts, contribute more in state taxes. Ensuring that the state has sufficient resources to fund the programs and services that California — including AANHPI women — needs is critical.
More specific recommendations for supporting AANHPI women are as follows:
Continue to seek opportunities to challenge and backfill cuts to federal funding for critical programs like Medi-Cal and CalFresh, such as by raising new, ongoing state revenue.
Allow continued enrollment in Medi-Cal, eliminate premiums, and restore dental coverage; and
Ensure a seamless transition of newly SNAP-excluded immigrants to the California Food Assistance Program (CFAP).
Establish an Office of Language Access within the California Health & Human Services Agency (CalHHS) to provide oversight, accountability, and coordination across CalHHS’ departments and offices to ensure individuals who speak a language other than English have meaningful access to the government’s health and human services programs.
Require local and state agencies to collect accurate, disaggregated data in order to identify hidden disparities among AANHPIs.
Preserve and continue to expand commitments to culturally and linguistically appropriate outreach and supports, including:
Restoring the 2018–2019 Safety Net Reserve Fund to support community-based organizations;
Restoring funding for the California Health Enrollment Navigator Program;
Building a pipeline for bilingual/ bicultural licensed therapists, and incentivizing them to train with and subsequently work at LEP-serving community-based organizations;
Continuing to fund the California Reducing Disparities Project, which is aimed at reducing mental health disparities for five key populations including AANHPIs; and
Conducting more culturally and linguistically specific outreach to AANHPI communities for mental health supports and general assistance programs.
Continue to enforce and strengthen laws protecting patient data and privacy, including:
Ensuring state and local agencies do not share sensitive information with the federal government; and
Mandate regular in-language training on safety, health, and workers’ rights for low-wage workers and employers.
Strengthen protections for immigrant workers against employer coercion.
Prohibit employers and others from leveling immigration-related threats meant to preemptively silence them.
Housing
Increase access to safe and affordable housing for AANHPI families.
Prioritize funding, producing, and preserving housing that will be permanently affordable to low-income households, including multigenerational households, seniors and families with children.
Invest in in-language housing counseling programs that assist households with applying to and accessing housing resources.
Invest in measures to increase AANHPI participation in state housing programs, including rental assistance programs.
Consider and implement legislative recommendations made in the Senate Bill 555 (Wahab, 2023) social housing study, which will include a comprehensive analysis of opportunities, resources, and obstacles.
Authorize general obligation bonds to be used for affordable rental housing programs for lower income families and supportive housing for people experiencing homelessness, among other uses. Include carveout for alternative models for permanently affordable housing and other social housingmodels.
Protect low-income AANHPI tenants.
Enact strong baseline relocation protections for tenants to disincentivize displacement and speculation, particularly in the context of jurisdictions with an aging housing stock or housing stock vulnerable to climate change or natural disasters.
Strengthen and clarify language access rights for tenants in their preferred language.
Strengthen protections and create greater stability for renters by narrowing exemptions in the state’s just cause for eviction laws.
Lower the rent cap to a figure more closely aligned with inflation in order to help keep families in their homes and prevent homelessness and overcrowding.
Fund proven emergency rental relief programs in perpetuity.
Protect individuals and families most at-risk of housing instability and homelessness, particularly under the current federal administration.
Allocate funding to local and state governments to provide emergency rental relief to mixed status tenant households, which face the loss of income due to immigration enforcement and other harmful federal actions.
Condemn the criminalization of homelessness, and commit to Housing First policies in order to end the cycle of homelessness in our communities.
Provide state funding to continue ongoing support of homelessness services and permanent housing placement and to backfill federal cuts.
To overcome harmful stereotypes and ineffective policies, state leaders should recognize the multitude of identities and needs underscoring the AANHPI population in California. As federal cuts begin to impact Californians, the need for policies that support the well-being of AANHPI women is even more critical. Policymakers can make this possible by raising sustained, ongoing revenue to support AANHPI women and all vulnerable Californians as the state continues to reel from a harmful federal policy agenda.
The 2024 Women’s Well-Being Index was able to disaggregate many of the 30 indicators by race and ethnicity. However, we know that the identity of Asian and Asian/Pacific Islander incorporates many different ethnicities within those labels, so we have disaggregated some of the indicators further to provide a better understanding of how Asian women are doing in the state. The Asian subgroups were created via the US Census Bureau’s American Community Survey using this resource, and the breakdown is as follows:
South Asians: Bangladeshi, Bhutanese, Indian, Maldivians, Nepali, Pakistani, Sri Lankan.
We created the group Multi-racial Asian to account for individuals who identify as more than one Asian identity. Additionally, due to sample size issues, we sometimes had to group Central Asians with Multi-Racial Asians. We also chose not to include the West Asian group due to limitations with Census data. In 2024, the Census announced they will be including a new Middle Eastern and North African ethnicity option, which will help provide more data on this population.
Steven Ruggles, Sarah Flood, Matthew Sobek, Daniel Backman, Grace Cooper, Julia A. Rivera Drew, Stephanie Richards, Renae Rogers, Jonathan Schroeder, and Kari C.W. Williams. IPUMS USA: Version 16.0. 2019-2023, ACS 5-year. Minneapolis, MN: IPUMS, 2025. Analysis by Cevadne Lee, OCAPICA.
Governor Gavin Newsom released his proposed 2026-27 California state budget on January 9, projecting a small and manageable deficit of $2.9 billion. The governor’s proposal projects $42.3 billion in additional revenue across the “budget window” (fiscal years 2024-25 to 2026-27) compared to projections made last June in the enacted budget. The $248.3 billion General Fund spending plan would protect most investments made in prior years, but does not propose any significant new investments or tax solutions to address federal cuts to health care and food assistance as well as affordability challenges affecting millions of Californians. The proposal also maintains previous state-level cuts to programs that expanded health care access and added child care slots, and allows prior years’ investments in combating homelessness to sunset without additional funding.
The administration’s revenue projections reflect an upgrade of the economic forecast, higher wage growth concentrated in technology sectors, particularly from artificial intelligence, and a strong stock market. However, the administration acknowledges that the current market trends may not be sustained, particularly as gains have been driven primarily by a handful of large tech companies due to enthusiasm about artificial intelligence, which may not last if investors do not realize expected returns.
The governor’s proposal would increase the state’s budget reserves, or “rainy day funds,” to $23 billion by the end of 2026-27, driven primarily by constitutionally required (Proposition 2) deposits as a result of increasing revenues.
The governor’s plan notably does not include any tax solutions to increase revenues — changes needed to help Californians who have not benefited from the state’s economic growth and are confronting lost benefits due to the cuts enacted in the federal Republican megabill, H.R. 1. Without new revenues, the proposal fails to secure the resources needed to counter the harm caused by the Trump administration and advance the governor’s goal of building a California for all. H.R. 1 also expanded tax cuts that primarily benefit the most profitable corporations and high-income households. In response, state leaders have an opportunity and responsibility to make our state’s tax system more equitable, protect California, and invest in the economic security and well-being of all Californians.
The governor’s spending plan protects and maintains some of the progress made in prior budget years to help improve economic security and opportunities for Californians with low incomes and Californians of color, including policy advances in behavioral health, cash assistance, food assistance, child care provider rate stipends, universal school meals, and expansion of before and after school programs. The proposal also boosts funding for TK-14 schools and community colleges through a combination of automatic adjustments in constitutionally required funding allocations, budget commitments made in recent years, and one-time spending.
Notably, however, the governor’s plan does not include new funding to address homelessness and abandons funding for housing programs for Californians with low incomes and affordable housing production. The plan also does not provide funding for 44,000 additional child care slots, a commitment the Governor made in 2021-22 and that has been unfulfilled since that time.
Even as the governor’s proposal limits investments to combat the high cost of living, it would commit the state to up to $180 million in spending annually from 28-29 through 2032-33 to extend the California Competes tax credit, which competitively allocates credits to businesses that make investments in California. While the credit is viewed as better designed than similar credits in other states that lack sufficient accountability mechanisms, state leaders should also consider the tradeoffs of committing to continued spending on business tax credits at a time when so many Californians confront affordability challenges made worse by federal cuts.
The administration projects that the state prison population will continue to decline despite the passage of Prop. 36 in 2024, which increased penalties for certain drug and theft offenses, including by reversing some of Prop. 47’s (2014) sentencing reforms. The ongoing decline of the prison population suggests that state policymakers should plan for additional state prison closures.
Overall, while the governor’s proposed spending plan protects some of the progress made in earlier years, failure to address harmful federal cuts from H.R. 1 and advance more equitable tax policies, while also promoting misguided priorities like expanded tax credits for businesses, would weaken the state’s capacity to better help Californians manage our state’s high cost of living. State leaders have an opportunity and a responsibility to champion policies that uplift and protect every Californian during a time of ongoing federal threats to our state.
This First Look report outlines key pieces of the 2026-27 California budget proposal, and explores how the governor prioritizes spending amid ongoing federal cuts and affordability challenges.
what is the governor’s proposed budget?
The governor’s proposed budget provides a detailed overview of the governor’s proposed expenditures for the upcoming fiscal year, estimated expenditures for the current fiscal year, and actual expenditures for the prior fiscal year. The proposed budget is released — along with the governor’s budget summary — on or before January 10.
Administration Projects Uneven Economic Gains for California and Ongoing Risks from Federal Policies
The administration’s economic outlook is an important aspect of the budget because aggregate changes in economic indicators, such as jobs and wages, affect how much revenue the state will generate. Although the new forecast expects slightly stronger national economic growth than anticipated last year, it projects California’s job market to be weaker, with essentially no net job gains in 2026 and only a marginal increase expected in 2027. Additionally, the state’s unemployment rate is projected to rise to 5.6% this year, up from an estimated 5.4% in 2025. Jobs in health care and private education are expected to continue to be the primary drivers of the state’s job growth. However, gains in these sectors are forecasted to be weaker than previously expected due to federal budget cuts. The administration also points to a significant divide in the quality of jobs projected in the near-term, with growth concentrated in lower-paying industries, while high-paying industries are projected to lose jobs.
The governor’s forecast significantly revised up estimates of average wage and personal income growth in 2025 — above 5% — driven largely by recent gains in high-wage, tech-related industries that are benefiting from the surge in AI investment. But the forecast expects wage and income gains to moderate to about 4% growth in 2026. The administration revised down inflation estimates and projections, but still expects the annual inflation rate to remain above 3% in California and above 2% nationwide throughout the forecast period.
Budget documents highlight several risks to the governor’s forecast that could produce weaker economic gains than expected. These include the potential for federal policies, particularly around trade, tariffs, and immigration, to weaken economic and job growth more than anticipated. In addition, the administration acknowledges that a financial market correction and significant stock market downturn, which could occur if returns on AI investments fall short of expectations, also poses a risk to the economic forecast.
Everyday Californians Face Mounting Affordability Challenges, While a Select Few Enjoy Extreme Wealth
The administration’s outlook is useful for understanding how economic conditions might impact budget revenues, but it’s also important to consider how economic conditions are affecting everyday Californians who count on services funded by the budget. Millions of Californians are facing mounting affordability pressures that will worsen as federal cuts to health care, food assistance, and other essentials take effect. The cost of food and rent is already up by 25% on average since 2020 and has been hitting households with lower incomes hardest. About 1 in 8 California households faced food insecurity in 2022-24, up from less than 1 in 10 in 2019-21. Furthermore, half of California renters face unaffordable housing costs, including 80% of renters with low incomes. The state’s high cost of living is a key reason why about 7 million state residents live in poverty. Centuries of structural racism as well as long-standing inequities in opportunity structured into budget policies, past and present, explain why Black, Latinx, and other Californians of color disproportionately face these economic challenges.
In stark contrast with the affordability challenges facing so many California residents, a tiny sliver of the population is enjoying extreme income and wealth. Collectively, the richest 0.1% of Californians — nearly 17,500 households — have more income than the roughly 3.5 million households in the middle fifth. That means a population roughly the size of the city of Los Angeles is out-earned by a group small enough to fit inside a sports arena. In addition corporate profits in California have skyrocketed over the past decade, but those gains have failed to trickle down to the workers who make those profits possible, as the typical worker’s earnings have hardly grown over the same period. The harmful federal Republican megabill enacted last year, H.R. 1, will exacerbate inequities in California and the nation, as deep cuts to health care and food assistance that millions of people count on were used to finance trillions of dollars in tax breaks for wealthy individuals and corporations.
Proposed Budget Assumes a $42.3 Billion Improvement in the Revenue Outlook, But Stock Market Uncertainty Presents Risks to Forecast
The governor’s budget proposal assumes that state General Fund revenues across the three-year budget window — covering fiscal years 2024-25 through 2026-27 — will be $42.3 billion higher than projected when the 2025-26 budget was enacted. The improved outlook is mainly driven by projected increases in personal income tax revenue. The higher revenue projections reflect higher-than-expected revenue collections since the enactment of the 2025 budget, an upgrade of the economic forecast, higher wage growth concentrated in technology sectors, and the strong stock market.
However, the administration acknowledges that the current stock market trends may not be sustained, particularly as stock market gains have been driven primarily by a handful of large tech companies due to enthusiasm about artificial intelligence, which may not last if stock market investors do not realize their expected returns. In other words, there is a possibility that the recent stock market growth reflects an “AI bubble” that could burst, which would negatively impact the state’s revenue forecast. The administration estimates that if a significant market downturn were to occur this year, General Fund revenues could end up being up to $30 billion lower than the current projection across the three-year budget window — even in the absence of an economic recession, which would depress revenues further.
The administration’s revenue projections are significantly higher than the Legislative Analyst’s Office’s (LAO) November estimate that General Fund revenues over the budget window could be about $11 billion higher than assumed in the 2025 budget. Because the governor’s administration and the LAO produce revenue estimates independently, they are built on differing assumptions. The difference between the administration’s and LAO’s projections largely reflects the fact that LAO’s forecast built in a higher risk of a stock market downturn during the budget window. However, if a significant stock market downturn were to occur, the LAO noted that actual revenues could end up being tens of billions of dollars below their forecast.
It’s important to keep in mind that both the governor’s and the LAO’s revenue estimates include projections of future revenues and are subject to change as additional information becomes available. There is always a high degree of uncertainty in forecasting future revenues, and the picture may very well look better or worse by the time the 2026-27 budget is being finalized, depending on changes in economic and stock market conditions and their impact on state tax collections.
Governor Proposes No Significant New Revenue Solutions to Support Investments, Despite Growing Needs Facing Californians on the Heels of Harmful Federal Cuts
Many Californians were already struggling to make ends meet before the federal government enacted its harmful megabill, H.R. 1, making deep cuts that will take health care and food assistance away from millions of Californians and make life harder for immigrant communities while gifting profitable corporations and wealthy households with more tax cuts.
Though these harmful policies come at the hand of the federal government, state leaders have a responsibility to do everything they can to reduce the damage that will be done to the lives of Californians impacted by federal cuts, as millions of state residents are at risk of losing health care coverage, facing increased health care costs, and losing some or all of their food assistance support. While these losses for Californians don’t have a direct impact on California’s budget — in contrast with other policies in H.R. 1 that directly shift costs to the state — California leaders must consider the human and economic costs of doing nothing to protect Californians targeted by federal cuts.
While the governor proposes a roughly balanced budget — under the assumption that revenue collections meet the administration’s forecast (see Revenue Outlook section) — the budget lacks any progressive tax solutions to generate additional revenue that would allow state leaders to backfill some of the federal cuts and protect Californians from the deep harms that will result from the lack of action.
Policymakers have options to increase revenues and make the state’s tax system more fair, which would allow the state to support the health and well-being of people impacted by federal cuts without slashing support for other critical state services. One logical place to start is eliminating or reducing existing tax breaks that largely benefit incredibly profitable corporations and cost the state billions of dollars each year. For instance, policymakers can end the “water’s edge” loophole that allows corporations operating internationally to avoid $3 billion or more in state taxes each year by stashing profits in offshore tax havens. Additionally, policymakers can place reasonable limits on corporate tax credits and deductions so that no profitable corporation pays next to nothing in taxes to the state in exchange for providing it with a skilled workforce, public infrastructure, and a large consumer base. Ensuring highly profitable corporations pay their fair share in state taxes can help to offset federal tax giveaways and generate the long-term revenue California needs to strengthen economic security for all.
Instead of considering policies to strengthen the tax contributions of wealthy corporations, the proposed budget would extend an existing tax credit program for corporations that would otherwise expire after 2027-28, the California Competes Tax Credit. The state competitively allocates California Competes credits to businesses that commit to making investments and creating jobs in the state. The maximum amount of tax credits that can be awarded in a fiscal year is currently $180 million, although the actual budgetary cost in a given year is generally lower due to differences in the timing of credit awards and credit claims, and the fact that the state can recapture credits if businesses fail to meet the job and investment targets in their credit agreements. The governor proposes to extend the current program for 5 years, from 2028-29 through 2032-33, maintaining the $180 million annual allocation cap (with no cost impact in the budget window).
The California Competes credit is better designed than other tax breaks that have no limits or accountability mechanisms, and some researchers have found evidence that the program is fairly effective in incentivizing job creation in the state — though disproportionately among residents with higher education levels. However, policymakers should consider the tradeoffs of committing to continued spending on the tax credit in the future when 1) the revenue loss due to the tax credit reduces the state’s capacity for other investments to meet the needs of Californians, including those who have been harmed by federal policies, 2) forecasters have projected significant budget deficits in the coming years under current policies, and 3) some of the investments made by businesses receiving the credits would likely have occurred even in the absence of the credit.
Governor’s Budget Proposal Increases Reserve Funds Due to Increased Revenues
California has several state reserve accounts that set aside funds for a “rainy day” when economic conditions worsen and state revenues decline. Some reserves are established in the state’s Constitution to require deposits and restrict withdrawals, and some are at the discretion of state policymakers.
California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the “rainy day fund.” Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenue in a given year exceeds 8% of General Fund tax revenue. For 15 years — from 2015-16 to 2029-30 — half of these funds must be deposited into the rainy day fund, and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”).
Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). The PSSSA requires that when certain conditions are met, the state must deposit a portion of General Fund revenues into this reserve as part of California’s Prop. 98 funding guarantee (see section on Prop. 98).
In order to access the funds in the BSA and PSSSA, the governor must declare a state budget emergency — an action that was taken in the enacted current-year (2025-26) budget in response to the state’s projected budget deficit.
The BSA and the PSSSA are not California’s only reserve funds. The 2018-19 budget agreement created the Safety Net Reserve Fund, which is intended to hold funds to be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn, and which was completely spent down in response to recent years’ budget deficits. Additionally, the state has a Special Fund for Economic Uncertainties (SFEU) — a reserve fund that accounts for unallocated General Fund dollars and that gives state leaders total discretion as to when and how they can use the available funds.
The governor’s January proposal projects $23 billion in reserves at the end of 2026-27. Specifically, the proposal:
Projects a BSA balance of $14.4 billion;
Projects the PSSSA balance at $4.1 billion;
Leaves the Safety Net Reserve with a zero balance; and
Projects an SFEU balance of $4.5 billion.
In addition, as a result of the increase in state revenues in the current year (2025-26), the administration notes that an additional $2.8 billion deposit into the BSA would have been required under Prop. 2, but that they are suspending that requirement in their proposal, consistent with the budget emergency that was declared last June.
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.
Governor Proposes No Meaningful Action to Address Cuts to Health Care
Access to health care is necessary for everyone to be healthy and thrive. Medi-Cal, California’s Medicaid program, provides free or low-cost health care to over one-third of the state’s population. This program covers a wide range of services to Californians with modest incomes, and many children, seniors, people with disabilities, and pregnant individuals rely on it.
In 2025, state leaders adopted sweeping cuts to Medi-Cal that reversed years of progress toward a more inclusive, equitable health system. These cuts included provisions that specifically harmed immigrant Californians, such as freezing new Medi-Cal enrollment for undocumented adults — a change that took effect this month. This marked a major shift away from the state’s commitment to expanding health care access and ensuring coverage for all Californians.
At the same time, Republicans in Congress and the Trump Administration enacted the deepest health care cuts in US history last year, slashing over $1 trillion from Medicaid over the next decade. These cuts, which included new burdensome red tape, put the health, financial security, and well-being of millions of Californians at risk.
Medi-Cal Budget Highlights
The governor’s 2026-27 budget proposal does not take action to address the threats to health insurance coverage, affordability, and access due to recent federal and state policy changes. Instead, the governor takes a wait and see approach, which is not a choice Californians can afford as harmful provisions from H.R. 1 and the 2025-26 Budget Act are already taking effect.
The proposed budget reflects the following spending in Medi-Cal:
$196.7 billion ($46.4 billion General Fund) in 2025-26. This investment reflects an approximately $2 billion increase in General Fund spending compared to the 2025-26 Budget Act, which is mainly due to changes at the federal level and normal increased Medicare costs.
$222.4 billion ($48.8 billion General Fund) in 2026-27. This represents a $2.4 billion increase compared to the 2025-26 Budget Act, which is mostly because of the end of the Medical Provider Interim Payment Loan and reduced tax revenue from the Managed Care Organization Tax (see Provider Taxes & Fees section).
While the governor’s budget proposal does not include major cuts to Medi-Cal, it does include other harmful provisions, such as:
Applying federal work requirements to immigrants who receive state-funded Medi-Cal.
H.R. 1 imposed burdensome new work requirements — which are ineffective and could result in 3 million adults losing Medi-Cal coverage — on adults in the Affordable Care Act (ACA) expansion population. In California in recent years, immigrants who are not eligible for federally funded Medicaid coverage have received crucial health insurance through a state-only funded program. However, the governor proposes to apply the harmful federal work requirements to immigrants who receive health care through state-only Medi-Cal — even though there is no federal requirement to do so. Instead of protecting immigrant Californians, the governor is choosing to impose additional harm.
Proposing no action to provide full-scope Medi-Cal to certain groups of immigrants who will soon lose their health insurance due to H.R.1.
Given the scale of both the federal and state budget cuts, California leaders should not let the cruelty of the federal government dictate how California acts. Instead, state leaders should take meaningful steps to minimize the harm to people’s access to health care and protect communities. Addressing this challenge will require bold leadership and new, ongoing state revenue, particularly from the most profitable corporations and wealthy individuals who benefit the most from H.R. 1’s federal tax breaks (see Tax Policy section).
New Health Investments
Although the proposed budget does not introduce bold new investments to reverse harmful state and federal actions, it does include smaller, but meaningful investments such as:
$60 million to provide grants to reproductive health care providers. This one-time General Fund amount for the 2025-26 fiscal year will help reproductive health centers as they face critical funding shortages due to the federal government cutting off funding for health centers that also provide abortion services.
Covered California
For those who earn too much to qualify for Medi-Cal, Covered California — the state’s health insurance marketplace established through the Affordable Care Act (ACA) — serves as a vital resource. About 1.8 million Californians rely on the state’s health insurance marketplace for their health coverage.
The governor’s proposed budget does not include additional funding to enhance affordability or access through Covered California. Given the expiration of the enhanced premium tax credits (which continue to be debated in Congress), Californians who purchase health insurance through Covered California will see their premiums rise by an average of 97%. State leaders should consider options for increasing access to — and affordability of — health plans available through Covered California.
Proposed Budget Provides No New Major State Investments for Behavioral Health
Millions of Californians rely on services for mental health and substance use treatment, known as behavioral health care. Strengthening the state’s behavioral health system is essential to guaranteeing that every Californian can access the care they need regardless of race, age, gender identity, sexual orientation, or where they live. While state policymakers have launched and maintained largely one-time funding for various initiatives to transform California’s behavioral health system, the proposed 2026-27 budget includes no additional major state funds for behavioral health.
Notable Behavioral Health Proposals
The proposed budget includes limited, targeted behavioral health investments, largely supported by non–General Fund sources:
Community-Based Behavioral Health Services: Provides $65 million in 2025–26 and $95.5 million in 2026–27 in MCO tax revenue to support mobile crisis response, transitional rent, and behavioral health rate increases.
Health Care Workforce and Prevention Programming: Includes a $150 million placeholder from the Behavioral Health Services Fund, in lieu of General Fund, for workforce and prevention programming. Details will be updated at the May Revision.
Community-Based Mobile Crisis Services: Proposes to move community-based mobile crisis from a statewide benefit to an optional Medi-Cal benefit beginning April 2027, following the expiration of enhanced federal funding in December 2026. The budget includes $431.5 million total funds ($50.7 million Proposition 35 funds, $347 million federal funds, $28.2 million 988 funds, and $5.6 million General Fund) to continue this benefit across 2025-26 and 2026-27.
Proposition 1 Implementation
Proposition 1 (Prop. 1), which voters approved in March 2024, is a two-part measure that amended California’s Mental Health Services Act and created a $6.38 billion general obligation bond to fund behavioral health treatment, residential facilities, and supportive housing for veterans and Californians with behavioral health needs. Counties will begin operating under the revised funding structure in July 2026.
In previous years, the state has provided limited, largely one-time funding to support Prop. 1 implementation, including $85 million ($50 million General Fund) in 2024–25 and $93.5 million total funds ($55 million General Fund) in 2025-26 for county support. However, county behavioral health departments caution that Prop. 1 relies on redirected mental health dollars rather than new investments, creating tradeoffs that reduce funding for existing treatment and prevention services (see Homelessness section). At the same time, rising costs and Medi-Cal coverage losses under H.R. 1 are likely to increase demand for county behavioral health services.
In 2026–27, counties are projected to receive more than $4 billion from the Behavioral Health Services Fund, but without additional ongoing investments, Prop. 1 alone will be insufficient to meet growing behavioral health needs or to end homelessness among Californians with significant behavioral health challenges.
Maintaining Previous Behavioral Health Initiatives
In recent years, the state has invested approximately $8.5 billion in total funds across multiple departments to expand behavioral health treatment capacity and infrastructure. These investments include $4.2 billion for the Children and Youth Behavioral Health Initiative, $2.9 billion for the Behavioral Health Bridge Housing and Behavioral Health Continuum Infrastructure programs, and $1.4 billion for Mobile Crisis Response.
Policymakers have also committed nearly $8 billion over five years to Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT), a multi-year initiative focused on improving access to behavioral health services for Medi-Cal members with significant needs, including children and youth involved in child welfare, people involved in the justice system, and individuals at risk of or experiencing homelessness.
Federal Threats to Behavioral Health
By cutting Medi-Cal financing and thus the behavioral health care services Medi-Cal provides, H.R.1, the harmful Republican megabill, severely threatens the progress California has made in connecting behavioral health care, housing, and recovery for all Californians. Medicaid is the largest payer of behavioral health services in the country and makes up a significant portion of counties’ mental health budgets, so cuts to this program at the federal level undermine the ability of state and local governments to provide behavioral health support in the long-term.
Additionally, programs like CalAIM and BH-CONNECT rely on federal waivers to use Medicaid funding for purposes such as housing navigation, and the federal government could choose to let the waivers expire or rescind them. The federal funding cuts will devastate the ability of hospitals, community centers, and other behavioral health providers to support Californians who desperately need help.
Proposed Budget Highlights Challenges to State’s “MCO Tax” and Hospital Fee
A key source of funding for California’s Medi-Cal program comes from taxes and fees assessed on health care providers, including private hospitals and health plans (also called managed care organizations, or MCOs). These taxes and fees are used to draw down additional federal funding for Medi-Cal. With these additional federal dollars, California is able to:
Reimburse providers for much or all of the taxes or fees that they pay,
Cover basic Medi-Cal costs that would otherwise be funded by California’s General Fund (freeing up these dollars for other purposes in the state budget), and
Fund higher Medi-Cal payments to health care providers.
Provider taxes and fees need federal approval and must be periodically renewed. In California, most of the revenue raised by provider taxes/fees comes from two sources:
The MCO tax generates over $7 billion per year in net revenue. MCO tax proceeds are used to boost Medi-Cal provider payment rates as well as to cover basic Medi-Cal costs, reducing California’s General Fund costs for the program.
The Hospital Quality Assurance Fee raises over $5 billion per year. These revenues support supplemental payments to private hospitals and also cover basic Medi-Cal costs, reducing the state’s General Fund costs.
The MCO tax will shrink substantially in the near term unless state policymakers act, but ultimately, revenue from the tax will decline over the long term due to H.R. 1.
A reduction in MCO tax revenue could occur as soon as July 2026, although the state is still waiting for the Trump administration to determine the final timing.
State policymakers have options for restructuring the MCO tax to preserve — at least in the near term — much or all of California’s MCO tax revenue while still complying with H.R. 1’s restrictive rules.
However, in order to preserve MCO tax revenue in the near term, state leaders would also need to address state-level restrictions put in place by Proposition 35, which voters passed in 2024. This would be challenging, but not impossible. Prop. 35 can be amended by a three-fourths (75%) vote of each house of the Legislature — an extremely high bar. Alternatively, with a two-thirds (66.6%) vote of each house, the Legislature could put a measure to amend Prop. 35 on the statewide ballot for voter approval.
Over the longer term, MCO tax revenue will decline regardless of whether state policymakers adopt a short-term fix. This is because H.R. 1 will ratchet down the current cap on provider tax revenue over five years beginning in October 2028. This new policy applies only to California and other states that adopted the Medicaid expansion as allowed by the federal Affordable Care Act (ACA). Lowering the revenue cap will significantly reduce the amount of revenue that ACA expansion states can raise from provider taxes and fees to support their Medicaid programs.
California’s hospital fee is in flux in the near term, but ultimately, revenue from the fee will decline over the long term due to H.R. 1.
Last year, California submitted a proposal to the Trump administration to renew the state’s hospital fee. Federal officials questioned the size of the proposal, and California has until mid-March to submit a revised application.
Payments from the current hospital fee program will continue to flow to hospitals through the end of 2026, providing some stability in the near term.
Even if the Trump administration approves California’s request for a larger hospital fee, the revenue generated by this fee will decline over the longer term. This is because H.R. 1 will ratchet down the current cap on provider fee revenue over five years beginning in October 2028. This new policy applies only to California and other states that adopted the Medicaid expansion as allowed by the federal Affordable Care Act (ACA). Lowering the revenue cap will significantly reduce the amount of revenue that ACA expansion states can raise from provider taxes and fees to support their Medicaid programs.
Points to the significant challenges that H.R. 1 and California’s Prop. 35 pose to the current MCO tax, but does not propose a plan for salvaging the tax.
H.R. 1 and Prop. 35 requirements “significantly limit the potential size of a future MCO Tax, resulting in a substantial reduction in ongoing funding to support the Medi-Cal program,” according to budget documents. Yet, the governor is silent on how the state might mitigate this reduction in the near term, such as by amending Prop. 35.
Assumes that California’s current MCO tax will remain in effect through December 2026, rather than being phased out in June 2026.
It is unclear when California’s current MCO tax will be phased out. H.R. 1 leaves this decision to the Trump administration, which may provide states with a transition period of up to three years. However, federal officials have not yet issued final guidance on the timing for California.
Governor Newsom’s proposed budget assumes the current MCO tax will remain in effect through December 31, 2026 — halfway through the state’s 2026-27 fiscal year — before it falls out of compliance with H.R. 1’s restrictive new rules. Under the governor’s proposal, the state would replace at least some of the lost MCO tax revenue during the second half of 2026-27 using General Fund dollars (the amount of this General Fund backfill is not clarified in budget documents).
However, if California is required to phase out its MCO tax six months earlier — on June 30, 2026 — the state would incur an additional $1.1 billion in General Fund costs to backfill the lost MCO tax revenue in 2026-27, according to budget documents.
Highlights the Trump administration’s rejection of California’s recent proposal to update the Hospital Quality Assurance Fee Program.
As noted above, state and federal officials are negotiating over California’s proposal to renew its hospital fee.
With the Trump administration’s rejection of the state’s most recent proposal, California “continues to evaluate options to modify the request for approval,” according to budget documents.
Housing
Proposed Budget Includes No New State Funding for Affordable Housing
Every Californian deserves a safe, affordable home, regardless of their income or background — an attainable reality in a state as resourceful as California. Over the past seven years, state policymakers have made notable progress in streamlining housing development and have invested modestly in affordable housing. Despite these efforts — and ongoing cost pressures that California renters are facing — state General Fund dollars have comprised only a small share of funding for supporting affordable housing development, and that funding has only declined in recent budget years. This harmful trend continues in the governor’s proposed 2026–27 budget, which does not include any new state funds for affordable housing.
Rather than making continued investments to expand affordable housing supply or address affordability, the administration emphasizes the continued implementation of the California Housing and Homelessness Agency (CHHA) and the Housing Development and Finance Committee (HDFC). Through this restructuring, the administration proposes statutory changes to better align affordable housing programs under HDFC with existing financing tools, such as Low-Income Housing Tax Credits (LIHTC) and private activity bonds. It also proposes to codify a long-term allocation of private activity bonds for affordable housing.
Following last year’s renegotiations of the state’s Cap-and-Invest program, the Affordable Housing and Sustainable Communities (AHSC) program is set to receive up to $560 million annually from Cap-and-Invest proceeds — which are not part of the General Fund — dedicated to affordable housing. Under the proposed changes, the affordable housing component of AHSC will be separated from the program’s other uses and be administered by the newly established HDFC to better leverage complementary subsidies, streamline administration, and accelerate project delivery.
While this restructuring is intended to improve coordination, streamline affordable housing financing, and increase affordable housing projects, it relies on existing funding sources outside of the General Fund and does not replace the need for sustained state investments to meet the scale of California’s housing shortage. Several key affordable housing programs are proposed to NOT receive any new state funding, including:
State Low Income Housing Tax Credits (LIHTC) which are pivotal in developing and financing affordable housing. The state LIHTC program will only receive what is required by state statute; in 2024 the required allocation was roughly $120 million. While California is poised to receive an increase in federal LIHTC as a result of H.R. 1 (2025), this increase may only cover a small portion of the 2.5 million affordable homes the state needs. Moreover, any gains from expanded housing tax credits are undermined by H.R. 1’s deep cuts to essential supports such as health care and food assistance, which low-income families rely on to afford their housing and meet their basic needs.
The Multifamily Housing Program is the state’s primary subsidy for affordable housing construction and preservation for some of the lowest income households. It is heavily oversubscribed and funding is expected to be fully depleted this year.
The Portfolio Reinvestment Program preserves California Department of Housing and Community Development-funded affordable housing projects that are at-risk of conversion to market-rate housing. After the funding cuts in the 2024 Budget Act, this program currently has no funding.
The Joe Serna, Jr. Farmworker Housing Grant Program funds housing for agricultural workers with a priority for lower-income households.
Separately, the proposed budget indicates that the administration is exploring creative financing mechanisms to address funding gaps for residential rebuilding following the Los Angeles wildfires early last year and signals its intent to bring forward a proposal for consideration in the May Revision. Lastly, the state continues the roll out of Proposition 1 (2024), which is providing roughly $2 billion in bond funds for permanent supportive housing projects for veterans and Californians with behavioral health conditions through the Homekey+ program, but these are not state General Fund dollars and are therefore inadequate for meeting the housing needs of all struggling Californians.
Proposed Budget Leaves Homelessness Funding Reduced as Federal Threats Loom
California has both the resources and the responsibility to ensure every resident has a stable, dignified place to call home. In 2024, homeless service providers served over 350,000 Californians experiencing homelessness — demonstrating both the scale of need and the increased capacity of the state’s response systems. This progress was driven largely by previous one-time state investments which funded critical homelessness prevention and resolution services and drove a 9% reduction of unsheltered homelessness in 2025.
Yet despite tangible results and the record numbers of Californians being served and housed,the Governor’s proposed 2026-27 budget includes no additional or ongoing state funding to address homelessness beyond what was committed last year. This decision puts hard-won progress at risk, especially as the Trump administration is actively defunding evidence-based homelessness solutions and working toward destabilizing safely housed Californians.
The only state investment in the proposed 2026-27 budget is the maintained $500 million for the Homeless Housing, Assistance and Prevention Grant program (HHAP), which is still effectively a 50 percent cut from what the program received in previous years. HHAP, which awards local flexible funds to address homelessness dependent on various coordination and accountability measures, will be contingent on even more accountability and performance requirements for applicants to receive this round of funding.
The administration has also pointed to the restructured Behavioral Health Services Act (BHSA) as an ongoing funding source to address homelessness among people with behavioral health needs. However, BHSA does not provide new General Fund resources; it reallocates existing dollars from a voter-approved surcharge on millionaires. County behavioral health departments have flagged that this restructuring may not significantly expand their ability to serve more people due to other costs they must absorb, such as ongoing operating costs for behavioral health or supportive housing projects recently built with one-time state or bond dollars (see Behavioral Health section).
The proposed budget also allows key homelessness programs that specifically serve vulnerable populations to sunset. This includes reduced funding for the Bringing Families Home, Home Safe, and Housing and Disability Advocacy programs. For these programs combined, the governor proposes $126.8 million Total Funds ($123.6 million General Fund) in FY 2026-27, which reflects a decrease of $221.0 million Total Funds ($209.1 million General Fund) from the Budget Act of 2025 (see Family and Child Well-Being section). There are also no additional funds in 2026-27 for the Encampment Resolution Grant Program.
Finally, while the administration acknowledges increasing uncertainty for service providers and Californians who can pay their rent due to federal housing programs, the proposed budget includes no funding to backfill or mitigate potential federal cuts or funding shortfalls to Continuums of Care, Emergency Housing Vouchers, or other housing assistance programs. These threats are compounded by H.R. 1’s SNAP changes, which place harmful requirements and time limits on adults experiencing homelessness without dependents, putting many at risk of losing food assistance this year. Together, these federal actions will disproportionately harm people receiving housing assistance, people of color, mixed-status families, older adults, and people with disabilities.
Without bold efforts to bring in revenue to support ongoing state investments, policymakers risk reversing progress and deepening a crisis that demands urgent and sustained action to continue supporting real and proven solutions for addressing homelessness.
Economic Security
Governor’s Budget Fails To Plan for Historic Federal Food Assistance Cuts
The Supplemental Nutrition Assistance Program (SNAP) — known as CalFresh in California — is the state’s most powerful tool in the fight against hunger. CalFresh provides modest monthly assistance to over 5.5 million Californians with low incomes to purchase food, bringing billions of federal dollars into the state each year that Californians spend in their communities, which helps boost local businesses and create jobs.
Last year, federal Republicans passed a budget bill, H.R. 1, that included the largest cuts to SNAP food assistance in the program’s history — cuts that will destabilize the state budget and harm millions of Californians, including children, older adults, and people with disabilities. In response, the governor’s proposed budget:
Allocates an additional $382.9 million to pay for CalFresh administrative costs as mandated by H.R. 1.
Starting October 1, 2026, the federal government will shift an additional 25% of administrative costs to states, increasing their total share of costs to 75%. The new funding in the budget proposal reflects this change and assumes that California counties will pay an additional $149.5 million for administrative costs to supplement the general fund allocation.
Does not commit additional resources to manage and mitigate the harm of H.R. 1.
Other provisions of the federal budget package poised to go into effect later this year are estimated to take food assistance away from 74,000 humanitarian immigrants and threaten food security for hundreds of thousands of older adults, caretakers, veterans, former foster youth, and people experiencing homelessness who are newly subject to harsh time limits. While resources were allocated in the 2025-26 state budget package to begin implementing the changes mandated by H.R. 1, the state has not laid out a clear plan for increasing spending and/or raising revenues to mitigate the widespread hunger that will result from the severe food assistance restrictions.
Despite the minimal investments into the CalFresh program, the governor’s proposed budget maintains commitments to other food assistance programs:
California Food Assistance Program (CFAP): The proposed budget maintains the commitment to expand CFAP to include undocumented adults age 55 and older beginning in October 2027. However, it does not include any expansion to other age groups or account for the immigrant exclusions in H.R. 1.
SUN Bucks: The budget proposal allocates $73.4 million ($36.7 million General Fund) to support outreach efforts and administrative costs associated with the SUN Bucks program, which provides eligible students with a monthly benefit to purchase food over the summer months when they do not have access to daily school meals.
Universal School Meals: The governor’s budget continues to fully fund the universal school meals program, which gives every student attending a public school in California access to two free meals during their school breakfast and lunch, regardless of income.
Given the scale of federal cuts to food assistance, California leaders should take meaningful steps to minimize the potential hunger spikes by making bold investments that help protect Californians in need.
Proposed Budget Maintains Refundable Tax Credits at Current Levels
California’s Earned Income Tax Credit, Young Child Tax Credit, and Foster Youth Tax Credit are refundable income tax credits that collectively help millions of families and individuals with low incomes pay for basic needs like food. These credits also help to promote racial and gender equity by directly boosting the incomes of Californians of color, immigrants, and women who are frequently blocked from economic opportunities and forced into low-paying jobs that fail to provide economic security.
The administration’s proposed budget preserves the credits at current levels, but does not propose to make any new investments to increase or expand them. While these credits already provide vital assistance to families across the state, the need for additional cash support among Californians with low incomes remains high. Sustained inflation in combination with other factors have created dire circumstances for families and individuals with low incomes, culminating in about 7 million residents lacking the resources to meet basic needs. These conditions are only further exacerbated by harmful federal actions that continue to prevent families from accessing federal tax credits, food assistance, and health care.
The budget proposal also includes just $10 million for refundable tax credit outreach, education, and free tax preparation assistance grants, which help community based organizations (CBOs) provide on-the-ground and online linguistically and culturally competent services to tax filers, including support applying for and renewing Individual Taxpayer Identification Numbers (ITINs), at no cost to eligible Californians. This funding is down significantly from prior years. Severely reduced funding will diminish the capacity of CBOs to provide essential outreach, ITIN, and tax-filing services in communities throughout the state and could increase the likelihood that tax filers turn to predatory and costly for-profit tax preparers.
Proposed Budget Makes No New Investments in Family Programs
The California Work Opportunity and Responsibility to Kids (CalWORKs) program is a critical support that provides modest cash assistance for families with low incomes, particularly families of color. While the 2025-26 budget package included significant programmatic changes to help streamline the program and make it more family-centered, the governor’s 2026-27 budget proposal does not include any new investments into the CalWORKs program and maintains levels from prior years, despite new and emerging threats.
The governor’s budget also maintains funding for the Emergency Child Care Bridge Program for Foster Children, which provides time-limited vouchers for child care and child care navigator services for foster care system families and parenting foster youth. Proposed program funding reflects the ongoing reduction of $30 million agreed to in the 2025-26 budget.
Additionally, the governor’s proposal includes a decrease of $221 million for housing support programs that help children and families served by the child welfare system, individuals involved in Adult Protective Services, older adults, and individuals with disabilities as a result of a lack of sustained investments in several homelessness programs (see Homelessness section).
Recent federal attacks, threatening to freeze key funding sources that support CalWORKs and other services for low-income families and vulnerable Californians, underscore the urgent need for state leaders to protect and strengthen core family and child well-being programs.
Proposed Budget Makes No New Investments in Californians with Disabilities and Older Adults
All Californians should be included, supported, and treated with dignity in their communities regardless of their age, ability, race, gender, or economic status. However, Californians with disabilities and older adults face significant barriers, with increased risks of not meeting their basic needs, experiencing poverty, and becoming homeless.
The governor’s proposed budget:
Maintains the current investment in the Supplemental Security Income (SSI) and State Supplementary Payment (SSP) programs. SSI/SSP are the largest cash assistance programs serving low-income older adults and Californians with disabilities. However, the budget proposal does not include any additional funding or make commitments to closing the gap between grants and the federal poverty level.
In addition to SSI/SSP, federal health care and food assistance programs are vital to supporting the daily lives of these communities, with many SSI recipients also receiving CalFresh and Medi-Cal (see Food Assistance section and Coverage, Affordability & Access section). The threats to these programs from H.R.1 could be especially devastating to these communities and highlight the need for additional support to ensure the unique challenges of our aging population and people with disabilities are not exacerbated.
Governor Neglects Child Care Promises — Programs Remain Under-Resourced
California’s child care and development programs provide critical early care and education to hundreds of thousands of children in California, allowing families to go to work and school. These programs are available at low/no-cost, with family fees capped at 1% of a family’s income. Despite the integral role that state subsidized child care programs play in both the healthy development of young children and the economy, they remain under-resourced. While funding for child care programs has expanded since the Great Recession, demand far exceeds the supply, meaning that thousands of families face prohibitively high child care costs. Moreover, recent and ongoing federal threats to California’s child care funding raises the urgency for state leaders to provide needed resources to these essential programs. Regarding child care funding and subsidized spaces, the governor’s proposed budget:
Maintains funding for child care and development programs at $7.5 billion in 2026-27.
Overall, proposed funding across the California Department of Social Services (CDSS) child care and development programs reflects approximately the same funding levels as the prior year. There are some differences in funding across years for individual programs, such as increased caseload projections for Stage 1, Stage 2, and Stage 3 child care. However, there are no new ongoing investments in CDSS’s child care and development programs.
Does not fulfill promised 44,000 subsidized child care spaces.
In 2021-22, the governor committed to adding approximately 206,800 new child care spaces by 2026-27. Expansion was delayed and paused in 2023-24 and 2024-25; however, the 2024-25 budget did solidify a plan for rolling out the remaining spaces. Per this plan, as outlined in Senate Bill 163, the administration committed to funding 12,000 spaces to general child care and development programs and 32,000 spaces to alternative payment programs, with the remaining spaces awarded in 2027-28. However, the proposed budget does not provide funding for these promised spaces. Moreover, the proposed budget does not include a plan for when these promised spaces will be funded, walking back the promise to fulfill the administration’s commitment to child care expansion.
Includes modest funding for child care infrastructure.
While the proposed budget does not expand child care spaces, it does include $11.5 million to support infrastructure improvements for child care providers, specifically targeting communities impacted by the 2025 wildfires. This $11.5 million is funded through Proposition 64 dollars — a cannabis tax with a portion of the revenue dedicated to child care. Moreover, the proposed budget includes $830,000 General Fund dollars for the Low Income Investment Fund to support the close-out and success of the Infrastructure Grant Project
In addition to funding for subsidized spaces, California needs a stable child care provider workforce to sustain and expand programs. However, California child care providers continue to receive low wages, exacerbating racial and gender inequities and threatening to destabilize the system. In an effort to improve child care provider pay, in April 2023 the state began the process of developing an alternative methodology to pay providers based on the “true cost of care.” This alternative methodology was completed during summer 2025, and the state has since moved on to a process for determining how the “true cost of care” estimates will result in a “single rate structure” for paying child care providers. Fundamental to this process is ensuring that this new “single rate structure” results in rates that pay child care providers a fair and just wage. Related to provider pay, the proposed budget:
Maintains one-time cost of care plus payments and includes a cost-of-living adjustment (COLA).
Child care provider rates are set at 75% of the 2018 regional market rate survey. Given this outdated and inequitable base rate, Child Care Providers United (CCPU — the union representing home-based providers) negotiated a new contract in 2025 that included an updated cost of care plus payment to supplement this base rate. The proposed budget continues this cost of care plus payment into 2026-27. Additionally, the proposed budget includes $89.1 million for a 2.41% cost of living adjustment to this base rate. This same percentage is also applied to state preschool providers (see Early Learning and Pre-K section).
Advances prospective pay for providers.
Prospective pay refers to paying child care providers in advance of or at delivery of child care services, supporting financial solvency and increasing workforce retention. The 2025-26 budget included $30 million to set up the implementation of prospective pay. The proposed budget includes $43.8 million for prospective pay, anticipated to begin August 2026.
Lacks clarity on timeline for implementing rates based on a single rate structure.
The 2025-26 budget appropriated $21.8 million for rate reform support costs, and the proposed budget does not include any additional funding for rate reform. Given that CCPU and the state are not completely aligned on a single rate structure, it is unclear when rate reform is likely to be implemented or how much the state may need to spend to pay providers based on this new structure.
Governor Provides No Support for Immigrant Californians
Immigrants and their families are deeply ingrained in the state’s social fabric. They are members of the state’s workforce, pay taxes, attend schools, own businesses, and raise families who invest in local communities. California has the largest share of immigrant residents of any state. Over one-half of all California workers are immigrants or children of immigrants, and more than 2 million Californians are undocumented, according to estimates. Undocumented immigrants in California make significant contributions to state and federal revenues, contributing $8.5 billion in state and local taxes in 2022, despite their exclusion from most public benefits.
In 2025, and so far in 2026, state and federal policies have targeted immigrants, limiting their access to health care, food assistance, and other critical services all while their lives have been severely under threat due to an unprecedented increase in immigration detention and deportation. While state leaders had made notable progress in recent years working towards a California for all where all people have access to economic opportunity and essential services, regardless of immigration status, this progress has been reversed.
At a time when the federal government is increasingly attacking immigrant communities, it is more critical than ever that California state leaders ensure the safety and well-being of all people, especially undocumented immigrants and maintain prior commitments to making an equitable state for everyone. Instead, the governor proposes no additional funding to protect and support the state’s immigrant communities and includes proposals that will impose additional harm. Specifically, the 2026-27 proposed budget:
Introduces additional harmful provisions that will take away health care from many immigrants.
The governor’s proposal chooses to apply harmful federal work requirements to immigrants who receive state-only Medi-Cal, which essentially is an additional cut to health care for undocumented immigrants. The governor also takes no action to provide full-scope Medi-Cal to many groups of immigrants such as refugees, asylees, and survivors of domestic violence who will lose this coverage due to provisions passed in H.R. 1 (see Health Coverage, Affordability, & Access section). Both of these proposals come on top of provisions enacted in the 2025 Budget Act which took away health care access from many immigrants, who are also being targeted at the federal level. Instead of stepping up to protect immigrants from cuts coming from the federal level, the governor is proposing additional harm.
Although the governor does not provide support for immigrant Californians, the proposed budget does maintain previous commitments to food assistance for immigrants. Specifically, the proposed budget maintains the commitment to expand the California Food Assistance Program (CFAP) to include undocumented adults age 55 and older beginning in October 2027. However, it does not include any expansion to other age groups or account for the immigrant exclusions in H.R. 1 (see Food Assistance section).
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Increased Education Funding Enables More Resources for Schools
Education begins in their earliest years, preparing children and youth to transition into the K-12 and higher education systems. Publicly funded education programs play a critical role in the development, learning, and well-being of children and youth in California. Investing in them through these programs helps to ensure that children and youth are prepared for school and adulthood.
Overall, increased revenue estimates boost funding to schools and community colleges through the Proposition 98 Guarantee. The proposed budget includes significant new investments that address rising costs to schools and colleges and aims to strengthen prior initiatives focused on improving equity. Given the instability of federal funds as a result of recent legislation and other federal actions, these investments help ensure the state continues its commitment to addressing key challenges.
However, there are still major challenges ahead to ensure the state provides the resources to meet student needs, needs that also extend beyond education. Federal cuts to vital health care and safety net programs put students and families at greater risk of being able to make ends meet, thus putting their educational success at a greater risk. Helping Californians meet basic needs while adequately funding TK-14 education is especially challenging considering the context of the current federal climate and state budget landscape.
Updated Revenue Estimates Significantly Increase the Prop. 98 Guarantee
Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of annual funding for TK-12 schools, community colleges, and the state preschool program. The Prop. 98 guarantee tends to reflect changes in state General Fund revenues, so updates to revenue estimates change the minimum guarantee funding levels. For example, when the state revenues increase due to policy changes or overall economic growth, funding for TK-12 schools and the community colleges generally increases. Under the 2026-27 budget proposal, the Prop. 98 estimates increase by nearly $22 billion over the three-year budget window. The proposal details changes in required deposits and withdrawals across the budget window and adjusts the required maintenance factor payment.
The chart below shows updated estimates of the guarantee in the governor’s budget compared to estimates in the June 2025 enacted budget.
Prop. 98 revised estimates and proposed adjustments include the following:
For 2024-25, the guarantee is revised up to $123.8 billion from $119.9 billion in June 2025. This level also reflects a settle-up payment created in the 2025 enacted budget and a higher maintenance factor payment — a required payment as a result of the suspension in 2023-24. Specifically, the maintenance factor payment is increased by $2.3 billion under revised revenue estimates, from $5.5 to $7.8 billion, leaving a balance of $585 million.
For 2025-26, the guarantee is revised up to $121.4 billion from the previous estimate of $114.6. However, the governor proposes to fund the guarantee at $115.8 billion, $5.6 billion lower than what the Prop. 98 formulas require. This “settle-up,” according to the governor, is intended to mitigate the risk of revenues not fully materializing. This approach is similar to actions taken in the 2025 enacted budget for 2024-25, and it essentially moves $5.6 billion in costs to the future and the savings are used to support non-Prop.98 programs in 2025-26. No maintenance factor payment is required for 2025-26.
For 2026-27 the Prop. 98 guarantee is calculated to be $125.5 billion, $7.4 billion higher compared to the prior estimate of $118.1 billion in June 2025. Similar to 2025-26, no maintenance factor payment is required in 2026-27 under the latest revenue assumptions included in the proposed budget.
The governor’s proposed budget also adjusts deposits and withdrawals for the Public School System Stabilization Account, also referred to as the Prop. 98 reserve, to reflect updated capital gains revenue estimates. In 2024-25, those adjustments increase the required deposit amount to $3.8 billion. In 2025-26, there’s a deposit of $664 million, which includes a mandatory deposit of $424 million and a discretionary one of $240 million. Lastly, for 2026-27 there’s a mandatory withdrawal of $407 million. After all of these adjustments, the revised balance in the Prop. 98 reserve is $4.1 billion at the end of the three-year budget window. See reserves section for more on budget reserves.
Transitional Kindergarten and State Preschool Continue as Planned
The California Department of Education (CDE) hosts two early learning and care programs: Transitional Kindergarten (TK) and the California State Preschool Program (CSPP). CSPP provides preschool to children ages 3 and 4 for families with low to moderate incomes (and temporarily to two-year-olds until July 2027). TK serves 4-year-olds, and eligibility is based on age alone in public schools and is not dependent on family income. Together, CSPP and TK are cornerstones of CDE’s Universal Preschool plan, which aims to expand early learning and care options for 3- and 4-year-olds in California. However, as California strives to create a mixed delivery system that centers the needs of families, the administration has the opportunity to utilize resources and implement policies in a way that integrates CSPP and TK with the broader early learning system to best support families with young children.
Fully funds Transitional Kindergarten and maintains commitment to reduced ratios.
As a final step in Universal TK, the 2025-26 school year allowed all children who turn 4 by September 1 to enroll in TK. Moreover, the 2025-26 budget reduced student-to-teacher ratios from 1:12 to 1:10. The proposed budget maintains the complete rollout of TK and the reduced ratios. TK is primarily funded through the Proposition 98 Guarantee (see Proposition 98 section).
Maintains CSPP program levels.
The 2024-25 budget authorized (but did not require) both part-day and full-day CSPP to enroll eligible 2-year-old children until July 1, 2027. The 2026-27 proposed budget for CSPP includes this temporary expansion. Proposed spending for CSPP includes approximately $1.96 billion Prop. 98 dollars (inclusive to the Quality Rating and Improvement Systems block grant) and $1.03 billion General Fund dollars.
Aligns with the California Department of Social Services (CDSS) on provider pay.
The cost of care plus rates negotiated by Child Care Providers United (CCPU, as discussed in the Child Care section) — representing home-based providers — also apply to CSPP providers. Thus, in addition to a 2.41% cost-of-living adjustment, $19.3 million Prop. 98 and $10.2 million General Fund dollars are proposed for CSPP cost of care plus rates. Additionally, CDE joins the California Department of Social Services in moving to pay providers prospectively (as discussed in the Child Care section). To fund prospective pay for CSPP providers, the proposed budget allocates $5.7 million Prop 98 and $2.7 million General Fund dollars.
Funds increased early intervention services for early education.
The proposed budget maintains $260 million in funding for the Special Education Early Intervention Grant, from which funds are available specifically for preschool. Moreover, the proposed budget contains $276,000 to incorporate early identification for learning disabilities into preschool assessment tools, as well as training for providers on effective use of these tools.
Budget Proposal Includes Significant One-Time and Ongoing Investments for Education Programs
The largest share of Proposition 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to 5.9 million students. Education funding flows primarily through the Local Control Funding Formula (LCFF), which provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. Other funds flow through a number of categorical programs such as the Expanded Learning Opportunities Program, special education, and other shorter-term investments.
The governor’s budget proposal provides the financial resources to expand existing programs and provides additional one-time funds to school districts, including a new discretionary block grant. Notable ongoing investments in the proposed budget include:
$2.2 billion for a cost-of-living adjustment (COLA) for the LCFF and other non-LCFF categorical programs.
The governor’s spending plan includes about $2 billion to provide a 2.41% COLA for the LCFF. The proposal also includes $228 million to provide the same COLA for other programs, including the LCFF Equity Multiplier, Special Education, the State Preschool Program, and Child Nutrition in addition to other categorical programs.
$1 billion to sustain the California Community Schools Partnership Program.
This program is intended to provide the funds needed to implement the community schools model at the highest-need schools in the state. Recent research has found initial evidence that the community schools model implemented in California has had a positive impact on key outcomes such as student attendance. While the proposal mentions that high-need schools will be prioritized, it is still unclear what the specific eligibility requirements will be. The program originally prioritized grants to schools with 80% or more high-need students (low-income and English learners).
$509 million to increase special education base rates.
This increase, according to the governor’s proposal, is intended to ensure districts, charter schools, and county offices “receive the same rate per pupil for state special education funding.”
$62.4 million to further strengthen the Expanded Learning Opportunities Program (ELOP).
The program enables school districts to offer learning opportunities to students before and after school and during the summer. The proposed augmentation is geared toward guaranteeing a uniform per-pupil rate for districts with less than 55% high-need students, specifically, $1,800 per student in those districts.
The TK-12 education budget also includes significant one-time investments. Specifically, the spending plan proposes:
The proposal includes a block grant that appears to be nearly identical to the block grant of $1.9 billion provided in the current budget, 2025-26. The new round of funding for the Student Support and Professional Development Discretionary Block Grant would provide districts, charter schools, and county of offices of education with additional dollars intended to support:
Addressing attendance and declines in student enrollment as a result of immigration enforcement actions and other factors.
Addressing rising costs to districts.
Providing professional development for teachers, including literacy training to better support multilingual students, math and English Language Arts frameworks, and developmentally appropriate instruction in TK (this would also be open to site administrators).
Strengthening teacher recruitment and retention efforts.
Expanding career pathways and dual enrollment for high school students.
If the provisions of this new grant mirror the language of the 2025-26 discretionary grant, districts would not be required to use the funds in the areas described above. Details specifying the reporting and other requirements for the 2026-27 proposal will be available in the coming months.
$250 million to continue supporting educator residency programs.
The state has provided several rounds of funding for these programs and the proposal states that current funds will be fully awarded by the end of 2025-26. The proposal does not yet include the level of detail to understand the specific requirements or allocation mechanism for this new round.
$100 million intended to “increase access to college and career pathways for high school students.”
The proposal also mentions expanding access to dual enrollment and dual credit opportunities for high school students. However, it does not provide further details on other aspects of this one-time allocation.
Proposed Budget Expands Support for the Community Colleges
A portion of Proposition 98 funding provides support for California’s Community Colleges (CCCs), the largest postsecondary education system in the country, which serves high percentages of students of color and students with low incomes. CCCs prepare more than 1.8 million students to transfer to four-year institutions or to obtain training and employment skills.
The 2026-27 proposed spending plan increases support to the community colleges through a cost-of-living adjustment, funds for increased costs, and a flexible block grant. The proposal also strengthens initiatives introduced in prior budgets. Specifically, the proposed spending plan:
Allocates $271 million for a 2.41% COLA for the funding formula and other programs. This includes$241 million for the Student Centered Funding Formula and $31 million for other categorical programs.
Provides $176 million for other formula adjustments and enrollment growth. The proposal includes a total of $87.2 million for enrollment growth, which includes $31.9 million for a 0.5 percent growth and an additional $55.3 million for a 1 percent growth in 2025-26. Additionally, the proposal provides a one-time increase of $88.7 million to support increased formula costs in addition to the COLA.
Allocates $100 million one-time for a flexible block grant. The budget proposal does not provide any detail on how the “Student Support Block Grant” will be allocated to colleges or the intended use of those funds.
Provides $78 million in one-time and ongoing funds to strengthen recent initiatives. This includes $41 million to further expand a common cloud data platform and $37 million to continue implementation of credit for prior learning efforts as part of the Master Plan for Career Education.
Allocates $38.1 million to Calbright College, the online community college. The proposal states that these funds will provide more stable funding for the college as it “transitions out of its startup capacity.”
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Budget Projects Drop in Prison Population, Fails to Propose Prison Closures
Roughly 90,360 adults convicted of a felony offense are serving their sentences at the state level, down from a peak of 173,600 in 2007. This sizable drop in incarceration is largely due to a series of justice system reforms adopted by state policymakers and the voters since the late 2000s, including Proposition 47, which California voters passed in 2014. (See Prop. 47 investments section.)
Despite this substantial progress in reducing incarceration, American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a disparity that reflects racist practices in the justice system as well as the social and economic disadvantages that communities of color continue to face due to historical and ongoing discrimination and exclusion.
Among all incarcerated adults, most — around 87,280 — are housed in state prisons designed to hold roughly 71,660 people. This overcrowding equals about 122% of the prison system’s “design capacity,” which is below the prison population cap — 137.5% of design capacity — established by a 2009 federal court order. California also houses around 3,080 people in facilities that are not subject to the cap, including fire camps, community-based facilities that provide rehabilitative services, and Department of State Hospitals facilities.
Provides $13.8 billion General Fund for the California Department of Corrections and Rehabilitation (CDCR) in 2026-27, up by $525 million from the amount provided in the enacted 2025-26 budget ($13.2 billion).
This year-over-year rise in spending is largely due to “retirement rate adjustments,” according to budget documents. Despite this increase, CDCR’s share of overall General Fund spending would drop below 6% in 2026-27. By comparison, CDCR’s budget comprised more than 9% of General Fund spending in 2013-14, the fiscal year before voters passed Prop. 47. (See Prop. 47 investments section.)
Projects the state will spend $138,019 per incarcerated adult in 2026-27, up from an estimated $135,921 in 2025-26.
The per capita cost of operating state prisons largely reflects security (e.g., correctional officers), health care (e.g., medical, mental health, and dental care), facility operations, and administration. Basic support services (e.g., food and clothing) and rehabilitation programs comprise a relatively small share of per capita spending in the state prison system.
Projects that the prison population will decline in the coming years.
The average daily number of adults incarcerated in state prisons is projected to decline to around 87,610 in 2026-27. By June 30, 2030, the number of incarcerated adults is projected to fall further to about 84,660. This decline provides state leaders with an opportunity to close additional prisons in the coming years.
Fails to advance a plan to continue downsizing the state prison system.
In recent years, California has closed (or is in the process of closing) four state prisons, deactivated 42 housing units across 11 prisons, deactivated certain facilities at four prisons, and eliminated in-state and out-of-state contracted prison capacity. CDCR estimates that all of these changes combined will result in cumulative state savings of $4.9 billion by 2027-28. Further scaling back the state prison system would free up additional state revenue that could help incarcerated individuals successfully transition back to their communities as well as support crime survivors, reduce poverty, increase housing stability, and address substance use and mental health issues.
Governor Includes Little Funding to Cover Proposition 36’s Unfunded Costs
In 2024, voters approved Proposition 36, increasing penalties for certain drug and theft offenses. For example, Prop. 36 reversed some of the sentencing reforms put in place by Prop. 47 of 2014. In addition, Prop. 36 established a new process allowing prosecutors to charge people with a “treatment-mandated felony” for possessing illegal drugs. Yet, even with Prop. 36, most of the justice system reforms adopted by state policymakers and voters over the past couple of decades remain in effect.
By increasing punishment for drug and theft crimes, Prop. 36 has created new costs — including for incarceration, probation, and the courts — at the state and local levels.
However, Prop. 36 amounts to a huge unfunded mandate. The measure provided no new revenue to pay for these additional state and local costs — even though Californians were promised that Prop. 36 would provide evidence-based treatment, housing solutions, and programs to increase community health and safety. Instead, Prop. 36 assumes that state and local officials can accommodate the measure’s costs in their already strained budgets.
As a result, state and local leaders have to decide how to pay for the unfunded costs created by Prop. 36 even as they struggle to close budget deficits for the upcoming fiscal year and beyond.
The governor’s proposed 2026-27 state budget:
Does not provide new funds to help address Prop. 36’s unfunded costs at the state or local levels. Instead, the governor suggests that some of the savings generated by Prop. 47 could be used to pay for Prop. 36 court-ordered treatment programs (see Prop. 47 investments section). This approach — shifting Prop. 47 dollars to pay for Prop. 36 programs — would displace important mental health and substance use services that otherwise would be funded through Prop. 47.
Proposed Budget Projects Decline in Proposition 47 Savings in Coming Years
Passed by voters in 2014, Proposition 47 reduced penalties for six nonviolent drug and property crimes from felonies to misdemeanors. As a result, state prison generally has not been a sentencing option for these crimes. Instead, people convicted of a Prop. 47 offense have served their sentence in county jail and/or received probation.
However, with the passage of Prop. 36 in November 2024, some of Prop. 47’s sentencing reforms have been reversed. Key changes enacted by Prop. 36 as well as their potential impact are described at the end of this section.
How Prop. 47 Savings Are Determined and Allocated
By decreasing state-level incarceration beginning in 2014, Prop. 47 reduced the cost of the prison system relative to the expected cost if Prop. 47 had not been approved by voters. The state Department of Finance is required to annually calculate these state savings, which are deposited into the Safe Neighborhoods and Schools Fund and used as follows:
65% for behavioral health services — which includes mental health services and substance use treatment — as well as diversion programs for individuals who have been arrested, charged, or convicted of crimes. These funds are distributed as competitive grants administered by the Board of State and Community Corrections.
25% for K-12 school programs to support vulnerable youth. These funds are distributed as competitive grants administered by the California Department of Education.
10% to trauma recovery services for crime victims. These funds are distributed as competitive grants administered by the California Victim Compensation Board.
California Has Allocated $908 Million in Prop. 47 Funds Through 2025-26
Since 2016, California has allocated $907.5 million in state prison savings attributable to Prop. 47. These funds have been invested in local programs that support healing and keep communities safe.
For example, research has found that people who received Prop. 47-funded behavioral health services and/or participated in diversion programs were much less likely to be convicted of a new crime. Individuals enrolled in these programs had a recidivism rate of just 15.3% — two to three times lowerthan is typical for people who serve prison sentences (recidivism rates range from 35% to 45% for these individuals).
Governor’s Proposed Budget Estimates $81 Million in Prop. 47 Savings to Invest in Local Communities in 2026-27
The budget estimates $81.3 million in Prop. 47 savings due to reduced state-level incarceration — dollars that will be invested in local communities starting in 2026-27. (These savings are attributable to the 2025-26 fiscal year, but will become available for expenditure in 2026-27.) With these additional funds, Prop. 47’s total investment in California’s communities will reach nearly $989 million, up from the current $908 million (through 2025-26).
Prop. 47 Savings Will Decline Due to Prop. 36
With the passage of Prop. 36 in November 2024, voters increased penalties for certain drug and theft offenses, including by reversing some of Prop. 47’s sentencing reforms (see Prop. 36 Impacts section). For example, Prop. 36 allows simple drug possession, petty theft, and shoplifting to be charged as felonies in certain circumstances. Under Prop. 47’s rules, these crimes were generally misdemeanors.
The administration estimates that the longer sentences allowed by Prop. 36 will increase the prison population by 562 in 2025-26 and by about 1,200 upon full implementation. (The overall prison population is projected to continue to decline due to the offsetting impact of justice system reforms that remain in effect.) As a result, the annual savings associated with Prop. 47 is expected to drop. For example, Prop. 47 allocations are anticipated to fall from $91.5 million in 2025-26 to $81.3 million in 2026-27 to $72.9 million in 2027-28 — a decline of 20% over this period. Prop. 36 is likely a key factor contributing to this substantial drop.
In short, because of Prop. 36, tens of millions of dollars that would otherwise have supported behavioral health treatment and other critical services over the coming years is expected to be shifted back to the state prison system.
Cada año, el gobernador y la asamblea legislativa adoptan un presupuesto estatal que provee un marco y fondos para servicios y sistemas públicos esenciales: desde cuidado infantil y atención médica y transporte hasta universidades y escuelas de jardín de infantes al décimo primer grado.
Pero el presupuesto estatal no es solo dólares y centavos.
El presupuesto expresa nuestros valores así como nuestras prioridades para los californianos y como estado. En su mejor versión, el presupuesto debe reflejar nuestra labor colectiva para expandir las oportunidades económicas, promover el bienestar y mejorar las vidas de los californianos que no tiene la oportunidad de compartir la riqueza de nuestro estado y merecen tener dignidad y apoyo para vivir vidas prósperas.
Las elecciones del presupuesto estatal afectan a todos los californianos. Estas decisiones afectan la calidad de nuestras escuelas y nuestra atención médica, el costo de la educación terciaria, el acceso de las familias a cuidado infantil y vivienda asequibles, la disponibilidad de servicios y apoyo financiero para ayudar a los adultos mayores a envejecer sin tener que mudarse, y muchísimo más.
Como el presupuesto estatal afecta tantos servicios y nuestras vidas cotidianas, es esencial que los californianos entiendan el proceso de presupuesto anual y participen en él para asegurar que los líderes del estado tomen las decisiones estratégicas necesarias para permitir que todo californiano, sin importar su raza, sus antecedentes ni dónde se encuentre, prospere y pueda participar en la vida económica y social de nuestro estado.
Este informe ofrece información sobre el presupuesto estatal y su proceso con la meta de brindar a los californianos las herramientas que necesitan para interactuar eficazmente con los encargados de tomar decisiones y abogar por decisiones políticas justas y equitativas.
CONCLUSIONES CLAVE
Temas más importantes
El plan de gastos del estado no es solo dólares y centavos.
La creación del presupuesto les da a los californianos la oportunidad de expresar sus valores y prioridades como estado.
La Constitución estatal expone las normas del proceso presupuestario.
Entre otras cosas, estas normas permiten que los legisladores aprueben los gastos mediante un voto de mayoría simple, pero exige un voto de las dos terceras partes para aumentar los impuestos. Los votantes modifican el proceso presupuestario periódicamente aprobando enmiendas constitucionales.
El gobernador tiene una función de liderazgo en el proceso presupuestario.
Proponer un presupuesto estatal para el año fiscal siguiente le da al gobernador la primera palabra en las deliberaciones presupuestarias de cada año.
La revisión de mayo le da al gobernador otra oportunidad de establecer el plan presupuestario y político para el estado.
En general, el poder de veto le otorga la última palabra al gobernador.
La asamblea legislativa revisa y modifica las propuestas del gobernador.
Los legisladores pueden modificar las propuestas del gobernador e impulsar sus propias iniciativas al elaborar su versión del presupuesto antes de negociar un acuerdo con el gobernador.
Las decisiones presupuestarias se toman durante todo el año.
El público tiene varias oportunidades de expresar sus opiniones en el proceso presupuestario.
Esto incluye escribir cartas de apoyo o protesta, atestiguar en audiencias legislativas y reunirse con funcionarios del gobierno de gobernador, así como legisladores y miembros de su personal.
En pocas palabras, los californianos tienen amplias oportunidades de participar en el proceso presupuestario durante todo el año.
DATOS CLAVE SOBRE EL PRESUPUESTO ESTATAL DE CALIFORNIA
PRESUPUESTO ESTATAL = FONDOS ESTATALES + FONDOS
federales tres tipos de fondos estatales
Existen tres tipos de fondos estatales que conforman casi las dos terceras partes (64.8%) de presupuesto de $495.6 billones de California para 2025-26, el año fiscal que comenzó el 1 de julio de 2025. Específicamente:
Fondo general: El fondo general estatal cuenta con ingresos públicos que no están designados para un propósito específico. La mayor parte de los fondos para la educación, los servicios de salud y humanos y las prisiones del estado viene del fondo general.
Fondos especiales: Existen más de 500 fondos estatales especiales que administran impuestos, tasas y licencias designados para un propósito específico.
Fondos de bonos: Los fondos de bonos del estado registran la recepción y el desembolso de los recursos provenientes de bonos de obligación general (GO).
Los fondos federales constituyen el resto (35.2%) del presupuesto estatal de 2025-26.
LA MAYOR PARTE DE LOS INGRESOS PÚBLICOS DEL FONDO ESTATAL GENERAL Y ESPECIAL VIENE DE TRES FUENTES
los “tres grandes” impuestos de california
La mayor parte de los ingresos públicos vienen de los “tres grandes” impuestos de California. El total estimado de ingresos públicos del fondo general y el fondo especial combinados en 2025-26 es $296.7 billones, de los cuales casi el 73% ($215.8 billones) proviene de los tres grandes impuestos. Los tres grandes impuestos de California son:
Impuesto sobre los ingresos personales: Este es un impuesto sobre los ingresos de los residentes de California, así como sobre los ingresos de los no residentes provenientes de fuentes ubicadas en California. Es la mayor fuente de ingresos del estado de California.
Impuesto sobre las ventas y el uso: Este es un impuesto sobre la compra de bienes tangibles en California (el impuesto sobre las ventas) o sobre el uso en California de bienes tangibles que fueron adquiridos en otro lugar (el impuesto sobre el uso). Los servicios están excluidos del impuesto sobre las ventas y el uso, al igual que otros artículos exentos por ley, incluidos los alimentos y los medicamentos. El impuesto sobre las ventas y el uso es la segunda mayor fuente de ingresos públicos del estado de California.
Impuesto sobre las corporaciones: Este es un impuesto que se aplica a las corporaciones que hacen negocios en California o que obtienen ingresos provenientes de California, con la excepción de las compañías de seguros, que en su lugar pagan el impuesto sobre los seguros. El impuesto sobre las corporaciones es la tercera mayor fuente de ingresos públicos del estado de California.
Se estima que otros ingresos públicos del estado forman más de una cuarta parte (27.3 %) del total proyectado de ingresos del fondo general y de los fondos especiales en 2025-26. Estos otros ingresos públicos provienen de una amplia variedad de fuentes, incluidos impuestos, tarifas y multas.
EL PRESUPUESTO DEL ESTADO ES UN PRESUPUESTO LOCAL
Los dólares que se gastan a través del presupuesto estatal se destinan a personas, comunidades e instituciones en todo California. Según el presupuesto estatal aprobado para 2025-26:
Cuatro quintos de los gastos totales (80.6%) se destina en calidad de “asistencia local” a las escuelas públicas de jardín de infantes al décimo segundo grado, las escuelas terciarias comunitarias (Colleges), las familias inscritas en el programa CalWORKs y otros servicios y sistemas esenciales del estado que funcionan localmente.
Casi un quinto de los gastos totales (17.9%) se destina a 23 universidades estatales de California, más de 30 prisiones estatales y otros destinatarios de dólares para “operaciones estatales”.
Menos del 2 % del gasto total se destina a “gastos de capital”, que apoyan proyectos de infraestructura en todo California. (La asistencia local y los fondos de operaciones estatales también financian infraestructura).
LOS FONDOS DEL ESTADO FINANCIAN PRINCIPALMENTE LOS SERVICIOS DE SALUD Y HUMANOS O LA EDUCACIÓN
Según el presupuesto estatal aprobado para 2025-26:
Casi 3 de cada 4 dólares del fondo general y el fondo especial financian tres categorías de gastos: servicios de salud y humanos (42%), educación de jardín de infantes al décimo segundo grado (25.1%), y educación superior (7.2%).
Más del 5% de los dólares del fondo general y especial se destinan al sistema correccional, principalmente el sistema de prisiones estatales.
El saldo de estos dólares financian otros servicios esenciales (tales como el transporte y la protección medioambiental) e instituciones (tales como el sistema de tribunales estatales).
LOS FONDOS FEDERALES FINANCIAN PRINCIPALMENTE SERVICIOS DE SALUD Y HUMANOS
Según el presupuesto estatal aprobado para 2025-26:
Casi cuatro quintos de los dólares federales (78.3%) financian programas de servicios de salud y humanos.
El saldo de los dólares federales financia otros servicios esenciales, como el desarrollo de la fuerza laboral, la educación de jardín de infantes al décimo segundo grado, la educación superior y el transporte.
EL PRESUPUESTO ESTATAL FORMA PARTE DE UN PAQUETE DE PROYECTOS DE LEY
El presupuesto estatal nunca se presenta de manera aislada. En su lugar, avanza como parte de un paquete de legislación que por lo general incluye entre dos y tres docenas de proyectos de ley, y en ocasiones muchos más, en particular en los años en que existe un déficit presupuestario y los líderes estatales necesitan hacer múltiples cambios para equilibrar el presupuesto. En 2025, el gobernador Newsom firmó casi 50 proyectos de ley relacionados con el presupuesto.
cuatro tipos de proyectos de ley relacionados con el presupuesto
El paquete presupuestario incluye dos tipos de proyectos de ley presupuestarios con proyectos de ley asociados y otras leyes relacionadas con el presupuesto.
Ley de Presupuesto: El presupuesto estatal se conoce formalmente como la Ley de Presupuesto. La Ley de Presupuesto es el presupuesto inicial aprobado por la asamblea legislativa y firmada por el gobernador para convertirla en ley. En general, los proyectos de ley presupuestarios:
Otorgan autoridad para gastar dinero (“apropiaciones”) en una gama de servicios y sistemas públicos para un solo año.
Pasan por los comités presupuestarios de la asamblea legislativa según su propio calendario.
Proyecto de ley presupuestario junior: Este es el término informal que se utiliza para referirse a cualquier proyecto de ley presupuestario que modifica la Ley de Presupuesto, por ejemplo, aumentando o reduciendo los gastos autorizados. No existe un límite en la cantidad de proyectos de ley presupuestarios complementarios que pueden incluirse en un paquete presupuestario. Esto significa que las autoridades estatales pueden modificar la Ley de Presupuesto tantas veces como lo deseen mediante la aprobación de proyectos de ley presupuestarios adicionales.
Proyectos de ley remolque (trailer bills): El paquete presupuestario del estado también incluye proyectos de ley remolque. Los proyectos de ley remolque generalmente introducen cambios en la legislación estatal relacionados con la Ley de Presupuesto y, al igual que los proyectos de ley presupuestarios, avanzan a través de los comités presupuestarios de la asamblea legislativa. Además, los proyectos de ley remolque:
Deben contener al menos una asignación presupuestaria y estar incluidos en la Ley de Presupuesto, un requisito que los vincula directamente con el presupuesto estatal.
Están organizados por grandes áreas de política pública dentro del presupuesto. Por ejemplo, los cambios relacionados con la salud se incluirían en un proyecto de ley remolque para la “salud” y los cambios relacionados con la vivienda se incluirían en un proyecto de ley remolque para la “vivienda”, y así sucesivamente.
Otros proyectos de ley relacionados con el presupuesto: Se pueden incluir otros proyectos de ley en el paquete presupuestario de tanto en tanto. Estos son proyectos de ley que avanzan independientemente de la Ley de Presupuesto (y por lo tanto no son proyectos de ley remolque) pero igual se consideran parte del marco del presupuesto estatal. Esto puede incluir, por ejemplo, leyes para aumentar los impuestos o presentar enmiendas constitucionales a los votantes así como los proyectos de ley aprobados en una sesión especial de la asamblea legislativa. Estas otras leyes relacionadas con el presupuesto pueden avanzar ya sea a través de los comités de políticas de la asamblea legislativa como a través de los comités presupuestarios.
Comité presupuestario de la cámara de representantes y comité presupuestario y de revisión fiscal del senado
Revisan las propuestas presupuestarias del gobernador y elaboran la versión del presupuesto estatal de cada cámara. La mayor parte del trabajo de los comités presupuestario se hace a través de subcomités que se enfocan en áreas específicas de política pública.
Ley de Presupuesto
El proyecto de ley presupuestario inicial aprobado por la Legislatura y promulgado como ley por el gobernador, después de aplicar cualquier veto a partidas específicas. La Ley de Presupuesto puede identificarse por el año en el que entra en vigor («Ley de Presupuesto de 2026») o por el año fiscal al que corresponde («Ley de Presupuesto 2026-27»).
Proyecto de ley presupuestario junior
Es el término informal que se usa para describir todo proyecto de ley presupuestario que modifica la Ley de Presupuesto. Los proyectos de ley junior se pueden numerar en secuencia usando números romanos (por ejemplo, proyecto de ley junior I, proyecto de ley junior II, etc.).
Proyectos de ley relacionados con el presupuesto (“proyectos de ley remolque”)
En general hacen cambios a la ley estatal relacionada con la Ley de Presupuesto. Estos proyectos de ley se conocen formalmente como “proyectos de ley … relacionados con el proyecto de ley presupuestario”, pero se conocen más comúnmente como “proyectos de ley remolque (trailer)”. Los proyectos de ley remolque se indican en la Ley de Presupuesto y avanzan a través de los comités presupuestarios de la cámara de representantes y del senado. Los proyectos de ley remolque se organizan por área relacionada, como por ejemplo “salud”, “vivienda”, “educación superior” y “seguridad pública”.
De tanto en tanto, los proyectos de ley que avanzan independientemente de la Ley de Presupuesto, y por lo tanto no son proyectos de ley remolque, se pueden considerar parte del marco del presupuesto estatal general. Esto puede incluir, por ejemplo, leyes para aumentar los impuestos o presentar enmiendas constitucionales a los votantes.
Departamento de Finanzas (DOF)
Dirige el desarrollo de las propuestas presupuestarias del gobernador, prepara los documentos presupuestarios del gobernador, atestigua en nombre del gobernador en las audiencias legislativas presupuestarias, desarrolla los pronósticos económicos del gobernador y cumple con varias otras funciones. El director del DOF es el asesor fiscal en jefe del gobernador.
Resumen del presupuesto del gobernador
Presenta el panorama económico y de ingresos públicos del gobernador, destaca las principales iniciativas de política pública incluidas en el presupuesto propuesto por el gobernador y resume los gastos estatales propuestos. El resumen del presupuesto se publica el 10 de enero o antes.
Presupuesto propuesto del gobernador
Proporciona una descripción detallada de los gastos propuestos por el gobernador para el próximo año fiscal, los gastos estimados para el año fiscal en curso y los gastos reales del año fiscal anterior. El presupuesto propuesto se publica el 10 de enero o antes.
Oficina del analista legislativo (LAO)
Oficina independiente y no partidaria que hace investigaciones y análisis sobre asuntos del presupuesto estatal, analiza medidas electorales de alcance estatal y brinda asesoramiento fiscal y de política pública a la asamblea legislativa. La LAO es supervisada por el comité presupuestario legislativo conjunto, que es bipartito.
Veto de elementos específicos
La facultad del gobernador de reducir o eliminar elementos de apropiación específicos a pesar de aprobar porciones de un proyecto de ley. Esta facultad es aplicable a cualquier proyecto de ley que contenga una apropiación, incluso los proyectos de ley presupuestarios y los proyectos de ley relacionados con el presupuesto. La asamblea legislativa puede anular un veto con dos terceras partes del voto en casa cámara.
Revisión de mayo
Publicada a más tardar el 14 de mayo, la revisión de mayo actualiza el panorama económico y de ingresos públicos del gobernador; ajusta los gastos propuestos por el gobernador para reflejar estimaciones y supuestos revisados; revisa, complementa o retira las iniciativas de política pública incluidas en el presupuesto propuesto en enero; y detalla los ajustes a la garantía mínima de financiamiento establecida por la proposición 98 para la educación de jardín de infantes hasta el segundo año de la educación terciaria.
EL MARCO CONSTITUCIONAL
LA CONSTITUCIÓN ESTATAL EXPONE LAS NORMAS DEL PROCESO PRESUPUESTARIO
El gobernador y los legisladores crean el plan anual de gastos del estado conforme a normas delineadas en la Constitución del estado.
Los votantes de California cambian estas normas periódicamente cuando aprueban enmiendas constitucionales que aparecen en la boleta electoral.
Las propuestas de modificar la Constitución del estado se pueden incluir en la boleta electoral a través de una iniciativa de los ciudadanos o a través de la asamblea legislativa.
Una enmienda constitucional entra en efecto si es aprobada por una mayoría simple de los votantes.
TRES PLAZOS DE VENCIMIENTO CLAVES DEL PRESUPUESTO
DOS EN LA CONSTITUCIÓN DEL ESTADO (10 DE ENERO Y 15 DE JUNIO) UNA EN LA LEY ESTATAL (4 DE MAYO)
El gobernador debe proponer un presupuesto para el año fiscal venidero a más tardar el 10 de enero. El presupuesto debe estar balanceado: Los ingresos públicos estimados (según lo determine el gobernador) deben cubrir o superar los gastos propuestos por el gobernador.
El gobernador debe publicar la revisión de mayo a más tardar el 14 de mayo. La asamblea legislativa debe aprobar un proyecto de ley presupuestario para el año fiscal siguiente a más tardar la medianoche del 15 de junio.
El proyecto de ley presupuestario debe estar balanceado: Los ingresos públicos estimados del fondo general (como se expone en el proyecto de ley presupuestario aprobado por la asamblea legislativa) debe cubrir o superar los gastos del fondo general.
PROPOSICIÓN 25: VOTO POR MAYORÍA SIMPLE PARA LOS PROYECTOS DE LEY PRESUPUESTARIOS Y LA MAYORÍA DE LOS PROYECTOS DE LEY REMOLQUE (TRAILER)
El paquete presupuestario, por lo general, puede aprobarse con un voto de mayoría simple en cada cámara de la asamblea legislativa.
La proposición 25 de 2010 permite a los legisladores aprobar, mediante un voto de mayoría simple, tanto los proyectos de ley presupuestarios como los proyectos de ley complementarios, los cuales pueden entrar en vigor tan pronto como el gobernador los firme.
Conforme a las normas de la proposición 25, los proyectos de ley remolque deben (1) incluirse en la lista de la Ley de Presupuesto y (2) contener una apropiación de cualquier monto.
Incluso con la proposición 25, algunos tipos de proyectos de ley remolque que se podrían incluir en el paquete presupuestario requerirán una supermayoría: generalmente dos tercios del voto de cada cámara. Esto incluye, por ejemplo, los proyectos de ley que aumentan los impuestos o enmiendan una ley estatal que fue aprobada por los votantes mediante una iniciativa en la boleta electoral. Sin embargo, la mayoría de los proyectos de ley remolque en el paquete presupuestario solo necesitarán un voto de mayoría simple para ser aprobados.
PROPOSICIÓN 25: SANCIONES POR ATRASO DEL PRESUPUESTO
Los legisladores enfrentan sanciones si no aprueban el proyecto de ley presupuestario a más tardar el 15 de junio.
La proposición 25 exige que los legisladores pierdan de forma permanente tanto su salario como el reembolso de gastos de viaje y manutención por cada día posterior al 15 de junio que se atrase la aprobación del proyecto de ley presupuestario y su envío al gobernador.
Estas sanciones no se aplican a los proyectos de ley relacionados con el presupuesto, los cuales no están obligados a aprobarse a más tardar el 15 de junio.
PROPOSICIÓN 26: VOTO POR SUPERMAYORÍA PARA LOS AUMENTOS DE IMPUESTOS
Todo aumento de impuestos requiere un voto de dos terceras partes de cada cámara de la asamblea legislativa.
Conforme a la Constitución del estado, “todo cambio en el estatuto estatal que causa que un contribuyente pague impuestos más altos” requiere un voto de las dos terceras partes de cada cámara.
Esta norma fue impuesta por la proposición 26 de 2010. Esta medida expandió la definición de un aumento de impuestos y por lo tanto el alcance del requisito del voto de las dos terceras partes, que fue impuesto originalmente por la proposición 13 de 1978.
Antes de la proposición 26, solo los proyectos de ley que cambiaban los impuestos estatales “para el propósito de aumentar los ingresos públicos” requerían un voto de las dos terceras partes. Los proyectos de ley que aumentaban algunos impuestos pero reducían otros por una cantidad equivalente o mayor podían aprobarse mediante una mayoría simple de votos en cada cámara.
PROPOSICIÓN 26: SE CLASIFICAN MÁS CARGOS COMO IMPUESTOS
La proposición 26 de 2010 también expandió la definición de impuesto para incluir algunas tarifas.
Antes de la proposición 26, los legisladores podían crear o aumentar las tarifas mediante un voto de mayoría simple. Estas tarifas aprobadas por mayoría incluían tarifas regulatorias destinadas a abordar problemas de salud, ambientales u otros causados por diversos productos como el alcohol, el petróleo o los materiales peligrosos.
La proposición 26 reclasificó las tarifas regulatorias y algunas otras como impuestos. Por esta razón, ahora se requiere un voto de las dos terceras partes de cada cámara de la asamblea legislativa para muchos cargos que antes se consideraban tarifas y podían aprobarse por voto de mayoría simple.
REQUISITOS ADICIONALES DE VOTO POR SUPERMAYORÍA
La Constitución estatal requiere un voto de dos terceras partes de cada cámara de la asamblea legislativa para:
Apropiar dinero para el fondo general, excepto para las apropiaciones que son para las escuelas públicas o que se incluyen en proyectos de ley presupuestarios o proyectos de ley remolque (trailer).
Aprobar proyectos de ley que entran en vigencia de inmediato (estatutos urgentes), excepto los proyectos de ley presupuestarios y los proyectos de ley remolque (trailer).
Someter enmiendas constitucionales o medidas de bonos de obligación general a la consideración de los votantes.
Anular el veto del gobernador a un proyecto de ley o a un elemento de gasto específico.
PROPOSICIÓN 54: UN PROYECTO DE LEY SE DEBE PUBLICAR DURANTE POR LO MENOS 72 HORAS ANTES DE QUE LA ASAMBLEA LEGISLATIVA PUEDA ACTUAR EN RELACIÓN A ÉL
La proposición 54 de 2016 requiere que los proyectos de ley se distribuyan a los legisladores y se publiquen en internet, en su formato final, al menos 72 horas antes de ser aprobados por la asamblea legislativa.
Esta norma es aplicable a todos los proyectos de ley, incluso el proyecto de ley presupuestario y otras leyes incluidas en el paquete presupuestario.
Este período de revisión obligatorio se puede eximir para un proyecto de ley si:
El gobernador declara una emergencia en respuesta a un desastre o un peligro extremo, y
Las dos terceras partes de los legisladores en la cámara de representantes que consideran el proyecto de ley votan por renunciar al período de revisión.
PROPOSICIÓN 98: UNA GARANTÍA DE FONDOS PARA LAS ESCUELAS DE JARDÍN DE INFANTES AL DÉCIMO SEGUNDO GRADO Y LAS ESCUELAS TERCIARIAS COMUNITARIAS
La proposición 98 de 1988 garantiza un nivel anual mínimo de fondos para la educación de jardín infantes hasta el segundo año de educación terciaria.
El monto garantizado se calcula cada año en base a una de tres pruebas que se aplican conforme a condiciones fiscales y económicas. Dos de estas pruebas incluyen ajustes por cambios en la asistencia a las escuelas primarias y secundarias en todo el estado. Los fondos de la proposición 98 provienen del fondo general y de los ingresos públicos generados por impuestos locales sobre la propiedad.
La asamblea legislativa puede suspender la garantía por un solo año mediante un voto de las dos terceras partes de cada cámara y proporcionar menos fondos. Después de una suspensión, el estado debe aumentar los fondos de la proposición 98 con el paso del tiempo al nivel que hubiera alcanzado si no se hubiera implementado la suspensión.
Aunque la asamblea legislativa puede proveer más fondos de los que requiere la proposición 98, en general, la garantía a servido como un nivel de fondos máximo.
PROPOSICIÓN 2: AHORROS PARA UN DÍA DE LLUVIA, PAGO DE DEUDAS
La proposición 2 de 2014 revisó las reglas que se aplican a la cuenta de estabilización presupuestaria (BSA, por sus siglas en inglés), el fondo constitucional de “emergencia” del estado, y también estableció un nuevo requisito para reducir la deuda presupuestaria del estado.
El estado está obligado a reservar cada año el 1.5% de los ingresos del fondo general, además de dólares adicionales en los años en que los ingresos tributarios provenientes de las ganancias de capital son particularmente elevados.
Hasta 2029-30, la mitad de estos ingresos se deposita en la BSA y la otra mitad debe utilizarse para reducir la deuda presupuestaria del estado, que incluye pasivos no financiados de pensiones. A partir de 2030-31, la totalidad de la transferencia anual se depositará en la BSA.
Los responsables de formular políticas públicas del estado pueden suspender o reducir el depósito en la BSA y retirar fondos de la reserva, pero únicamente en circunstancias limitadas que califiquen como una “emergencia presupuestaria”.
PROPOSICIÓN 2: UNA RESERVA PRESUPUESTARIA PARA LA EDUCACIÓN DE JARDÍN DE INFANTES HASTA EL SEGUNDO AÑO DE EDUCACIÓN TERCIARIA
La proposición 2 de 2014 también creó una reserva para el presupuesto del estado para las escuelas de jardín de infantes al décimo segundo grado llamada la cuenta de estabilización del sistema de escuelas públicas (Public School System Stabilization Account) (PSSSA).
Los depósitos provienen de los ingresos públicos de los impuestos sobre las ganancias de capital cuando esos ingresos son particularmente elevados.
Sin embargo, se deben cumplir varias condiciones antes de poder transferir estos dólares a la PSSSA. Por ejemplo, las transferencias solo pueden ocurrir en los así llamados años “prueba 1” conforme a la proposición 98, que han sido relativamente infrecuentes.
PROPOSICIÓN 55: FONDOS NUEVOS POTENCIALES PARA MEDI-CAL GRACIAS A UN IMPUESTO A LOS CALIFORNIANOS MÁS PUDIENTES
La proposición 55 de 2016 extiende hasta finales de 2030 los aumentos en la tasa de impuestos sobre la renta personales para los californianos con ingresos muy elevados y establece una fórmula para impulsar los fondos para Medi-Cal, que proporciona servicios de atención médica a los californianos con ingresos bajos.
A partir de 2018-19, los ingresos públicos del fondo general, incluso los obtenidos por la proposición 55, deben usarse primero para financiar (1) la garantía anual de la proposición 98 para las escuelas de jardín de infantes a décimo segundo grado y las escuelas terciarias comunitarias, y (2) el costo de otros servicios que fueron autorizados a partir del 1 de enero de 2016, ajustado según los cambios poblacionales, los mandatos federales y otros factores.
Si queda algún ingreso público de la proposición 55 después de cumplir con estos gastos obligatorios, Medi-Cal recibirá el 50% de este exceso, hasta un máximo de $2 billones en cualquier año fiscal.
La proposición 55 aún no ha generado fondos adicionales para Medi-Cal.
PROPOSICIÓN 4: LÍMITE DE APROPIACIONES ESTATALES (STATE APPROPRIATIONS LIMIT) (SAL): UN LÍMITE PARA LOS GASTOS
Las apropiaciones están sujetas a un límite establecido por la proposición 4 de 1979, según modificada por iniciativas posteriores. Este límite de gastos se suele denominar el límite Gann.
El SAL limita la cantidad de ganancias por impuestos estatales que se puede apropiar cada año. Este límite se ajusta anualmente según los cambios de población y los ingresos personales por persona.
Algunas apropiaciones de las ganancias impositivas no se cuentan para calcular el límite, como los gastos de servicio de las deudas y los gastos necesarios para cumplir con mandatos judiciales o federales.
Los ingresos públicos que superan el SAL durante un plazo de dos años se dividen por igual entre gastos de la proposición 98 y reembolsos a los contribuyentes. El estado superó por última vez el SAL en 2020-21 (pero no lo hizo el año anterior).
MANDATOS ESTATALES: HAY QUE PAGARLOS O SUSPENDERLOS
El estado está obligado a pagar los mandatos que impone a los gobiernos locales o suspenderlos.
La proposición 4 de 1979 exige que el estado reembolse a los gobiernos locales los costos relacionados con un programa nuevo o un nivel más elevado de servicio exigido por el estado.
La proposición 1A de 2004 expandió la definición de un mandato para incluir la transferencia de responsabilidad financiera del gobierno estatal a los gobiernos locales.
La proposición 1A también requiere que el estado suspenda un mandato todo año en el que los costos de los gobiernos locales no se reembolsen por completo.
¿QUÉ HACEN EL GOBERNADOR Y LA ASAMBLEA LEGISLATIVA?
El gobernador:
Aprueba, modifica o rechaza las propuestas de gastos preparadas por los departamentos y agencias estatales mediante un proceso interno coordinado por el Departamento de Finanzas.
Propone cada enero un plan de gastos para el estado, que se presenta ante la asamblea legislativa como el proyecto de ley presupuestario.
Actualiza y revisa el presupuesto propuesto cada mayo (la «Revisión de mayo»).
Firma o veta los proyectos de ley incluidos en el paquete presupuestario.
Puede vetar la totalidad o una parte de las apropiaciones individuales (partidas presupuestarias), pero no puede aumentar ninguna apropiación por encima del nivel aprobado por la asamblea legislativa.
La asamblea legislativa:
Aprueba, modifica o rechaza las propuestas del gobernador.
Puede agregar gastos nuevos o hacer otros cambios que modifican sustancialmente las propuestas del gobernador.
Necesita una voto de mayoría simple de cada cámara para aprobar los proyectos de ley presupuestarios y la mayor parte de los proyectos de ley remolque (trailer).
Necesita un voto de las dos terceras partes para aprobar ciertos otros proyectos de ley que pueden formar parte del paquete presupuestario, como por ejemplo los proyectos de ley que aumentan los impuestos o proponen enmiendas constitucionales.
Necesita un voto de las dos terceras partes de cada cámara para anular el veto del gobernador de un proyecto de ley o apropiación.
¿QUÉ PASA Y CUÁNDO?
CRONOGRAMA DEL PRESUPUESTO ESTATAL
El proceso del presupuesto estatal es cíclico. Se toman decisiones durante todo el año.
Los departamentos y agencias estatales elaboran presupuestos base para mantener los niveles de servicio existentes en el próximo año fiscal y pueden preparar «propuestas de cambio presupuestario» destinadas a modificar esos niveles de servicio. El Departamento de Finanzas (DOF) revisa estos documentos.
Los departamentos y agencias estatales elaboran presupuestos base para mantener los niveles de servicio existentes en el próximo año fiscal y pueden preparar «propuestas de cambio presupuestario» destinadas a modificar esos niveles de servicio. El Departamento de Finanzas (DOF) revisa estos documentos.
De manera independiente del gobernador, los líderes legislativos elaboran sus prioridades presupuestarias para el próximo año fiscal.
En noviembre, la oficina del analista legislativo (LAO) publica su panorama fiscal, que ofrece la evaluación de la LAO sobre los ingresos públicos, los gastos y la situación general del presupuesto del estado a lo largo de varios años fiscales.
A más tardar el 10 de enero
El gobernador publica el presupuesto propuesto para el año fiscal venidero que comienza el 1 de julio.
Enero a mediados de mayo
Unos pocos días después de la publicación del presupuesto propuesto: La oficina del analista legislativo (LAO) publica su panorama general y su evaluación de las propuestas del gobernador y posteriormente divulga una proyección actualizada de los ingresos.
Finales de enero: El comité presupuestario de la cámara de representantes y el comité presupuestario y de revisión fiscal del senado celebran audiencias generales sobre el presupuesto propuesto por el gobernador.
Finales de febrero hasta principios de mayo: Los subcomités presupuestarios de cada cámara celebran decenas de audiencias para revisar en profundidad las propuestas del gobernador.
A más tardar el 14 de mayo
El gobernador publica un presupuesto modificado (la «revisión de mayo») para el próximo año fiscal, que comienza el 1 de julio.
Mediados de mayo a principios de junio
Pocos días después de la revisión de mayo: La oficina del analista legislativo (LAO) publica su panorama general y su evaluación de la revisión de mayo y posteriormente divulga una proyección actualizada de los ingresos y una perspectiva presupuestaria de varios años.
La semana siguiente a la revisión de mayo: Los subcomités presupuestarios de la cámara de representantes y del senado se reúnen para revisar las propuestas del gobernador incluidas en la revisión de mayo.
Aproximadamente 10 días después de la revisión de mayo: La cámara de representantes y el senado publican resúmenes, denominados «informes de subcomité», de sus versiones del paquete presupuestario.
Aproximadamente dos semanas después de la revisión de mayo: Los líderes de la cámara de representantes y del senado llegan a un acuerdo sobre una versión legislativa unificada del paquete presupuestario y publican resúmenes del acuerdo. Durante muchos años, los líderes legislativos convocaron un comité de conferencia compuesto por demócratas y republicanos para resolver las diferencias entre los planes de gastos de ambas cámaras. Sin embargo, no se ha convocado un comité de conferencia desde 2019.
En esta etapa es posible alcanzar un acuerdo completo con el gobernador, aunque es poco frecuente. No obstante, el paquete presupuestario de la asamblea legislativa reflejará muchos puntos de coincidencia con el gobernador, basados en negociaciones continuas y discretas entre el gobernador y los líderes legislativos.
Un poco más de dos semanas después de la revisión de mayo: La legislatura comienza a redactar el proyecto de ley presupuestario inicial, también conocido como la Ley de Presupuesto. La finalización de la Ley de Presupuesto para las votaciones de todos los miembros de la legislatura puede tardar aproximadamente una docena de días.
A más tardar el 15 de junio
La asamblea legislativa aprueba la Ley de Presupuesto antes del 15 de junio, la fecha límite constitucional, y la envía al gobernador.
Si las dos cámaras han programado votos formales de toda la asamblea legislativa para el 15 de junio, la Ley de Presupuesto se debe publicar en el sitioweb de información legislativa de California a más tardar el 12 de junio para cumplir con el requisito de notificación previa de 72 horas.
Si la asamblea legislativa programa votos de toda la asamblea para una fecha anterior al 15 de junio, la Ley de Presupuesto debe imprimirse antes del 12 de junio para cumplir con la norma de las 72 horas, por ejemplo a más tardar el 10 de junio para hacer la votación con todos los miembros el 13 de junio.
No es obligatorio que los proyectos de ley remolque (trailer), que también forman parte del paquete presupuestario estatal, se aprueben a más tardar el 15 de junio, y raramente lo son. En general, los proyectos de ley remolque (trailer) hacen cambios legales necesarios para implementar las políticas públicas que aparecen en la Ley de Presupuesto.
Segunda mitad de junio
El gobernador y los líderes legislativos continúan negociando con el fin de alcanzar un acuerdo tripartito sobre el paquete presupuestario para el próximo año fiscal.
Una vez que se alcanza un acuerdo, se dan a conocer el resto de los proyectos de ley que conforman el paquete presupuestario, los cuales incluyen múltiples proyectos de ley remolque (trailer) junto con un «proyecto de ley presupuestario junior». Este proyecto de ley presupuestario junior modifica la Ley de Presupuesto aprobada por la asamblea legislativa para reflejar los cambios exigidos por el acuerdo alcanzado con el gobernador.
La cámara de representantes y el senado publican resúmenes del paquete presupuestario del modo acordado con el gobernador.
La asamblea legislativa aprueba el proyecto de ley presupuestario junior y los proyectos de ley remolque (trailer).
Todos los proyectos de ley deben ser firmados dentro de los 12 días de su presentación al gobernador. Sin embargo, si el duodécimo día es un sábado, domingo o feriado, el plazo se extiende hasta el siguiente día que no sea sábado, domingo o feriado.
El gobernador puede reducir o eliminar cualquier elemento de apropiación en cualquier proyecto de ley (el “veto de elementos específicos”).
Los departamentos y agencias del estado se enfocan en el siguiente presupuesto estatal comenzando a preparar el presupuesto propuesto del gobernador para publicarlo a más tardar el 10 de enero. Este proceso que dura meses puede comenzar antes en junio y continúa todo el verano y durante el otoño.
Julio y después
El nuevo año fiscal comienza el 1 de julio.
El gobernador firma los proyectos de ley remolque (trailer) restantes que no se firmaron en junio.
El Departamento de Finanzas publica un resumen del paquete presupuestario de junio firmado y convertido en ley por el gobernador. Este resumen puede publicarse antes del final de junio.
La asamblea legislativa entra en un receso de un mes en verano comenzando alrededor del 3 de julio en los años electorales y a mediados de julio en los años no electorales.
La asamblea legislativa vuelve a reunirse en agosto para las semanas de sesión finales, que concluye en agosto en los años con elecciones y en septiembre en los años que no hay elecciones.
En agosto, los líderes del estado típicamente impulsan cambios en el paquete presupuestario estatal adoptados en junio, incluso por lo menos un proyecto de ley presupuestario junior junto con proyectos de ley remolque adicionales. Estos cambios incluyen ajustes técnicos del presupuesto, como la corrección de errores en la Ley de Presupuesto, así como revisiones sustantivas, a menudo de gran alcance, en materia de gastos y políticas públicas.
La cámara de representantes y el senado publican resúmenes de las revisiones presupuestarias conforme al acuerdo alcanzado con el gobernador.
El comité presupuestario en pleno de cada cámara celebra una sola audiencia sobre las revisiones presupuestarias antes de enviar el paquete las cámaras plenas de la cámara de representantes y del senado para las votaciones finales.
El gobernador firma las revisiones presupuestarias y las convierte en ley en septiembre, o a veces en octubre en los años no electorales, posiblemente con ciertos elementos vetados.
Oficina del analista legislativo: Análisis presupuestarios y de políticas públicas, recomendaciones y datos presupuestarios históricos.
Asesor legislativo: Proyectos de ley y análisis de proyectos de ley, un servicio gratuito de seguimiento de proyectos de ley, los códigos estatales y la Constitución del estado.
Asamblea y senado estatal: Programas y otras publicaciones de los comités, cronogramas de sesiones de la asamblea legislativa y de los comités, el calendario legislativo anual y vídeo en vivo y de archivo de los procedimientos legislativos.
Every year, California’s governor and Legislature adopt a state budget that provides a framework and funding for critical public services and systems — from child care and health care to housing and transportation to colleges and K-12 schools.
But the state budget is about more than dollars and cents. The budget expresses our values as well as our priorities for Californians and as a state. At its best, the budget should reflect our collective efforts to expand economic opportunities, promote well-being, and improve the lives of Californians who are denied the chance to share in our state’s wealth and who deserve the dignity and support to lead thriving lives.
State budget choices have an impact on all Californians. These decisions affect the quality of our schools and health care, the cost of a college education, families’ access to affordable child care and housing, the availability of services and financial support to help older adults age in place, and so much more.
Because the state budget touches so many services and our everyday lives, it is critical for Californians to understand and participate in the annual budget process to ensure that state leaders are making the strategic choices needed to allow every Californian — from different races, backgrounds, and places — to thrive and share in our state’s economic and social life.
This report sheds light on the state budget and the budget process with the goal of giving Californians the tools they need to effectively engage decision makers and advocate for fair and just policy choices.
Key Takeaways
The Bottom Line
The state spending plan is about more than dollars and cents.
Crafting the budget provides an opportunity for Californians to express our values and priorities as a state.
The state Constitution establishes the rules of the budget process.
Among other things, these rules allow lawmakers to approve spending with a simple majority vote, but require a two-thirds vote to increase taxes. Voters periodically revise the budget process by approving constitutional amendments.
The governor has the lead role in the budget process.
Proposing a state budget for the upcoming fiscal year gives the governor the first word in each year’s budget deliberations.
The May Revision gives the governor another opportunity to set the budget and policy agenda for the state.
Veto power generally gives the governor the last word.
The Legislature reviews and revises the governor’s proposals.
Lawmakers can alter the governor’s proposals and advance their own initiatives as they craft their version of the budget prior to negotiating an agreement with the governor.
Budget decisions are made throughout the year.
The public has various opportunities for input during the budget process.
This includes writing letters of support or opposition, testifying at legislative hearings, and meeting with officials from the governor’s administration as well as with legislators and members of their staff.
In short, Californians have ample opportunity to stay engaged and involved in the budget process year-round.
Key Facts About California’s State Budget
The State Budget = State Funds + Federal Funds
Three Kinds of State Funds
Three kinds of state funds account for almost two-thirds (64.8%) of California’s $495.6 billion budget for 2025-26, the fiscal year that began on July 1, 2025. Specifically:
General Fund — The state General Fund accounts for revenues that are not designated for a specific purpose. Most state support for education, health and human services, and state prisons comes from the General Fund.
Special Funds — Over 500 state special funds account for taxes, fees, and licenses that are designated for a specific purpose.
Bond Funds — State bond funds account for the receipt and disbursement of general obligation (GO) bond proceeds.
Federal funds comprise the rest (35.2%) of the state’s 2025-26 budget.
Most State General Fund and Special Fund Revenue Comes From Three Sources
California’s “big three” taxes
Most state revenue comes from California’s “Big Three” taxes. In 2025-26, General Fund and special fund revenue combined is estimated to total $296.7 billion, with almost 73% ($215.8 billion) expected to come from the Big Three. California’s Big Three taxes are the:
Personal income tax — This is a tax on the income of California residents as well as the income of nonresidents derived from California sources. It is California’s largest source of revenue.
Sales & use tax — This is a tax on the purchase of tangible goods in California (the sales tax) or on the use of tangible goods in California that were purchased elsewhere (the use tax). Services are excluded from the sales and use tax, as are other items exempted by law, including groceries and medications. The sales and use tax is California’s second-largest source of revenue.
Corporation tax — This is a tax imposed on corporations that do business in or derive income from California, with the exception of insurance companies, which instead pay the insurance tax. The corporation tax is California’s third-largest source of revenue.
Other state revenue is estimated to make up more than one-quarter (27.3%) of total projected General Fund and special fund revenue in 2025-26. This other revenue comes from a broad range of sources, including taxes, fees, and fines.
The State Budget is a Local Budget
Dollars spent through the state budget go to individuals, communities, and institutions across California. Under the enacted 2025-26 state budget:
Four-fifths of total spending (80.6%) flows as “local assistance” to K-12 public schools, community colleges, families enrolled in the CalWORKs program, and other essential state services and systems that are operated locally.
Nearly one-fifth of total spending (17.9%) goes to 23 California State University campuses, 10 University of California campuses, over 30 state prisons, and other recipients of “state operations” dollars.
Less than 2% of total spending flows as “capital outlay” dollars, supporting infrastructure projects across California. (Local assistance and state operations dollars also fund infrastructure.)
State Funds Primarily Support Health and Human Services or Education
Under the enacted 2025-26 state budget:
Almost 3 in 4 General Fund and special fund dollars support three categories of spending: health and human services (42%), K-12 education (25.1%), and higher education (7.2%).
More than 5% of General Fund and special fund dollars go to corrections, primarily the state prison system.
The balance of these dollars supports other essential services (such as transportation and environmental protection) and institutions (such as the state’s court system).
Federal Funds Primarily Support Health and Human Services
Under the enacted 2025-26 state budget:
Nearly four-fifths of federal dollars (78.3%) support health and human services programs.
The balance of federal dollars supports other essential services, including labor and workforce development, K-12 education, higher education, and transportation.
The State Budget is Part of a Package of Bills
The state budget never stands alone. Instead, it moves as part of a package of legislation that typically includes two to three dozen bills, and sometimes many more — particularly in years when there is a budget shortfall and state leaders need to make multiple changes to balance the budget. In 2025, Governor Newsom signed nearly 50 budget-related bills.
four kinds of budget-related bills
The budget package consists of two types of budget bills along with trailer bills and other budget-related legislation.
Budget Act — The state budget is formally known as the Budget Act. The Budget Act is the initial budget bill passed by the Legislature and signed into law by the governor. In general, budget bills:
Provide authority to spend money (“appropriations”) across an array of public services and systems for a single year.
Move through the Legislature’s budget committees on their own timeline.
Budget Bill Juniors — This is the informal term for any budget bill that amends the Budget Act, such as by increasing or reducing authorized expenditures. There is no limit on the number of Budget Bill Juniors that may be included in a budget package. This means state leaders can revise the Budget Act as many times as they wish by passing additional budget bills.
Trailer bills — The state budget package also includes trailer bills. Trailer bills generally make changes to state law related to the Budget Act and, like budget bills, move through the Legislature’s budget committees. In addition, trailer bills:
Must contain at least one appropriation and be listed in the Budget Act — a requirement that directly links trailer bills to the state budget.
Are organized by major policy areas in the budget. For example, health-related changes would be included in a “health” trailer bill, housing-related changes would be included in a “housing” trailer bill, etc.
Other budget-related bills — Other bills may be included in the budget package from time to time. These are bills that move independently of the Budget Act (and therefore are not trailer bills) but are still considered part of the state budget framework. This could include, for example, legislation to increase taxes or to place constitutional amendments before the voters as well as bills passed in a special session of the Legislature. This other budget-related legislation can move either through the Legislature’s policy committees or through budget committees.
Assembly Budget Committee and Senate Budget & Fiscal Review Committee
Review the governor’s budget proposals and develop each house’s version of the state budget. Most budget committee work is done through subcommittees that focus on specific policy areas.
Budget Act
The initial budget bill passed by the Legislature and signed into law by the governor, after any line-item vetoes. The Budget Act can be referred to by the year in which it becomes law (“Budget Act of 2026”) or by the fiscal year to which it applies (“2026-27 Budget Act”).
Budget Bill Jr.
The informal term to describe any budget bill that amends the Budget Act. Budget Bill Jrs. may be numbered sequentially using Roman numerals (e.g., Budget Bill Jr. I, Budget Bill Jr. II, etc.).
Budget-Related Bills (“Trailer Bills”)
Generally make changes to state law related to the Budget Act. These bills are formally known as “bills … related to the budget bill,” but are more commonly called “trailer bills.” Trailer bills are listed in the Budget Act and move through the Assembly and Senate budget committees. Trailer bills are organized by issue area, such as “health,” “housing,” “higher education,” and “public safety.”
From time to time, bills that move independently of the Budget Act — and therefore are not trailer bills — may be considered part of the overall state budget framework. This could include, for example, legislation to increase taxes or to place constitutional amendments before the voters.
Department of Finance (DOF)
Leads the development of the governor’s budget proposals, prepares the governor’s budget documents, testifies on behalf of the governor at legislative budget hearings, develops the governor’s economic forecasts, and performs several other functions. The DOF’s director is the governor’s chief fiscal adviser.
Governor’s Budget Summary
Provides the governor’s economic and revenue outlook, highlights major policy initiatives in the governor’s proposed budget, and summarizes proposed state expenditures. The budget summary is released on or before January 10.
Governor’s Proposed Budget
Provides a detailed overview of the governor’s proposed expenditures for the upcoming fiscal year, estimated expenditures for the current fiscal year, and actual expenditures for the prior fiscal year. The proposed budget is released on or before January 10.
Legislative Analyst’s Office (LAO)
An independent, nonpartisan office that conducts research and analysis on state budget issues, analyzes statewide ballot measures, and provides fiscal and policy advice to the Legislature. The LAO is overseen by the Legislature’s bipartisan Joint Legislative Budget Committee.
Line-Item Veto
The governor’s power to reduce or eliminate specific items of appropriation while approving other portions of a bill. This power applies to any bill that contains an appropriation, including budget bills and budget-related bills. The Legislature may override a line-item veto with a two-thirds vote of each house.
May Revision
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the governor’s proposed budget in January; and outlines adjustments to the Proposition 98 minimum funding guarantee for K-14 education.
The Constitutional Framework
The State Constitution Establishes the Rules of the Budget Process
The governor and legislators craft the state’s annual spending plan according to rules outlined in the state Constitution.
California voters periodically revise these rules by approving constitutional amendments that appear on the statewide ballot.
Proposals to amend the state Constitution can be placed on the ballot through a citizens’ initiative or by the Legislature.
A constitutional amendment takes effect if approved by a simple majority of voters.
Three Key Budget Deadlines
Two in the State Constitution (January 10 and June 15), One in State Law (May 14)
The governor must propose a budget for the upcoming fiscal year on or before January 10. The budget must be balanced: Estimated revenues (as determined by the governor) must meet or exceed the governor’s proposed spending.
The governor must release the May Revision on or before May 14.
The Legislature must pass a budget bill for the upcoming fiscal year by midnight on June 15. The budget bill must be balanced: Estimated General Fund revenues (as set forth in the budget bill passed by the Legislature) must meet or exceed General Fund spending.
Proposition 25: Simple Majority Vote for Budget Bills and Trailer Bills
The budget package generally may be passed by a simple majority vote of each house of the Legislature.
Prop. 25 of 2010 allows lawmakers to pass, by a simple majority vote, budget bills as well as trailer bills that may take effect as soon as the governor signs them.
Under the rules of Prop. 25, trailer bills must (1) be listed in the Budget Act and (2) contain an appropriation of any amount.
Even with Prop. 25, some types of trailer bills that could be included in a budget package will require a supermajority — generally two-thirds — vote of each house. This includes, for example, bills that would raise taxes or amend a state law that was approved by voters via a ballot initiative. However, most trailer bills in the budget package will need only a simple majority vote to pass.
Proposition 25: Penalties for a Late Budget
Lawmakers face penalties if they fail to pass the budget bill on or before June 15.
Prop. 25 requires lawmakers to permanently forfeit both their pay and their reimbursement for travel and living expenses for each day after June 15 that the budget bill is not passed and sent to the governor.
These penalties do not apply to budget-related bills, which do not have to be passed on or before June 15.
Proposition 26: Supermajority Vote for Tax Increases
Any tax increase requires a two-thirds vote of each house of the Legislature.
Under the state Constitution, “any change in state statute which results in any taxpayer paying a higher tax” requires a two-thirds vote of each house.
This standard was imposed by Prop. 26 of 2010. This measure expanded the definition of a tax increase and thus the scope of the two-thirds vote requirement, which was originally imposed by Prop. 13 of 1978.
Prior to Prop. 26, only bills changing state taxes “for the purpose of increasing revenues” required a two-thirds vote. Bills that increased some taxes but reduced others by an equal or larger amount could be passed by a simple majority vote of each house.
Proposition 26: Supermajority Vote for Tax Increases
Prop. 26 of 2010 also expanded the definition of a tax to include some fees.
Prior to Prop. 26, lawmakers could create or increase fees by a simple majority vote. These majority-vote fees included regulatory fees intended to address health, environmental, or other problems caused by various products, such as alcohol, oil, or hazardous materials.
Prop. 26 reclassified regulatory and certain other fees as taxes. As a result, a two-thirds vote of each house of the Legislature is now required for many charges that previously were considered fees and could be passed by a simple majority vote.
Additional Supermajority Vote Requirements
The state Constitution requires a two-thirds vote of each house of the Legislature in order to:
Appropriate money from the General Fund, except for appropriations that are for public schools or that are included in budget bills or in trailer bills.
Pass bills that take effect immediately (urgency statutes), except for budget bills and trailer bills.
Place constitutional amendments or general obligation bond measures before the voters.
Override the governor’s veto of a bill or an item of appropriation.
Proposition 54: A Bill Must Be Published for At Least 72 Hours Before the Legislature Can Act on It
Proposition 54 of 2016 requires bills to be distributed to legislators and published on the Internet, in their final form, at least 72 hours before being passed by the Legislature.
This rule applies to all bills, including the budget bill and other legislation included in the budget package.
This mandatory review period can be waived for a bill if:
The governor declares an emergency in response to a disaster or extreme peril, and
Two-thirds of legislators in the house considering the bill vote to waive the review period.
Proposition 98: A Funding Guarantee for K-12 Schools and Community Colleges
Prop. 98 of 1988 guarantees a minimum annual level of funding for K-14 education.
The amount of the guarantee is calculated each year based on one of three tests that apply under varying fiscal and economic conditions. Two of these tests include adjustments for changes in statewide K-12 attendance. Prop. 98 funding comes from the state General Fund and local property tax revenues.
The Legislature can suspend the guarantee for a single year by a two-thirds vote of each house and provide less funding. Following a suspension, the state must increase Prop. 98 funding over time to the level that it would have reached absent the suspension.
While the Legislature can provide more funding than Prop. 98 requires, the guarantee has generally served as a maximum funding level.
Proposition 2: Saving for a Rainy Day, Paying Down Debt
Prop. 2 of 2014 revised the rules that apply to the Budget Stabilization Account (BSA) — the state’s constitutional rainy day fund — and also established a new requirement to pay down state budgetary debt.
The state is required to set aside 1.5% of General Fund revenues each year, plus additional dollars in years when tax revenues from capital gains are particularly strong.
Until 2029-30, half of the revenues go into the BSA and the other half must be used to pay down state budgetary debt, which includes unfunded pension liabilities. Starting in 2030-31, the entire annual transfer goes into the BSA.
State policymakers may suspend or reduce the BSA deposit and withdraw funds from the reserve, but only under limited circumstances that qualify as a “budget emergency.”
Proposition 2: A Budget Reserve for K-12 Education
Prop. 2 of 2014 also created a state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA).
Deposits come from state capital gains tax revenues in years when those revenues are particularly strong.
However, various conditions must be met before these dollars could be transferred to the PSSSA. For example, transfers may occur only in so-called “Test 1” years under Prop. 98, which have been relatively rare.
Proposition 55: Potential New Funding for Medi-Cal From a Tax on the Wealthiest Californians
Prop. 55 of 2016 extends, through 2030, personal income tax rate increases on very high-income Californians and establishes a formula to boost funding for Medi-Cal, which provides health care services to Californians with low incomes.
Starting in 2018-19, General Fund revenues — including those raised by Prop. 55 — must first be used to fund (1) the annual Prop. 98 guarantee for K-12 schools and community colleges and (2) the cost of other services that were authorized as of January 1, 2016, as adjusted for population changes, federal mandates, and other factors.
If any Prop. 55 revenues remain after meeting these required expenditures, MediCal would receive 50% of this excess, up to a maximum of $2 billion in any fiscal year.
Prop. 55 has not yet resulted in any additional funding for Medi-Cal.
Proposition 4: State Appropriations Limit (SAL) — A Cap on Spending
Appropriations are subject to a limit established by Prop. 4 of 1979, as modified by later initiatives. This spending cap is known as the Gann Limit.
The SAL limits the amount of state tax proceeds that can be appropriated each year. This limit is adjusted annually for changes in population and per capita personal income.
Some appropriations from tax proceeds do not count toward the limit, including debt service and spending that is needed to comply with court or federal mandates.
Revenues that exceed the SAL over a two-year period are divided equally between Prop. 98 spending and taxpayer rebates. The state last exceeded the SAL in 2020-21 (but did not do so in the prior year).
State Mandates: Pay for Them or Suspend Them
The state must pay for or suspend mandates that it imposes on local governments.
Prop. 4 of 1979 requires the state to reimburse local governments for costs related to a new program or a higher level of service that is mandated by the state.
Prop. 1A of 2004 expanded the definition of a mandate to include the transfer of financial responsibility from the state to local governments.
Prop. 1A also requires the state to suspend a mandate in any year in which local governments’ costs are not fully reimbursed.
What Do the Governor and the Legislature Do?
The Governor
Approves, modifies, or rejects spending proposals prepared by state departments and agencies through an internal process coordinated by the Department of Finance.
Proposes a spending plan for the state each January, introduced as the budget bill in the Legislature.
Updates and revises the proposed budget each May (the “May Revision”).
Signs or vetoes the bills included in the budget package.
Can veto all or part of individual appropriations (line items), but cannot increase any appropriations above the level approved by the Legislature.
The Legislature
Approves, modifies, or rejects the governor’s proposals.
Can add new spending or make other changes that substantially revise the governor’s proposals.
Needs a simple majority vote of each house to pass budget bills and most trailer bills.
Needs a two-thirds vote to pass certain other bills that may be part of the budget package, such as bills that increase taxes or propose constitutional amendments.
Needs a two-thirds vote of each house to override the governor’s veto of a bill or an appropriation.
What Happens When?
The State Budget Timeline
The state budget process is cyclical. Decisions are made throughout the year.
State departments and agencies develop baseline budgets to maintain existing service levels in the upcoming fiscal year and may prepare “budget change proposals” intended to alter service levels. The Department of Finance (DOF) reviews these documents.
Following a series of meetings within the governor’s administration, the governor makes final decisions and the DOF prepares the proposed budget for release in January.
Independent of the governor, legislative leaders develop their budget priorities for the upcoming fiscal year.
In November, the Legislative Analyst’s Office (LAO) releases their Fiscal Outlook, which provides the LAO’s assessment of revenues, spending, and the state’s overall budget condition across several fiscal years.
By January 10
The governor releases the proposed budget for the upcoming fiscal year that begins on July 1.
January to Mid-May
A few days after the proposed budget is released: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the governor’s proposals, and later publishes an updated revenue forecast.
Late January: The Assembly Budget Committee and the Senate Budget and Fiscal Review Committee convene overview hearings on the governor’s proposed budget.
Late February to early May: Budget subcommittees in each house hold dozens of hearings to review the governor’s proposals in depth.
By May 14
The governor releases a revised budget (the May Revision) for the upcoming fiscal year that begins on July 1.
Mid-May to Early June
A few days after the May Revision: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the May Revision, and later publishes an updated revenue forecast and multiyear budget outlook.
The week after the May Revision: Assembly and Senate budget subcommittees convene to review the governor’s May Revision proposals.
Roughly 10 days after the May Revision: The Assembly and Senate publish summaries — “subcommittee reports” — of their versions of the budget package.
Roughly two weeks after the May Revision:
Assembly and Senate leaders reach a deal on a unified legislative version of the budget package and publish summaries of the agreement. For many years, legislative leaders convened a conference committee composed of Democrats and Republicans to resolve differences between the two houses’ spending plans. However, a conference committee has not been convened since 2019.
A full deal with the governor at this stage is possible, but rare. Nonetheless, the Legislature’s budget package will reflect many points of agreement with the governor based on ongoing, behind-the-scenes negotiations between the governor and legislative leaders.
Somewhat more than two weeks after the May Revision:
The Legislature begins drafting the initial budget bill, also known as the Budget Act. Finalizing the Budget Act for floor votes can take roughly a dozen days.
By June 15
The Legislature passes the Budget Act by June 15 — the constitutional deadline — and sends it to the governor.
If the two houses have scheduled floor votes for June 15, the Budget Act must be published on the California Legislative Information website by June 12 to meet the 72-hour bill-in-print requirement.
If the Legislature schedules floor votes before June 15, the Budget Act must be in print prior to June 12 to comply with the 72-hour rule — for example, by June 10 for floor votes on June 13.
Trailer bills, which are also part of the state budget package, are not required to be — and rarely are — passed by June 15.
Trailer bills generally make statutory changes needed to implement the policies assumed in the Budget Act.
Second Half of June
The governor and legislative leaders continue negotiating in order to reach a three-party deal on the budget package for the upcoming fiscal year.
Once a deal is reached, the rest of the bills in the budget package are unveiled, consisting of multiple trailer bills along with a “Budget Bill Jr.” The Budget Bill Jr. amends the Budget Act as passed by the Legislature in order to reflect the changes required by the deal with the governor.
The Assembly and Senate publish summaries of the budget package as agreed to with the governor.
The Legislature passes the Budget Bill Jr. and trailer bills.
The governor signs the Budget Act, the Budget Bill Jr., and the trailer bills (some trailer bills might not be signed until early July).
All bills must be signed within 12 days of being presented to the governor. However, if the 12th day is a Saturday, a Sunday, or a holiday, the period is extended to the next day that is not a Saturday, a Sunday, or a holiday.
The governor may reduce or eliminate any item of appropriation in any bill (the “line-item veto”).
State departments and agencies focus on the next state budget by beginning to prepare the governor’s proposed budget for release by January 10. This months-long process may begin earlier in June and continues through the summer and into the fall.
July and Beyond
The new state fiscal year begins on July 1.
The governor signs any remaining trailer bills that weren’t signed in June.
The Department of Finance publishes a summary of the June budget package as signed into law by the governor. This summary may be published before the end of June.
The Legislature breaks for a one-month summer recess starting around July 4 in election years and around mid-July in non-election years.
The Legislature reconvenes in August for the final few weeks of session, which ends in August in election years and in September in non-election years.
In August, state leaders typically advance changes to the state budget package adopted in June, including at least one Budget Bill Jr. along with additional trailer bills. The changes include budget “clean-up,” such as correcting errors in the Budget Act, as well as substantive — often major — revisions to spending and policy.
The Assembly and Senate publish summaries of the budget revisions as agreed to with the governor.
The full budget committee in each house holds a single hearing on the budget revisions before sending the package to the Assembly and Senate floors for final votes.
The governor signs the budget revisions into law in September — or sometimes October in non-election years — possibly with line-item vetoes.
Legislative Counsel: Bills and bill analyses, a free bill-tracking service, the state codes, and the state Constitution.
State Assembly and Senate: Committee agendas and other publications, floor session and committee schedules, the annual legislative calendar, and live and archived video streaming of legislative proceedings.
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