Summaries of Senate-Assembly budget agreement
More material will be online in the coming hours and days
The Senate has released its 24-page summary of the budget agreement between Senate and Assembly leaders here.
The Assembly Budget Committee subcommittee report is now online here at the Assembly Budget Committee website. At abgt.assembly.ca.gov, proposed actions by subcommittee are listed under the link to the Subcommittee Report on the 2025-26 Budget.
Other details will emerge when SB 101 is amended online in the coming day or so and in the budget committees’ agendas later this week. I will post links when available at the online version of this post at jasonsisney.substack.com.
Below is the summary of the plan that I wrote, with help from colleagues, for the Assembly Budget Committee subcommittee report.
Assembly Summary of Legislative Budget Package
The California Legislature’s budget plan includes $232 billion of spending from the General Fund in 2025-26, an estimated $89 billion of special fund spending, and $4 billion of spending from bond accounts.
In addition, as of the May Revision, $174 billion of federal funds spending was projected to flow through the state treasury, but that amount may change significantly based on upcoming actions by Congress and the White House.
The Legislature’s 2025-26 budget bill and forthcoming budget package respond to the broad uncertainty of the current moment by:
Reducing or delaying some severe proposed cuts in safety net programs to make sure these vital investments are not slashed prematurely.
Funding public schools as required by the Constitution, expanding the number of child care slots, and avoiding ongoing cuts to California’s university systems.
Using part of the state’s rainy day fund and other reserves, while also making difficult choices that begin to reduce Medi-Cal and other state costs.
Helping advance Los Angeles wildfire recovery and boosting personnel resources to prevent and fight future wildfires.
Avoiding new taxes on individuals, families, and small businesses, while prioritizing affordable housing funding and advancing the strongest ever reforms of the California Environmental Quality Act to promote housing in environmentally responsible locations.
A Time of Uncertainty
The uncertainty of the present moment affects almost every aspect of the state budget.
A reckless federal government threatens funding for research institutions that drive the economy and innovation, as well as vital services that support families and communities.
Recovery from devastating wildfires continues in Los Angeles. Billions of dollars in taxes from Los Angeles County are delayed until October.
Wildly fluctuating presidential dictates on tariffs threaten the stability of the economy and investment markets. This, in turn, threatens tax revenue generated by California’s progressive, voter-approved income tax system.
Economic experts warn of possible recession, which could further weaken state revenues over the next year or two. At the same time, stock market gains since the Governor prepared his May Revision suggest that state revenues may beat projections by billions in the coming months.
Rising health care, pharmaceutical, and other costs are affecting families, governments, and businesses across the country. Local governments feel the pinch, as does the State of California, whose Medi-Cal Program—a joint effort of federal and state government—covers 15 million people, more than one-third of California’s population. Rising costs across several parts of the Medi-Cal Program have become a significant fiscal issue for the state.
Even before potentially significant upcoming reductions in federal funding, California faces future annual deficits projected by both the Department of Finance and the Legislative Analyst’s Office at $10 billion to $20 billion per year through 2028-29, assuming the Legislature adopts ongoing spending reductions at the level the Governor proposed in his May Revision. After 2030, taxes on higher-income Californians--approved by voters in Proposition 30 (2012) and Proposition 55 (2016)—expire, which could add billions more to future deficits.
The Legislative Budget Package’s Key Themes
The 2025-26 legislative budget bill and forthcoming budget package respond to all the uncertainty by:
Making reductions to selected health and social services programs and efforts supported by the state’s Greenhouse Gas Reduction Fund in order to balance the budget.
Rejecting, delaying, or downsizing some of the most challenging gubernatorial cut proposals given the uncertainty of the moment, including the possibility that tax revenues will exceed projections in the coming months.
Protecting key funding for family planning and women’s health proposed for cuts by the Governor.
Advancing the strongest ever statutory reforms of the California Environmental Quality Act to promote housing in environmentally responsible locations, boost economic development and employment, and advance the state’s climate goals.
Investing carefully to promote affordable housing, fund over 12,000 new child care slots, aid victims of crime, minimize state budget harm to universities facing federal cuts, and boost firefighting personnel.
Providing $110 million of General Fund resources in 2025-26 as part of the shared state-local effort to implement Proposition 36 (2024). This comes on top of $29 million budgeted at the California Department of Corrections and Rehabilitation (CDCR) for increased Proposition 36 prison commitments, $127 million of Board of State and Community Corrections grants released in April that can be used for Proposition 36 substance abuse and mental health treatment, and another $89 million of such grants expected in 2025-26.
Growing Proposition 98 funding to over $25,000 per student, with a 2.3% cost-of-living adjustment for public schools, thereby protecting recent progress in increasing school funding and preparing for potentially bumpy fiscal times ahead.
Rejecting the proposed 3 percent ongoing cut to the University of California and California State University systems, but deferring some payments to the university systems with an anticipated cash flow facility from the state to remediate the effect of the deferral.
Expanding the annual size of the California Film and Television Tax Credit, cutting taxes on military retirement income, removing tax liability from various settlements related to recent and future wildfire disasters, and conforming taxation of financial institutions to apportionment rules similar to those used by other big companies.
Providing assistance to Los Angeles County local governments for wildfire recovery, as well as transit entities in the San Francisco Bay Area facing significant fiscal challenges.
Funding a seventh round of the key state aid for local government homelessness efforts, the Homeless Housing, Assistance and Prevention (HHAP) Grant Program, with $500 million available after Round 6 HHAP funds are distributed (likely in 2026-27) and benefiting from the Legislature’s accountability improvements to the program in recent years.
Insisting on good faith bargaining by the executive branch with state employees concerning wages and terms of employment and funding initial implementation of the In-Home Supportive Services (IHSS) Employer-Employee Relations Act, which passed the Assembly on May 29.
Accepting the administration’s proposal to close an additional state prison (to be named later) in 2026, for an estimated $150 million of annual ongoing savings. The legislative proposal also approves more than $300 million of annual administrative savings at CDCR, in addition to savings in the Governor’s proposal. Rehabilitative Investment Grants for Healing and Transformation (RIGHT Grants) are funded at $20 million.
Adding $15 million of funding to support the transgender, gender-nonconforming, and intersex (TGI) community, including cultural competency training for medical providers, mental health services, youth programs, and resettlement for TGI refugees.
Promoting legislative oversight in approving a major new government efficiency effort to be led by the Department of Finance between now and the end of 2026, including new requirements for state departments’ artificial intelligence projects to be reviewed publicly and approved by the Legislature.
Reducing the Governor’s proposed use of Proposition 4 climate bond moneys to offset General Fund costs by $140 million.
Using $7.1 billion (about 40% of the remaining balance) of rainy day fund moneys and about $6.5 billion from the state’s other cash reserves to help balance the budget and preserve key programs during uncertain times. This preserves $11.2 billion in the state’s main rainy day fund, about $2 billion in the General Fund’s basic reserve (the Special Fund for Economic Uncertainties), up to $650 million in the Proposition 98 rainy day fund, and tens of billions of dollars in other state accounts.
Deferring to the legislative policy bill process the Governor’s proposal to streamline administrative processes for the Delta Conveyance (“Tunnel”) Project.
Disposition of Selected Health and IHSS Issues
The Governor’s May Revision proposals to reduce state costs in health and IHSS programs continue to be a key focus of the legislative budget process, understandably prompting concern from many Californians. The legislative budget package reflects the following decisions on selected proposals:
Rejects Governor’s proposal to reduce IHSS overtime hours.
Rejects Governor’s proposal to reduce Proposition 56 family planning and women’s health supplemental payments, with this funding restored by various reductions to discretionary spending proposals made by the Governor.
Rejects Governor’s proposals to eliminate IHSS and long-term care services for individuals classified as having “unsatisfactory immigration status” under federal law, otherwise known as UIS.
Freezes new Medi-Cal enrollment of UIS adults, age 19 and over, effective in January 2026, with a six-month period to re-enroll for those who lose eligibility for the program.
Institutes Medi-Cal premiums for UIS adults, age 19 to 59, at $30 per month (not $100 per month as the Governor proposed), effective two years from now in July 1, 2027.
Eliminates Medi-Cal coverage for specialty drugs for weight loss.
Reinstitutes an asset test for Medi-Cal eligibility at $130,000 for individuals and $195,000 for couples, a more realistic level of assets than in the Governor’s proposal ($2,000 per individual and $3,000 per couple).
Approves Governor’s proposal for $1.5 billion of Proposition 35 funds to support Medi-Cal base rate increases across the 2025-26 and 2026-27 fiscal years.
Delays implementation of Governor’s proposal to eliminate Prospective Payment System Payments to federally qualified health centers and rural health clinics to July 2027.
Delays implementation of Governor’s proposals to reduce Proposition 56 supplemental payments to dental providers and to eliminate dental coverage for UIS adults, age 19 and over, on Medi-Cal to July 2027.
Delays for two years, until July 1, 2027, the Governor’s proposal to reduce payments by $30 million per year to the Program of All-Inclusive Care for the Elderly (PACE).
How Does the Legislative Plan Compare with the Governor’s Proposal?
Use of Rainy Day Fund Same as Governor’s Plan. The legislative plan, like the Governor’s May Revision proposal, relies on a $7.1 billion withdrawal from the state’s main rainy day fund, the Budget Stabilization Account. (This is about 40% of the rainy day fund’s current balance, leaving $11.2 billion in the fund.)
“Internal Borrowing” from Other State Reserves. In addition to using the rainy day fund, the legislative plan expands the use of “internal borrowing” from other state accounts’ reserves, a common practice the state has used in various forms for decades to help balance budgets. The Governor’s May Revision proposal included about $4.0 billion of proposed internal borrowing (excluding Proposition 98 settle up), including a $3.4 billion borrowing related to this year’s Medi-Cal cost overruns. The legislative plan increases that total to about $6.5 billion, including a $1 billion increase in the Medi-Cal borrowing and $1.5 billion more from general state cash balances. The state’s other accounts, outside of the rainy day fund, currently hold tens of billions of dollars on hand. The General Fund eventually will have to repay other accounts in the state treasury—in many cases, with interest—but case law gives the state flexibility in determining the pace of those repayments. This is an important form of flexibility to avoid the state budget having to make hasty cuts, as it did in 2009 and 2010, when minimal reserves were available.
Rejects, Reduces, and Delays Some Proposed Cuts. While the legislative plan accepts many gubernatorial cost reduction proposals, it rejects some (especially in the IHSS Program), modifies several (typically reducing savings), and delays some proposed health cuts up to two years (such as the Medi-Cal premium proposal). As a result, cost reductions in the legislative plan are about $3.6 billion in 2025-26, compared to about $5.0 billion in the Governor’s proposal. By 2028-29, cost reductions in the legislative plan grow to roughly $12 billion, compared to around $15 billion in the Governor’s proposal. Cuts in the Legislature’s budget include rejections of a few hundred million dollars of the Governor’s discretionary spending proposals and prior appropriations.
More Limited “Shift” of Cap and Trade Funds. The Governor proposed using a substantial portion of Greenhouse Gas Reduction Fund (GGRF), or cap and trade, moneys to support what otherwise would be General Fund costs for the Department of Forestry and Fire Protection (Cal Fire). Specifically, the Governor proposed using $1.5 billion from the GGRF for this purpose in 2025-26, growing to $1.9 billion in 2028-29. The legislative plan approves only $500 million in 2025-26 and $500 million in 2026-27 for this purpose. In 2027-28 and 2028-29, the Legislature’s rejection of the Governor’s ongoing GGRF “fund shift” proposal is a major difference between the legislative plan and the May Revision. Proposition 4 and the remaining GGRF appropriations are expected in later 2025-26 budget bills. The legislative budget plan leaves cap and trade reauthorization to the Legislature’s “policy bill” process.
Additional Legislative Augmentations. The legislative plan augments the Governor’s proposals in several key areas. A $500 million new allocation to the Low Income Housing Tax Credit and a $120 million addition to the Multifamily Housing Program, for example, are in the plan, as is a $100 million expenditure to backfill the federal Victims of Crime Act. Child care slots are added. Seasonal firefighters begin to be transitioned to permanent full-time staff, at about a $200 million cost per year. Ongoing cuts to the University of California and the California State University systems are avoided, with payment deferrals to the systems offset by an anticipated short-term cash loan facility provided by the state.
No New Taxes on Individuals, Families, and Small Businesses. The legislative budget includes no new taxes on individuals, families, and most businesses. In fact, the budget plan reduces taxes on some categories of income for military retirees and wildfire victims, and the plan conforms the tax treatment of financial institutions to that of other multinational corporations, resulting in an estimated net revenue increase of $330 million in 2025-26. The size of the current and projected deficits have prompted some discussions about potential future revenue options, including opportunities to close tax loopholes and require large multinational corporations to pay their fair share while also lowering taxes on middle class and working families.
Lending to Local Governments. Following up from the unprecedented fire emergency aid facility for Los Angeles County local governments in AB 100 (Gabriel), passed in April, the legislative budget plan includes a new $1 billion state lending program for Los Angeles County local governments recovering from wildfires. It also includes a new $750 million lending program for specified transit districts in the Bay Area that need assistance in the short term to cover operating costs. Details of the lending mechanisms will be developed in the next round of budget negotiations with the Governor. Consistent with the way the state treasury books some loans and investments, these local government loans result in no net current expense to the General Fund in budgetary accounting, as they will have a statutory repayment mechanism. The Legislature’s budget plan reaffirms prior wildfire aid appropriations from earlier this year.
Smaller, But Sufficient, “Basic Reserve” in Legislative Plan. The Governor’s May Revision included about $12 billion of budget-balancing actions for 2025-26, including $4.5 billion of such actions to keep the balance of the General Fund’s basic reserve, the Special Fund for Economic Uncertainties (SFEU), at $4.5 billion. In total, the Legislature’s plan includes about $9.5 billion of budget-balancing actions for 2025-26, which results in a $2 billion SFEU. The state’s constitutional balanced budget requirement only requires an SFEU of $0 or greater. The $2 billion SFEU balance is sufficient to address many unexpected needs. In emergency situations, other state cash resources are available. In particular, the Governor has broad emergency fiscal powers, including those in Section 8645 of the Government Code (California Emergency Services Act). Section 13.40 of the legislative budget bill also authorizes internal borrowing, if needed, for unexpected state needs. The remaining rainy day fund balance of $11.2 billion also is available to address future deficits, consistent with the provisions of Proposition 2 (2014).
What Comes Next?
If the Legislature approves the legislative budget bill and then presents it to the Governor on Sunday, June 15, 2025, the Governor’s deadline to sign, veto, or line-item veto the bill will be Friday, June 27, 2025. Well before that date, the Senate and Assembly’s leaders will begin negotiations with Governor Newsom to reach a final agreement on the budget.
Typically, up to a few dozen trailer bills—statutory measures authored by the budget committees to implement provisions of the budget—emerge and begin to be considered in budget committees and each house of the Legislature later in June. Most of the content that will be amended into trailer bills—sometimes with modifications--is already online at the Department of Finance’s trailer bill website. Like other legislative bills, budget and trailer bills are online in their final form at least 72 hours before passage in each house of the Legislature.
More budget legislation likely will be considered in August and September 2025 during the closing weeks of this year’s legislative session, which concludes on or before Friday, September 12. These measures may be clean-up bills or budget-related bills unable to be completed before the July legislative recess begins on or before Friday, July 18 (assuming, of course, that the state budget bill has been passed before that date).
At some point in the coming months, the U.S. Congress is expected to pass and President Trump is expected to sign major federal budget and tax legislation. That legislation could significantly alter the landscape of California communities by cutting health care and social services funding, slashing federal funding for universities and research, and making other damaging changes to federal policy. Even before Congress passes the legislation, the Trump Administration is threatening key funding streams that benefit Californians. August and September budget legislation might be required to deal with those federal actions. Alternatively, a special legislative session this fall may be convened or budgetary action may need to be expedited when the Legislature returns to Sacramento on January 5, 2026.
California again may face significant projected deficits in the coming years. Legislators, Governor Newsom, and their successors may face more difficult decisions in the years ahead.