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On May 14, Gov. Gavin Newsom presented his revised 2025–26 state
budget, a $321.9 billion proposal designed to close a projected $11.9
billion deficit while maintaining core investments in education, health
care, and behavioral health. During a 90-minute presentation, Newsom
started by touting California’s status as the world’s fourth-largest
economy before laying out fiscal adjustments needed to guide the state
through what he described as an “uncertain and volatile” climate.
“We’re not just the fourth largest economy in the world — $4.1 trillion in
annual output — we lead the nation in manufacturing, innovation,
agriculture, and trade,” Newsom said. He blamed much of the current
economic downturn on federal policy and called the fiscal volatility the
state is experiencing “the Trump Slump.”
The May Revise uses a combination of $5 billion in spending cuts, $5.3
billion in borrowing and fund transfers, and $1.7 billion in fund shifts to
help balance the budget. No new state taxes are proposed, but reserves
are projected to remain at $15.7 billion.
Newsom’s biggest cuts land on Medi-Cal, the state’s health coverage
program that serves over 14 million low-income Californians —
including 38% of Black residents. The Governor proposes freezing
enrollment for undocumented adults starting in 2026, imposing a $100
monthly premium, and eliminating access to long-term care and dental
services for undocumented people. Additional cuts would bring back
asset tests for seniors and reduce hours for caregivers in the In-Home
Supportive Services (IHSS) program — a workforce predominantly
staffed by Black women.
Despite the cuts, the state will continue investing in behavioral health
services. The budget maintains funding for Proposition 1, which expands
mental health and substance use treatment, including housing. It also
supports the launch of BH-CONNECT, a multiyear effort to improve
behavioral health care for high-need Medi-Cal enrollees, including those
at risk of homelessness or involved in the justice system.
“We’ve reached a point where Medi-Cal expenditures are outpacing our
revenue growth,” said Budget Director Joe Stephenshaw. “This budget
tries to bring balance without dismantling core health services.”
The May Revise continues strong support for K–12 education, proposing
$25,176 in total per-student funding from all sources. Of that, $18,671
comes from Proposition 98, with a 2.3% cost-of-living adjustment
applied to the Local Control Funding Formula (LCFF), which directs
more resources to districts serving high numbers of Black students,
English learners, and low-income families. The budget also maintains
funding for universal transitional kindergarten, free school meals, and
extended day and summer programs.
In a notable addition, Newsom proposes new funding to support
evidence-based reading instruction, literacy coaches, and teacher
training. “In a really tight budget year, prioritizing reading for California
kids and investing $200 million is real leadership,” said Marshall Tuck,
CEO of EdVoice.
State Superintendent of Public Instruction Tony Thurmond applauded
Newsom, saying, “The Governor’s proposed revision would fund critical
programs that we know improve student achievement.”
The University of California and California State University systems
will also see budget relief. Initially facing 8% cuts, the systems will now
see reductions of just 3%, a move UC President Michael V. Drake said,
“demonstrates his strong commitment to California’s students.”
However, the California School Boards Association warned about the
long-term impact of Newsom deferring $1.3 billion in Prop. 98 funding.
“This is the second consecutive year the budget has contained some
form of unconstitutional Prop 98 manipulation,” said CSBA President
Dr. Bettye Lusk.
The budget holds the line on homelessness funding but includes no new
allocations. Newsom expressed frustration with local governments,
saying, “I’m very negative about the performance at the local level,”
while noting that California’s homelessness rate did not reflect the
national 12% surge in unhoused individuals. The state only reported a
0.45% increase in its unsheltered population during 2024.
However, the absence of new investments comes as Black Californians –
- who make up just 6.5% of the state’s population but over 30% of its
unhoused residents — remain disproportionately impacted. While a new
state housing and homelessness agency and a future infrastructure bond
are in development, new funding from those initiatives are unlikely to
reach communities before 2027.
Newsom, in his May Revise presentation, did not address the California
Legislative Black Caucus’s (CLBC) “Road to Repair” legislative
package, which includes bills introduced by Assemblymembers Lori D.
Wilson (D-Suisun City), Isaac Bryan (D-Ladera Heights), Tina
McKinnor (D-Inglewood), Mia Bonta (D-Alameda), Corey Jackson (D-
Moreno Valley), Sade Elhawary (D-Los Angeles), LaShae Sharp-Collins
(D-La Mesa), and Rhodesia Ransom (D-Stockton) as well as Senators
Dr. Akilah Weber Pierson (D-San Diego), Lola Smallwood-Cuevas (D-
Ladera Heights) and Laura Richardson (D-Inglewood).
The package includes proposals to establish a state reparations agency,
launch a guaranteed income pilot program, and invest in housing,
education, and health for descendants of enslaved Black Americans.
While Newsom has previously voiced support for exploring reparations,
no line-item funding was included for the CLBC’s proposals. However,
the budget does allocate $12 million to support the implementation of
reparations-related bills already signed into law. The caucus is expected
to continue negotiations through budget trailer bills ahead of the June 15
deadline.
The May Revise comes as the State is under attack from the federal
government, including efforts by Congress to cut Medicaid, food
assistance, and housing programs. Medi-Cal, which makes up more than
64% of all federal dollars flowing through California’s budget, is
particularly threatened. Newsom warns that impending federal cuts
could force the state to consider deeper reductions.
Legislative leaders are split on Newsom’s approach. Senate President
pro Tem Mike McGuire (D- Healdsburg) praised the plan, saying
California is navigating a tough year made worse by “an openly hostile
federal administration.”
Legislative Republicans strongly disagree. “Newsom’s finger-pointing
on the budget shortfall is the biggest load of crap I’ve ever seen from a
politician,” said Assembly Republican Leader James Gallagher (R- Yuba
City), blaming the deficit on “reckless spending and failed leadership.”
As budget negotiations move forward, Newsom says his goal is to
