In summary
Gov. Newsom and legislative leaders announce an agreement to bridge the state budget deficit by dipping into reserves and reducing some spending. The deal also calls for a bill in August to set aside more money and a 2026 constitutional amendment to grow the state’s rainy day fund.
California will make widespread cuts to state government operations, prisons, housing programs and health care workforce training in order to maintain its social safety net as it moves to close a multibillion-dollar budget deficit.
The spending plan, announced this morning by Gov. Gavin Newsom, Senate President Pro Tem Mike McGuire and Assembly Speaker Robert Rivas, also relies on reserves and pauses some business tax credits to address a remaining revenue gap estimated at $56 billion over the next two years.
“This agreement sets the state on a path for long-term fiscal stability — addressing the current shortfall and strengthening budget resilience down the road,” Newsom said in a statement. “We’re making sure to preserve programs that serve millions of Californians, including key funding for education, health care, expanded behavioral health services, and combatting homelessness.”
The Legislature passed a budget more than a week ago in order to meet a statutory deadline, but it did not represent a final deal with Newsom as they continued to negotiate over whether to repurpose billions of dollars earmarked to increase payments for health care providers who treat low-income patients and whether to further delay minimum wage increases for health care workers, among other issues.
Their agreement, which lawmakers are expected to vote on next week ahead of the July 1 start of the new fiscal year, does push back the wage hikes until at least October and potentially until next year, depending on the strength of revenue collections in the coming months. Despite heavy opposition from labor unions, the move could save California hundreds of millions of dollars.
“Make no mistake: This is a tough budget year, but it also isn’t the budget situation we were originally fearing,” McGuire, a Healdsburg Democrat, said in a statement. “This balanced budget helps tackle some of our toughest challenges with resources to combat the homelessness crisis, investments in housing, and funding to fight wildfires and retail theft.”
Rivas, a Salinas Democrat, said in a statement that “Students will grow and succeed because we kept classroom spending whole. And by balancing our budget this year and next, while preserving half the Rainy Day Fund, we are prepared for the future.”.