By Joe W. Bowers Jr., California Black Media
California’s 2026–27 budget debate opened on Jan. 9 with Finance Director Joe Stephenshaw presenting the budget proposal.
Although Gov. Gavin Newsom did not attend the budget press conference, he previewed parts of the spending plan during his State of the Stateaddress the day before.
Stephenshaw emphasized that the January budget is a first draft meant to outline the administration’s priorities ahead of the May Revision when the Governor is required by law to present a mid-year update of the budget that incorporates amended forecasts and adjustments of the numbers released last week.
“This is really a blueprint,” he said. “There’s going to be changes between now and May.”
The proposed budget totals about $349 billion, including roughly $248.3 billion from the General Fund. The administration says stronger-than-expected revenues — about $42 billion more over three years than previously forecast — helped close what it describes as a modest $2.9 billion shortfall.
The nonpartisan Legislative Analyst’s Office (LAO), however, offers a starkly different view, projecting an $18 billion deficit for 2026–27. Stephenshaw said the disagreement comes from economic assumptions: the Department of Finance expects steady growth, while the LAO assumes slower growth and declining revenues.
Both sides agree that larger deficits loom. Finance officials project a shortfall of about $22 billion in 2027–28.
Education is the largest spending area. State law requires roughly 40% of General Fund revenues to go to K–12 schools and community colleges, so funding rises automatically when revenues increase.
Under the proposal, funding for K–12 schools and community colleges would rise by $22 billion, bringing total Proposition 98 education funding to about $125.5 billion. That would push state support to a record $20,427 per student, with total per-student funding — including federal dollars — reaching about $27,418.
The budget avoids cuts to K–12 education, adds $509 million for special education, fully funds universal transitional kindergarten at about $1.9 billion a year, and directs $1 billion to high-needs community schools.
State Superintendent of Public Instruction Tony Thurmond praised the funding levels but raised concerns about Newsom’s proposal to move the Department of Education under the executive branch, shifting authority from the independently elected superintendent to the governor.
Marshall Tuck, CEO of the education advocacy group EdVoice, welcomed the funding focus, saying, “EdVoice commends Governor Newsom on continuing to prioritize education in his state budget proposals.”
Health care is the other major cost driver. Medi-Cal is projected to cost $2 billion more in the current year and $2.4 billion more next year. About $1.1 billion of the Medi-Cal increase is tied to new federal requirements under Pres. Donald Trump’s budget law, H.R. 1 known as the “One Big Beautiful Bill Act.”
Federal changes are also increasing costs for food assistance and other safety-net programs. Senate President Pro Tem Monique Limón (D – Santa Barbara) said California cannot fully make up for those federal cuts.
“California will not be able to fill the holes that have been left by the federal government,” Limón said.
Beginning October 2026, federal funding will drop for certain immigrants, including refugees and asylees. Under the proposal, about 200,000 people would be shifted into a limited Medi-Cal program that covers only emergency and pregnancy-related care.
The budget continues Newsom’s homelessness strategy, which has helped cut unsheltered homelessness by 9% in 2025 through programs like Homekey. The proposal would reduce state homelessness funding from $1 billion to $500 million for the Homeless Housing, Assistance and Prevention (HHAP) program.
The administration says the budget reflects caution as well as confidence. It would build total reserves to $23 billion, including a $3 billion deposit into the Rainy-Day Fund, and spend $11.8 billion over four years to reduce pension debt.
In a statement, Newsom said, “California’s economy is strong… but we remain disciplined and focused on sustaining progress, not overextending it.”
Democratic legislative leaders urged restraint. Assembly Speaker Robert Rivas (D–Salinas) and Assembly Budget Chair Jesse Gabriel (D – Encino) said strong revenues may not last and recommended that the state should use the moment to strengthen schools, expand housing and build reserves.
Republicans criticized the proposed budget. State Sen. Roger Niello (R-Fair Oaks) called the governor’s projections “dangerously optimistic.” Senate Minority Leader Brian Jones (R–San Diego) said the plan was “more of the same from a lame-duck governor,” and Sen. Suzette Martinez-Valladares (R–Lancaster) said, “We don’t have a revenue problem in California, we have a spending problem.”
Stephenshaw said the administration is delaying decisions until clearer numbers are available, particularly regarding how much the state can offset potential federal cuts.
“It really is a conservative approach,” he said, describing the proposal as a holding pattern.
The administration will release an updated budget proposal in May, after spring tax collections are finalized. The May Revision will update revenue and spending estimates which will likely change the size of the projected deficit and the budget plan.
