FYI: summaries of 2026-27 state budget plan
The Senate published a great initial summary of the Governor and legislative leaders’ 2026-27 state budget agreement here. As a reminder, budget and trailer bills now in print expected for legislative action and hearings starting on Monday, June 29, are listed here. Senate bill analyses are here. The Assembly Budget Committee budget floor report is here, and Assembly bill analyses are here.
Below is a summary I have prepared of the budget plan (part of the Assembly Budget floor report, linked above). At this late, fatigued stage of the budget, this quick draft surely has some errors, for which I alone am responsible. I will correct them on this post at jasonsisney.substack.com as I learn about them and note changes at the end of the post.
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Summary of 2026-27 California Budget Plan Agreement Between Legislative Leaders and Governor Newsom
The final budget agreement between legislative leaders and Governor Newsom—announced on June 26, 2026—balances California’s General Fund budget for two fiscal years, 2026-27 and 2027-28. It lowers future operating deficits—the “structural deficit”—by more than either the Governor’s May budget proposal or the Legislature’s June 15 budget proposal. The final budget plan delays, softens, and rejects various proposed cuts to safety net programs and provides record funding to public schools. Across the General Fund, the state’s many special funds, and selected bond funds, the final budget includes spending of $351.7 billion for 2026-27, including $251.5 billion for 2026-27 (about $1.5 billion less than the June 15 legislative proposal).
The California Legislature is expected to vote on around 20 bills proposed to implement the final budget agreement on Monday, June 29, 2026, with additional budget legislation possible later that week or in the closing days of the legislative session in August 2026.
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The final 2026-27 state budget plan—negotiated by legislative leaders with the Governor in late June 2026—rejects some proposed safety net cuts, such as the Governor’s proposed cuts to the In-Home Supportive Services (IHSS) Program, and temporarily delays and reduces various other cuts enacted last year or imposed by the federal government. Both houses aim to keep fighting to reduce, delay, or eliminate enacted cuts in 2027, as budget conditions allow. The Legislature, with Governor Newsom, invests in important California priorities: reproductive health, gender-affirming care, security for nonprofit institutions, subsidizing premiums for Covered California enrollees, diaper banks, restorative justice programs, and backfilling federal cuts to help victims of crime.
With a combination of serious long-term cost reductions and meaningful, new ongoing revenues originally proposed by Governor Newsom, the state also is reducing its structural budget deficit. The final budget plan reduces the operating deficit estimated for 2029-30 to $8.4 billion (down from $23 billion in the Governor’s January budget proposal). Including revenues from SB 122—advanced by the Governor after the May Revision and completion of the legislative budget proposal—the deficit is 2029-30 is now more than $1 billion less than in the May Revision.
Stabilizing Medi-Cal, Protecting Health Care
Rejects immediate Medi-Cal asset limit cuts: Keeps the current asset test in 2026-27, and the asset limit would be lowered to $21,000 (for a household with one member) in 2027-28, instead of moving to the Governor’s proposed $2,000 limit now.
Delays immediate Medi-Cal dental cuts: Delays dental supplemental payment cuts and UIS dental cuts by 12 months.
Prevents an automatic premium increase for Medi-Cal enrollees with “unsatisfactory immigration status” (UIS) next year: Requires the May Revision in May 2027—presented by California’s next governor—to include a level of UIS premiums of up to $50, rather than the increase from $30 to $50 the Governor proposed to lock in now in his May 2026 proposal.
Delays restricted-scope Medi-Cal changes for asylees and other qualified immigrants: Adopts the Governor’s May Revision proposal to shift asylees and other impacted qualified immigrants to restricted-scope Medi-Cal, but not until 2027-28.
UIS fee-for-service options: Provides $39 million for care coordination and navigators to assist UIS Medi-Cal enrollees with the transition from managed care to fee-for-service insisted upon by the administration, an attempt to comply with federal directives and avoid losing federal funds.
Delays most clinic cuts: Delays most clinic cuts by 12 months.
Supports distressed hospitals and public hospitals: Includes $90 million of resources for grants to hospitals in significant financial distress, with authority for the administration to augment this funding by up to $50 million if needed. Provides $250 million to support designated public hospitals.
Lowers Covered California premiums: Provides $110 million to lower premiums for low-income Covered California enrollees, for a total of $300 million annually.
Protects reproductive health care and gender-affirming care: Adds $40 million for reproductive health care and $26 million for gender-affirming care.
Maintains mobile crisis for next year: Maintains the mobile crisis Medi-Cal benefit until July 1, 2027, with plans for continuing discussions to address long-term funding sustainability for the 9-8-8 system and mobile crisis response services.
Support for county eligibility workers: Allocates $197 million for Medi-Cal county eligibility workers to address workload related to H.R. 1.
End the Epidemics Funding: Implements a four-year expenditure plan for projects to end the epidemics of HIV/AIDS and other sexually transmitted infections, using nearly $500 million of AIDS Drug Assistance Program Rebate Fund resources being repaid from previous General Fund loans. The plan includes funding for the Syphilis and Congenital Syphilis Outbreak Strategy in response to continued elevated rates of syphilis in some parts of the state. According to CDC data, among California’s most populated counties, Fresno, Sacramento, and Kern Counties have the highest primary and secondary syphilis rates according to one key measure. Other rural counties have much higher reported syphilis rates than these urban counties.
Be Home Soon Plan: Reflects no savings from legislative proposal to help seniors transition away from skilled nursing facilities and into community or home-based care, with a goal of continuing discussions on reducing costs and improving services in this area in the future.
Human Services: Protecting Seniors, Families and Vulnerable Californians
Rejects IHSS cuts: Rejects the Governor’s proposed In-Home Supportive Services (IHSS) cuts, protecting seniors and people with disabilities who rely on in-home care.
Supports food banks: Provides $108 million for CalFood, including $70 million above the Governor’s proposal, to help keep food banks stocked.
Funds CalFresh eligibility workload: Provides additional funding for county eligibility workload tied to H.R. 1. More than 750,000 Californians are in danger of losing CalFresh benefits entirely, with millions more facing reduced benefits.
Rejects Adult Protective Services cuts: Rejects the Governor’s proposed cut to Adult Protective Services.
Protects immigrant communities: Appropriates $80 million more than the Governor proposed in the May Revision for immigration legal services across several programs.
Supports diaper banks: Provides $16.5 million for diaper banks.
Building Housing, Preventing Homelessness
Invests in homelessness solutions: Provides $900 million on a one-time basis for the Homeless Housing, Assistance and Prevention (HHAP) Program, the state’s local homelessness program, which is $400 million more than the Governor proposed in the May Revision.
Builds affordable housing: Allocates $500 million for the Low-Income Housing Tax Credit for the 2027 calendar year.
Supports multifamily housing: Provides $200 million for the Multifamily Housing Program.
Keeps housing bond work moving: Allocates housing funds in anticipation of possible passage of the November 2026 housing bond by California voters.
Keeps families housed: Allocates $100 million for housing stability programs.
Education & Child Care
Historic levels of per pupil funding: Appropriates historic levels of per pupil funding for public schools: $21,148 per pupil from Proposition 98 resources, and an estimated $28,207 per pupil from all state and federal resources. The final budget increases Proposition 98 funding for the Local Control Funding Formula (LCFF) by $2.2 billion, reflecting declining enrollment, Universal Transitional Kindergarten (UTK), paid pregnancy disability leave costs, and a total 4.31% “super” cost-of-living adjustment (COLA) in 2026-27.
Invests in special education: Increases special education base rates and cost pools by $1.8 billion ongoing.
Expands community schools: Expands the Community Schools Partnership Program with $1 billion ongoing, including partnerships with Promise Neighborhoods.
Supports paid pregnancy leave for educators: Funds and requires up to 14 weeks of paid pregnancy leave for educators through the Local Control Funding Formula.
One-time student support and discretionary block grant. Provides $5 billion, for an additional one-time student support and discretionary block grant, based on average daily attendance, that includes support for dual enrollment, career pathways approaches, induction, mentorship, community schools, deferred maintenance, and professional development for educators in developmentally appropriate transitional kindergarten, English language arts and development, and mathematics, through 2032.
School facilities. Allocates $1.5 billion of Proposition 2 school facility bond funds for 2026-27 construction projects. Funds an additional $500 million one-time for the kitchen, infrastructure, and training program, with a clarification that family food pantries and culinary curricula, including school gardens, are an allowable local decision.
Universal meals. Maintains California’s universal meals commitment with an increase in $2.8 million in annual Proposition 98 funding, to reflect meal service estimates and a meal reimbursement rate increase.
Supports community colleges: Ensures more ongoing funding for community college for 2.5 percent enrollment growth, through a fair share of Prop. 98.
Prioritizes Proposition 98 “settle up” paydown from IPO and other revenues over next year: Appropriates 33% of any higher revenues between now and next May, after deducting higher Proposition 98 and Proposition 2 (rainy day fund) requirements due to those higher revenues, to paying down all or part of the estimated $3.9 billion unpaid obligation to schools and community colleges for the 2025-26 fiscal year. Any such paydown would be transferred, as a discretionary deposit, to the Proposition 98 reserve for allocation in later budget legislation. To the extent that this unpaid 2025-26 obligation is not retired from higher revenues, its payment certainly would be discussed during the June 2027 budget process. State law already provides that this obligation would have to be paid in subsequent years after the 2025-26 Proposition 98 is finalized, or “certified,” next summer. If approved by voters, ACA 20 would provide an additional possible means to pay down this obligation, via Proposition 2 “debt repayment funds.”
Protects UC and CSU: Funds fully the Governor’s five-year compact by providing 5% operating increases to both systems in 2026-27, completing the five-year plan to provide annual funding increases to the University of California and California State University systems in exchange for continued in-state enrollment growth and stability in tuition levels.
Expands Cal Grant access: Increases the Cal Grant age limit to 30 through the 2030-31 Cal Grant award year.
Adds some Middle Class Scholarship Program funding: Includes an additional $166.9 million for the program for 2026-27 academic year awards, compared to the Governor’s May Revision proposal. This covers a modest portion of the costs proposed by the Senate in its late May budget proposal.
Expands child care access: Adds 22,770 new child care slots, with a net increase of child care slots of about 25,000 compared with the Governor’s May Revision proposal.
Supports child care providers: Provides a 2 percent COLA for all child care programs.
Preschool shift into Proposition 98: Shifts non-local education agency state preschool into Proposition 98 and rebenches the minimum guarantee in 2026-27 to account for these additional costs.
Public Safety
Responsibly implements Prop. 36: Provides around $375 million for Prop. 36 implementation, including court workload, substance use and mental health treatment, victims support, rehabilitation and pretrial services, in addition to last year’s $300+ million investment.
Supports victims of crime: Allocates $50 million for VOCA funding, up from $25 million in the May Revision.
Protects communities from hate violence: Provides $80 million ongoing for the Nonprofit Security Grant Program.
Avoids unnecessary prison spending: Requires $150 million of spending reductions by the California Department of Corrections and Rehabilitation starting in 2028-29, with $75 million of savings required in 2027-28. The legislative proposal to require closure of an additional prison is not included in the final budget deal with the Governor.
Supports MMIP grants: Provides $15 million ongoing for Missing and Murdered Indigenous People (MMIP) grants.
Supports Court Appointed Special Advocate (CASA) Program: Allocates $20 million for CASA. CASA supports children in the foster care and juvenile justice systems through the use of volunteer advocates who advance the best interests of the children.
Combats human trafficking: Provides $10 million for human trafficking vertical prosecution grants and $10 million for victims programs.
Funds the RIGHT Grant: Provides $20 million for the Rehabilitative Investment Grants for Healing and Transformation (RIGHT Grant).
Next Generation 9-1-1: Approves $141.9 million special fund (one-time) to support a revised implementation of the Next Generation 9-1-1 system, with ongoing maintenance and support. Additional legislative actions include a requirement for an independent technical evaluation, third-party project oversight, and an audit, as specified.
Judicial branch: Provides $150 million in 2026-27 for courthouse deferred maintenance and $100 million in 2026-27 and $44 million ongoing for new judgeships and associated facility costs, resulting in 13 new judgeships in the next five years. The courts trailer bill, SB/AB 174, extends courts’ remote hearing authority, with various requirements, and delays until 2029 the date by which courts must provide public lactation rooms.
Resources and Environmental Protection
Clean trucks, buses, and cars. Provides $356 million to boost new and used clean trucks, buses, and cars. Includes $85 million for Clean Cars 4 All for low-income households over five years.
Community Air Protection Program. Includes $150 million from the General Fund for the Community Air Protection Program (AB 617, C. Garcia, 2017) at the California Air Resources Board.
Preserves key positions. Rejects elimination of 356 positions ($39.8 million special funds) at various departments, including 60.1 full-time equivalent positions at the California Department of Fish and Wildlife, including game warden positions.
Defers Proposition 4 allocation decisions: Defers Proposition 4 bond funding allocation decisions to August budget legislation. Some discussions related to the Greenhouse Gas Reduction Fund also are deferred until August.
Reserves
Rainy Day Fund Reform: Completed in conjunction with legislative approval of ACA 20, rainy day fund improvements, for consideration by voters in the November 2026 general election.
Revenue-Related Actions
SBs 122 and 125: Reflects proposals advanced by the Governor and included in recently passed SBs 122 and 125, including a temporary business tax credit limitation through 2029 (with ability for businesses to claim refundable credits later to offset that temporary limitation), a permanent tax credit limitation beginning in 2030 (more limited than the Governor’s original May Revision proposal), digital software sales tax changes, and extending and updating the existing tax on managed health care plans to preserve Medi-Cal funding in light of new federal requirements.
SB/AB 180. The other taxation trailer bill, SB/AB 180, contains the following taxation provisions:
Reduces, for the 2027, 2028, and 2029 tax years, the annual minimum franchise tax of $800 to $400 for limited liability companies doing business during the company’s first taxable year.
Extends CalCompetes tax credits to recruit and retain businesses in the state through the 2034 taxable year.
Conforms, for ease of taxpayer compliance, state tax law with favorable federal tax law treatment for recently approved tax-deferred investment accounts for children known as 530A accounts.
Updates manufactured home limitations for the State Controller’s property tax postponement program.
“Fair Share” Options: Moves the “fair share for big corporations” discussion forward with a requirement for the Department of Finance to provide draft bill options by March 2027 to hold large employers accountable for employees on Medi-Cal. If Congress repeals cruel Medicaid provisions in Trump’s H.R. 1, the requirement for Finance to provide these options would be paused.
Evaluating Effects of New Business Tax Provisions: Advances Supplemental Reporting Language to require the Legislative Analyst’s Office to report in early 2028 on the economic impacts of the SB 122 tax changes.
The Facts
Big picture of how the budget plan evolved since May: The May Revision, the June 15 legislative budget proposal, and the final 2026-27 state budget plan each balance the budget through 2027-28, add significant amounts to state reserves, and reduce future projected General Fund deficits. The final state budget plan mirrors the June 15 legislative budget proposal in most respects, especially its rejections, delays, and softening of many proposed safety net cuts. Compared to the June 15 legislative plan, the final budget reduces revenue estimates and trims spending proposals advanced by both the executive and legislative branches. In the final budget, the Governor secured agreement for some of his priority policy proposals, including a change to governance of the public education system and a transition of Medi-Cal services for those with “unsatisfactory immigration status” from managed care to fee for service.
Lower revenue estimates than in June 15 legislative plan: The final budget generally reverts to the lower May Revision revenue estimates—adjusted upward for the effects of recently passed SB 122 and a few revised projections of smaller state revenue sources. The lower 2025-26 revenues in the final budget reduces required Proposition 98 school and community college spending compared to the June 15 legislative plan—with state General Fund spending for Proposition 98 in 2025-26 reduced from $89.5 billion in the June 15 plan to $87.7 billion in the final budget.
Total estimated state spending: The final 2026-27 state budget plan—across the General Fund, the state’s many special funds, and selected bond funds—includes spending of $317.1 billion for 2024-25 (similar to the June 15 legislative budget proposal), $347.0 billion for 2025-26 (about $1.5 billion less than the June 15 proposal), and $351.7 billion for 2026-27 (about $4.2 billion less than the June 15 proposal). The difference for 2025-26 spending results from the lower revenue estimate in the final budget and the related decrease in Proposition 98 spending. Most of the difference for 2026-27 reflects the final budget’s reduction to courthouse construction bond spending proposed in the legislative plan. In addition to total state spending, significant amounts of federal funds flow through state accounts, and these are estimated at $187 billion in 2026-27
General Fund spending: The legislative budget plan’s General Fund expenditures are $231.2 billion for 2024-25 (similar to the June 15 proposal), $245.3 billion for 2025-26 (about $1.9 billion less than the June 15 proposal), and $251.5 billion for 2026-27 (about $1.5 billion less than the June 15 proposal). Net spending was reduced in the final budget negotiation across both legislative and executive branch spending proposals.
Evolution of revenue estimates: The Legislative Analyst’s Office (LAO), in early May, projected that General Fund revenues would be about $7 billion higher in 2025-26 than the administration projected in the May Revision. The LAO also projected slightly higher revenues in 2026-27. The June 15 legislative plan used part of the higher LAO revenue estimate for 2025-26 only: about $5 billion in tax revenues above those assumed in the May Revision. While 2025-26 revenues will continue to be collected through early next year, they do not appear on track to be as robust as LAO projected as of mid-June. Accordingly, the final budget plan reverts to the May Revision tax revenue estimate, adjusted upward for the near-term effects of SB 122: a taxation trailer bill advanced by the administration that was passed by the Legislature on June 18. SB 122’s revenue estimates result in an upward adjustment of the May Revision revenue estimates by $150 million in 2026-27, $1.6 billion in 2027-28, $2.9 billion in 2028-29, and $2.4 billion in 2029-30, the final year of the administration’s multiyear forecast period. After the forecast period, with a less stringent business tax credit limitation, SB 122 should result in somewhat less annual revenue for the state’s General Fund compared to the May Revision, but somewhat more annual revenue than would be received under previous law.
More on revenue estimates: In addition to the SB 122 adjustments to the May Revision tax revenue estimates described above, the final budget also reflects updated projections for other state revenue sources, principally state treasury investment earnings and unclaimed property proceeds—up a combined $400 million in 2026-27 and thereafter. (While the General Fund receives unclaimed property proceeds under longstanding law, the state must provide owners with their unclaimed property after they successfully submit required information to substantiate a claim with the State Controller’s Office. To learn more about unclaimed property, go to claimit.ca.gov.)
Surplus funds in 2026-27 set aside to help balance 2027-28 budget: No budget adjustments were required to meet the constitutional requirement of balancing the state General Fund budget in the 2026-27 fiscal year. The May Revision, the June 15 legislative plan, and the final budget plan each included an estimated basic General Fund reserve (known as the Special Fund for Economic Uncertainties, or SFEU) of $4.5 billion at the end of 2026-27. As described below, other surplus funds are deposited to a different reserve to help balance the 2027-28 state budget one year from now.
Significant additions to reserves in budget package: The final budget plan includes an estimated $28.8 billion of reserves in 2026-27, including the rainy day fund ($15.1 billion) and the Proposition 98 reserve ($9.2 billion). This increases those state reserves by more than $13 billion above the 2025-26 level in last year’s budget act. In addition, $6.4 billion is deposited in 2026-27 to a separate special purpose reserve, the Projected Surplus Temporary Holding Account, in order to help balance the 2027-28 budget. Reflecting the successful use of the temporary holding account in this budget plan, the state government trailer bill (SB/AB 172) deletes the account’s sunset date, making it permanent. In addition, Assembly Constitutional Amendment (ACA) 20, if approved by voters, would incorporate the temporary holding account into the state’s constitutional budgeting framework. Consistent with the two-year budgeting plan first adopted in 2024, 2025-26 “true up” deposits to the rainy day fund remain suspended, consistent with the provisions of Proposition 2 of 2014, which allows such suspensions only in specific circumstances.
Balanced budget projected for 2026-27 and 2027-28: The budget is projected to be balanced in both 2026-27 and 2027-28 under the administration’s revenue and spending estimates. The California Constitution requires the 2026-27 budget to be balanced in this package, and the actions to balance the projected 2027-28 budget are above and beyond the constitutional requirements. The May Revision left a basic General Fund reserve (the Special Fund for Economic Uncertainties, or SFEU) balance of $2.1 billion at the end of 2027-28. The June 15 legislative plan also balanced in 2027-28, but with a smaller SFEU balance of $122 million. The final budget includes a projected $403 million SFEU balance at the end of 2027-28.
2029-30 operating deficit lower in final budget: The Governor’s January budget proposal anticipated a $23 billion operating deficit—often called the “structural deficit”—in 2029-30, the final year of the administration’s multiyear forecasting period. The Governor announced his intention to propose a two-year balanced budget that significantly reduced the structural deficit in the May Revision. His May Revision, assuming adoption of all of its proposals, projected a $9.6 billion operating deficit in 2029-30. The June 15 legislative plan projected a $9.7 billion operating deficit in 2029-30. Including the higher near-term revenues from SB 122, the final budget plan projects an $8.4 billion operating deficit in 2029-30.
The “big picture” numbers through 2027-28: Because this budget was balanced through 2027-28, it can be instructive to compare General Fund revenue and spending levels between the budget plans across the three fiscal years at issue: 2025-26, 2026-27, and 2027-28 combined, as well as ending reserve levels.
General Fund revenues and transfers for the three fiscal years combined
May Revision: $717.1 billion
June 15 legislative plan: $722.8 billion
Final budget: $720.7 billion
General Fund Proposition 98 spending for the three fiscal years combined
May Revision: $273.5 billion
June 15 legislative plan: $277.1 billion
Final budget: $276.1 billion
General Fund non-Proposition 98 spending for the three years combined
May Revision: $470.2 billion
June 15 legislative plan: $474.3 billion
Final budget: $473.0 billion
SFEU reserve balance at the conclusion of those three fiscal years
May Revision: $2.1 billion
June 15 legislative plan: $0.1 billion.
Final budget: $0.4 billion
Budget Stabilization (rainy day) Account balance at end of the three years
May Revision: $18.5 billion
June 15 legislative plan: $18.5 billion
Final budget: $18.5 billion
(Edits after publication: (a) “Resources and Environmental Protection” heading changed, 6/27, (b) links to Assembly Budget floor report and analyses, 6/27.)