Finance posts summary of budget act

Summary notes "uncertainty created by recent federal policy changes," which seem likely to be addressed starting in regular legislative session in August and September

The Department of Finance has posted its summary of the June 2025 California state budget package, the key elements of which were signed by Governor Newsom on June 27 and June 30. In addition to Finance’s summary, summaries released by the Assembly and Senate budget committees—as well as the Legislative Analyst’s Office’s upcoming annual State Spending Plan document—are designed as key historical references on the annual state budget package. In addition to bills signed by the Governor in late June, more budget bills are headed for legislative votes this week.

In Washington, D.C., federal Republicans passed a huge spending and tax bill, H.R. 1, in early July, which will transform the relationship between the federal and state governments. Because D.C. Republicans acted in July—rather than delaying action until later this summer or fall—the need for a California state legislative special session to address the federal changes is diminished, since weeks remain in the state’s regular legislative session. It will take considerable time for state departments to make initial estimates of H.R. 1’s effects on Californians and the state budget, including time for federal departments to issue regulatory guidance on the bill’s implementation. Still, it is possible that the Governor proposes some initial responses to H.R. 1 during the regular legislative session in August and September, and further responses are likely during regular sessions in 2026, 2027, and 2028. (I addressed the rampant special session rumors in a recent social media thread here.)

While California tax revenue trends remain reasonably healthy, significant economic risks loom, especially since the federal government keeps implementing erratic and, often, bizarre tariff policies. The recent federal tax and budget bill will stimulate the economy in some ways, while pressuring other elements of the economy, with significant tax reductions for higher-income taxpayers offset by noteworthy reductions in federal spending on the social safety net. Likely higher federal deficits due to the Republican bill could increase inflation and “crowd out” private investment.