Summary of Governor Newsom’s Enacted Budget for Fiscal Year 2025-26

By Dane Hutchings

California Public Policy Group

Background:

On June 13, the Legislature met its constitutional deadline to advance a balanced state budget proposal for fiscal year 2025-2026. SB 101 contains $324.7 billion in total spending, of which $231.9 billion is from the General Fund. General Fund expenditures represent $6 billion more than Governor Gavin Newsom had proposed in his May revision. The primary budget bill also closes a projected $12.3 billion deficit, including $3.5 billion in reductions, $7.8 billion in borrowing, and $1 billion in other solutions, such as funding shifts. Total reserves stand at $13.2 billion. About $81 billion has been allocated to Proposition 98 funding. Additionally, $95 million has been allocated in the budget for funding the implementation of Proposition 36. SB 101 also included language stating that it is the intent of the Legislature to fund the Homeless Housing, Assistance and Prevention program up to $500 million in the 2026-27 budget. However, no allocated funding for the program was included in SB 101.

Both chambers of the Legislature passed the bill along party lines, with Democrats supporting and Republicans opposing the measure 57-19 in the Assembly and 26-8 in the Senate. Legislative leadership had announced a bicameral budget agreement on June 9 which is reflected in the budget passed on June 13. The Legislature sent the budget to Governor Newsom on June 15 and he has until June 30 to sign it.

Next Steps:

While the Legislature has now met its constitutional requirement to pass a balanced budget, it is anticipated that over the coming weeks (and potentially months) there will be one or more subsequent Budget Bill(s) Junior which amend the primary budget bill, SB 101, to reflect subsequent compromises between the Legislature and the Governor after June 13. Additionally, other fiscal measures commonly referred to as “budget trailer bills” will be forthcoming. These budget bills provide the budget detail and provisional language to enact the funding proposals contained in SB 101 or subsequent Budget Bill(s) Junior. Similar to the main budget, these subsequent budget action items do not adhere to the traditional legislative process, meaning that major budget agreements can be reached and advance through the entire process very quickly.

Nonetheless, the spending in SB 101 aligns with the bulk of the Governor’s proposals, with some modifications. There had been proposed cuts to higher education and health/social services to stabilize the state budget in light of a bleak economic forecast. However, the Legislature avoided these cuts by pulling more funds from reserves and borrowing from other state funds. Proposals around budgeting reforms are still under discussion between the Legislature and the Administration.

Conclusion:

Major budgetary and policy priorities still remain unresolved. Governor Newsom wanted to include a straight reauthorization of cap-and-trade in the budget and use revenue from the program to backfill General Fund spending on Cal Fire and fund high-speed rail; negotiations on a deal are ongoing. A final budget deal between the Governor and Legislature will be announced on or before the constitutional deadline of June 30.