See what’s in Governor Gavin Newsom’s final California budget

from Yue Stella YuCalMatters

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After weeks of negotiations, Gov. Gavin Newsom and Democratic legislative leaders agreed to A budget of $351.7 trillion next year, which raises some taxes, sets aside $6.4 billion for next year and mitigates or delays billions of dollars in planned cuts to social services.

The budget, Newsom’s latest, would leave California’s budget balanced for two consecutive years and significantly reduce deficits for future years, state leaders say. Lawmakers are poised to take up the deal on Monday.

“This budget demonstrates a responsible choice that protects our fiscal strength while continuing to invest in what matters most,” Newsom said in a statement.

The country faces a steep rock funding in January amid rising costs of Medi-Cal, the state health care program for low-income Californians, and the threat of losing tens of billions of federal dollars under President Donald Trump’s budget bill.

But since then, tax revenue has grown faster than expected, thanks to an AI-driven economic boom. The final budget deal relied heavily on those windfalls and new taxes that Newsom advocated, along with delayed health care cuts and frozen payments to K-12 schools and state reserves to balance the books and reduce future deficits.

Newsom-backed tax measures that the Legislature approved earlier this month would apply a sales tax to everyday computer software, limit business tax credits and raising the tax rate on commercial healthcare providers.

The budget deal also requires the next governor to consider penalizing large corporations for having employees on Medi-Cal — an idea from Senate Democrats — unless Congress reverses Trump’s Medi-Cal cuts first. Sen. Maria Elena DurazoD-Los Angeles and a member of the legislative Latino Caucus, said the plan does not go far enough to discipline companies that pay low wages.

“Another cycle of big corporations paying nothing while their low-wage workers remain on Medi-Cal and we foot the bill as taxpayers,” Durazo said during a hearing Monday.

“This is a budget that buys time. Medi-Cal is delayed, not authorized, not restored.”

Although Newsom proposed larger cuts in May, the final budget softens the blow and includes new spending. It delays most cuts to Medi-Cal services and preserves funding for home care for low-income Californians. It gives counties $900 million in homelessness funding, nearly double the $500 million Newsom wanted. It is also adding 22,700 state-funded childcare places to meet the need care for children up to three years old.

Newsom and lawmakers could not agree on a full spending plan for the Greenhouse Gas Reduction Fund, the state’s main source of cash for climate programs, delaying talks until the summer. They did agree to use the electric vehicle incentive fund and supplement the fire department budget.

The holdup is largely due to new climate rules passed by the Newsom administration in May, which could cut the fund in half. provoking a fight between Senate Democrats and Newsom over funding priorities.

Republicans criticized the budget deal, criticizing Democrats for pushing policies through the budget process without much advance notice. The process allows state leaders to fast-track complex policies rather than facing scrutiny in months of public hearings.

“It’s an abuse of process that we’ve unfortunately become all too used to,” Sen said. Roger NielloRepublican from Roseville, on Monday.

Delaying most Medi-Cal cuts

The deal includes $300 million in private health care subsidies to lower costs for low- to moderate-income Californians, a Newsom priority. The governor proposed it in May to eliminate premiums for the lowest-income residents and reduce out-of-pocket costs for middle-class households.

It also includes $250 million in grants for public hospitals and up to $140 million for those in “significant financial hardship.” Several hospital advocates, including the California Association of Community Hospitals and Health Systems, have advocated $500 million in funding as hospitals risk reducing services or closing altogether due to the loss of federal funds.

The state also agreed to give counties $200 million to more frequently verify the eligibility of low-income people to receive health and nutrition benefits, which the Trump administration has required. But the budget deal did not include $125 million the Legislature wanted to give counties to create a needy care system to care for those who drop out of Medi-Cal.

The counties urged state leaders to seek an alternative before the end of the legislative session in September. Otherwise, “counties will be forced to cut back on essential services — endangering public safety, reducing behavioral health and public health services, and increasing homelessness,” according to a joint statement from the California State Association of Counties and other county associations.

Newsom agreed to reverse his proposed cuts to the Home Support Services program, which provides home care to approximately 900,000 low-income Californiansafter the opposition of the legislature.

They also agreed to a less restrictive Medi-Cal asset test for the elderly and disabled than Newsom proposed: In addition to the income tests, starting in July 2027, individuals must have assets worth $21,000 or less ($31,000 for couples) to qualify for Medi-Cal. The current cap is $130,000 for individuals and $195,000 for couples.

While Newsom wanted to increase the monthly premium for undocumented adults enrolled in Medi-Cal from $30 to $50, the final deal leaves the decision up to the next governor.

The deal preserves health care for immigrants by delaying many cuts: By January, the state will begin transitioning roughly 2 million Medi-Cal enrollees — most of whom are undocumented immigrants — to a fee-for-service system by Jan. 1, 2027.

The change would allow the state to continue receiving Medi-Cal funding and save $470 million next year, but those immigrants would lose access to benefits such as case management, housing assistance and medical meals.

Starting in July 2027, the state will limit state-funded health care for some refugee, asylum-seeking and human-trafficking survivors to emergency care and pregnancy care only. The budget plan also delays other cuts, including dental benefits for undocumented Medi-Cal enrollees and clinic reimbursements for Medi-Cal services, until July 2027.

“While we are relieved that this agreement spares immigrant communities from losing access to doctors, dentists and trusted community providers this year, our work is far from over,” said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network.

Newsom wins overhaul of school principals

The deal largely preserves Newsom’s May spending plan for K-12 education.

It increases funding for special education by $2.4 billion and gives school districts and community colleges higher cost-of-living increases to provide 14 weeks of pregnancy leave for their employees, something teachers unions have championed for years.

But the latest spending plan also withholds $3.9 billion in constitutionally guaranteed funding from K-12 schools, an accounting mechanism Newsom wanted to use in case the state went overboard with a revenue projection that was too optimistic. If the state collects more tax revenue next year than projected, the budget deal requires the state to use some of it to pay back what it owes schools.

Frustrated education advocates criticized state leaders for a shortage of school districts. The California Teachers Association, the state’s largest teachers union, accused state leaders of violating the state constitution and said it would consider suing.

“At a time when both public schools and the right to vote in our communities face increasing attacks from the federal government, California lawmakers must stand up for our students and exercise the democratic principles that have made California the nation’s progressive leader,” CTA President David Goldberg said in a statement.

The deal also allows Newsom to radically reduce the powers of the elected state superintendent of public instruction, handing over K-12 school management to a new education commissioner appointed by the governor. Effective Jan. 15, 2027, the superintendent will become one of 13 members of the State Board of Education, chaired by the commissioner.

Newsom proposed the idea in January of do education management more consistent, gaining support from a wide range of education advocates. California is one of nine states that still elects a school principal, while other states allow the governor to appoint them.

The CTA, some senators and candidates running for superintendent were skeptical of the promised outcome and criticized Newsom for getting in the way of politics through the budget process, especially when voters in November are already poised to vote for a superintendent whose duties will be greatly reduced.

California voters have rejected four ballot measures to eliminate the superintendent’s role, according to the nonpartisan Legislative Analyst’s Office.

“It feels very deeply democratically cynical to me,” the senator said. Chris CabaldonNapa Democrat, during May hearing of the proposal. “That the voters four times before have said no to doing these reforms. That we’re just going to try to do it without them and leave the shell of what the constitution requires to get around that.”

New EV incentive

While state lawmakers did most of the negotiating on the climate money, they agreed with Newsom to allocate $1.25 billion in the greenhouse gas fund to the state’s fire service.

They also agreed to set aside $356 million in incentives for zero-emission or hybrid vehicles, with $115 million coming from the climate fund. That includes $85 million over the next five years to help low-income Californians replace old gas-powered vehicles with cleaner ones.

Approximately $135 million is reserved for electric trucks and buses. Another $135 million will help first-time buyers of new light-duty electric vehicles priced at $50,000 or less and used at $25,000 or less.

The deal allows the California Air Resources Board, the state’s climate regulator, to determine the size of the incentive.

Lawmakers also agreed with Newsom to fund the state municipal air protection program created in 2017 to reduce the harms of air pollution, the majority of the state’s general fund.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.