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By: @Ophelia Szigeti

On Friday, June 13, the California State Senate and Assembly approved a joint legislative budget for the 2025–2026 Fiscal Year, reversing several of Governor Gavin Newsom’s proposed May Revision cuts and authorizing billions in additional spending. 

The Legislature’s action satisfied its June 15 constitutional deadline to pass a state budget. However, the Legislature acted without first striking a deal with Governor Newsom who must sign the state’s final spending plan into law. Therefore, Governor Newsom and Legislative leaders now have two weeks remaining to work out their differences before the state’s new fiscal year commences July 1.

The overall state budget approved by the Legislature is $3 billion higher than the Governor’s January proposal and $6 billion more than his May Revision. Budget negotiations are expected to continue in the coming weeks, alongside legislative votes on budget trailer bills. 

The Legislature’s plan focuses on housing, economic stimulus, and long-term fiscal considerations, using borrowing to help resolve the state’s $12 billion deficit. To address the state’s ongoing housing challenges, the $325 billion legislative budget includes spending adjustments in areas such as the Renters Tax Credit, expanded funding for affordable housing via the Low-Income Housing Tax Credit, and additional support for the Multifamily Housing Program.

In response to recent natural disasters and regional transportation revenue shortfalls, the Legislature's proposal authorizes up to $1 billion in emergency General Fund loans over the next two fiscal years for local governments in Los Angeles County that are leading recovery efforts following the January 2025 wildfires. Eligible entities include cities, counties, special districts, school and community college districts, and county offices of education. 

Additionally, the Legislature’s plan makes up to $750 million in loan funding available to key Bay Area transit providers—including BART, SFMTA, Caltrain, and AC Transit—to help sustain transit operations amid ongoing budget challenges. The authority for these loans expires on June 30, 2027, with final loan terms and repayment conditions to be determined in future legislation.

Beyond housing and transportation, the spending plan outlines a number of notable funding decisions:

• Wildfire Prevention and Response: $500 million from the Greenhouse Gas Reduction Fund (GGRF) is allocated to CAL FIRE for operational costs in 2025–26, with an additional $500 million set aside for 2026–27.
• Firefighting Workforce Investment: $221.6 million from the General Fund is appropriated to begin converting 3,000 seasonal firefighter positions to full-time, year-round status over a three-year transition period. An additional $174.7 million annually is anticipated beginning in 2026–27 to sustain these permanent positions.
• Climate and Environmental Adjustments: The proposal reduces the Governor’s plan to replace General Fund expenditures with Proposition 4 funds, lowering the backfill from $315.8 million to $176 million. This change preserves $140 million for use in prior climate-energy package commitments. Additionally, details of the Proposition 4 Expenditure Plan have been removed from this proposal and will instead be addressed in a future budget bill.
• Clean Air Transportation Investments: The plan includes $132.2 million from the Air Pollution Control Fund to support the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project administered by the California Air Resources Board. This funding is contingent on revenues collected under the Hino Consent Decree.
• Groundwater and Water Management: A $16.4 million loan from the Underground Storage Tank Cleanup Fund will support ongoing implementation of the Sustainable Groundwater Management Act by maintaining 22 positions at the State Water Resources Control Board.
• Public Health Program Adjustments: The Legislature proposes significant savings in Medi-Cal by implementing two key policy changes. First, Medi-Cal enrollment would be frozen beginning January 1, 2026, for undocumented adults aged 19 and older, with exceptions to ensure continuity of care and a six-month re-enrollment grace period. This change is expected to generate $86.5 million in savings in 2025–26, growing to $3.3 billion by 2028–29. Second, the asset limit for Medi-Cal eligibility would be reinstated at $130,000, generating additional savings of $45 million in 2025–26 and reaching $510 million by 2027–28.
• Affordable Housing Production: To further stimulate the development of affordable housing, the budget allocates $500 million in supplemental state Low-Income Housing Tax Credits to draw private investment, along with $120 million to the Department of Housing and Community Development’s Multifamily Housing Program.
• Homelessness Program Adjustments: The appropriation to the Encampment Resolution Fund is reduced by $100 million for 2025–26.
• Federal Disaster Recovery Funding: The budget provides the necessary state staffing and authority to manage $417 million in federal Community Development Block Grant–Disaster Recovery (CDBG-DR) funds tied to storm damage sustained in 2023 and 2024.
• Federal Emergency Support: The proposal includes $1.2 billion in federal fund authority—$654.9 million for state operations and $573.1 million for local assistance—based on expected reimbursements from the Federal Emergency Management Agency (FEMA).

In total, the legislative spending plan includes approximately $232 billion in General Fund expenditures for the 2025–26 Fiscal Year, along with an estimated $89 billion from special funds and $4 billion in bond-funded spending. A complete overview of the Legislature’s version of the budget can be found here.