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2025-2026 State Budget Summary By Felipe Fuentes, Pacific Coast Capitol Advisors - partial article published in Monday Morning Quarterback July 7, 2025 July 1 begins the new fiscal year for the State of California and with it, a new state budget enacted. The lead up to having a new budget had its fireworks moments. The Legislature is bound to have a budget passed to the Governor by June 15 each year, or have their pay withheld; they met their deadline. During budget negotiations, the Governor aimed to scale back the Legislature’s proposed General Fund expenditures in future years while also restoring several hundred million dollars in administration priorities that had been targeted for cuts. As a result of these negotiations, General Fund spending, proposed by the Legislature, was reduced from $232 billion to approximately $228 billion. While the Governor signed the 2025 Budget Act (AB 102) on June 27, a clever trick was used in the Act to make the budget enactment contingent on legislation being signed into law by June 30 to exempt infill housing and other infrastructure projects from California Environmental Quality Act (CEQA). This milestone was achieved with both legislative houses voting on the legislation on June 30th and the Governor signing it that evening. Ultimately, the approved 2025–2026 California state budget includes $228 billion in General Fund spending, approximately $89 billion from special funds, and $4 billion from bond funds. Additionally, the May Revision projected $174 billion in federal funds to pass through the state treasury; however, this figure may change substantially depending on forthcoming decisions by Congress and the White House. California is facing continued significant budget shortfalls in outyears driven by three primary factors: Federal economic policies: The new federal administration’s tariff increases have led to widespread downgrades in global economic forecasts. California’s economic outlook has also been negatively affected, with the May Revision projecting slower growth. According to the Newsom Administration, General Fund revenues would be approximately $16 billion higher if not for current federal economic policies and tariff requirements. Additional adverse federal actions in the coming months could further worsen the state’s fiscal condition. Rising program costs: Baseline costs for key programs—most notably Medi-Cal—have grown at a faster pace than previously projected, contributing modestly to the shortfall. Wildfire impacts: The recent devastating fires in Los Angeles have had a smaller but still notable effect, both by slowing economic activity and increasing state emergency response and recovery spending. Budget Topline Numbers $321.1 billion total budget $228.4 billion in General Fund $11.9 billion budget shortfall was closed with a blend of reserve taps, program cuts, and borrowing $7.1 billion from the state’s Rainy Day Fund $6.5 billion used from the regular reserves Note $15.7 billion is remaining in reserves 24-25 revenues are $1 billion higher than projected May estimates Key Budget Deal Points Reinstates asset limit test for Medi-Cal enrollees to $130,000 for individuals and $195,000 for couples Freezes Medi-Cal to undocumented adults effective January 2026 Establishes Medi-Cal monthly premiums effective July 2027 $620 million in grants and loans for affordable housing construction $500 million for local government homelessness services $100 million for counties to begin implementing Proposition 36 from 2024 Closes an additional prison (fifth prison since Governor Newsom took office) $750 million tax credit for the film and television industry Exemptions to California Environmental Quality Act for specific infrastructure projects Infrastructure Transportation funding largely left intact due to constitutional protections $500 million in Greenhouse Gas Reduction Fund (GGRF) to backfill eligible General Fund expenditures thereby preserving funding for transit and intercity rail investments Intent to provide further General Fund relief from the GGRF in the future if the overall budget picture continues to decline, including $1.2 billion in 2026-27, $500 million in 2027-28, and $500 million in 2028-29 $750 million in emergency loans to Bay Area transit agencies Extends for six months expenditures under the Regional Early Action Planning (REAP) program. This extension helps to make up for time lost during proposed cuts to the REAP program during the 2024 state budget process. Requires I-Bank to enact climate catalyst financing plans for certain types of infrastructure projects Specific project funding for various educations facilities statewide Expands apprenticeship programs eligibility and also creates the Career Passport program to provide employers information about a job applicant career history in lieu of college CEQA Exempts numerous projects types from CEQA, subject to limitations and qualifications: Qualifying infill housing projects with no labor or wage standard requirements for projects up to 85 feet Rezonings completed to implement housing element update Agricultural employee housing projects Sewer service projects for disadvantaged communities with inadequate sewer service Proposition 4 Climate Bond projects that benefit climate resiliency, biodiversity, and sensitive species recovery, or construct or maintain parks and trails Wildfire risk reduction projects Broadband projects Daycare, health clinic, foodbank, or advanced manufacturing projects High-speed rail maintenance facilities Constrains CEQA review for housing projects that narrowly fail to qualify for a CEQA exemption. CEQA review for such projects is now limited to the environmental effects caused by the condition that precluded applicability of the exemption. Imposes new limitations on litigants’ ability to challenge a local agency’s determination if a project is eligible for a statutory or categorical CEQA exemption Imposes a 30-day deadline for agencies, including the California Coastal Commission, to act to approve or disapprove qualifying projects Limits materials included in the administrative record prepared by lead agencies during CEQA-related litigation, except for projects related to distribution centers or oil and gas infrastructure Requires administrative updates to expand the applicability of the existing categorical exemption for infill housing projects by adjusting the definition of “eligible urban infill sites” to include urbanized unincorporated areas Allows local agencies to petition the Administration for future mapping changes on infill sites Further legislation anticipated to clarify components of the types of infrastructure projects eligible for CEQA exemptions or limited review, and tribal consultation as part of the CEQA process Statewide Vehicle Miles Traveled Mitigation Bank Creates a vehicle miles travelled (VMT) mitigation banking program, with guidance and regulations to be adopted by the Administration Allows lead agencies to mitigate VMT impacts of projects subject to CEQA by providing funding to the program to support VMT-reducing affordable housing projects and related supportive infrastructure, including through grants to local governments Reaffirms state guidance on VMT analysis and mitigation including that mitigation measures are feasible and consider economic, environmental, legal, social, and technological factors
2025-2026 State Budget Summary By Felipe Fuentes, Pacific Coast Capitol Advisors - partial article published in Monday Morning Quarterback July 7, 2025
July 1 begins the new fiscal year for the State of California and with it, a new state budget enacted. The lead up to having a new budget had its fireworks moments. The Legislature is bound to have a budget passed to the Governor by June 15 each year, or have their pay withheld; they met their deadline.
During budget negotiations, the Governor aimed to scale back the Legislature’s proposed General Fund expenditures in future years while also restoring several hundred million dollars in administration priorities that had been targeted for cuts. As a result of these negotiations, General Fund spending, proposed by the Legislature, was reduced from $232 billion to approximately $228 billion.
While the Governor signed the 2025 Budget Act (AB 102) on June 27, a clever trick was used in the Act to make the budget enactment contingent on legislation being signed into law by June 30 to exempt infill housing and other infrastructure projects from California Environmental Quality Act (CEQA). This milestone was achieved with both legislative houses voting on the legislation on June 30th and the Governor signing it that evening.
Ultimately, the approved 2025–2026 California state budget includes $228 billion in General Fund spending, approximately $89 billion from special funds, and $4 billion from bond funds. Additionally, the May Revision projected $174 billion in federal funds to pass through the state treasury; however, this figure may change substantially depending on forthcoming decisions by Congress and the White House.
California is facing continued significant budget shortfalls in outyears driven by three primary factors:
Budget Topline Numbers
Key Budget Deal Points
Infrastructure
CEQA
Statewide Vehicle Miles Traveled Mitigation Bank