Newsom, Democrats Announce $321-Billion California Budget Deal
Introduction to the Budget Deal
California leaders reached a tentative agreement Tuesday night on the state budget, which hinges on Gov. Gavin Newsom’s demand that the Legislature pass a housing reform proposal. The eleventh-hour negotiations about the spending plan, which takes effect July 1, speak to the political challenge of overhauling longstanding environmental regulations to speed up housing construction in a state controlled by Democrats. The party has been loath to do more than tweak the California Environmental Quality Act, or approve one-off exemptions, despite pressure from the governor and national criticism of a law that reform advocates say has hamstrung California’s ability to build.
Key Elements of the Budget
The proposal is among a series of policies Newsom and Democratic lawmakers are expected to advance in the coming days as part of the $321.1-billion budget. The deal reflects the Legislature’s resistance to the governor’s proposed cuts to reduce a $12-billion budget deficit expected in the year ahead, citing uncertainty about the scope of the state’s financial problems. “We appreciate the strong partnership with the Legislature in reaching this budget agreement,” said Izzy Gardon, a spokesperson for Newsom. “The governor’s signature is contingent on finalizing legislation to cut red tape and unleash housing and infrastructure development across the state — to build more, faster.”
Addressing the Deficit
The consensus comes after weeks of conversations about how to offset the deficit, caused by overspending in California, and start to address even larger financial problems anticipated in the future, including from potential federal policy changes. The tentative deal largely relies on borrowing money, tapping into state reserves, and shifting funding around to close the shortfall. By reducing and delaying many of the governor’s proposed cuts, the budget continues a practice at the state Capitol of sparing state programs from immediate pain while avoiding taking on California’s long-term budget woes.
Reaction from Assembly Republican Leader
Assembly Republican Leader James Gallagher (R-Yuba City) said the budget deal papers over the state’s financial problems. “We’re in this situation because of overspending,” Gallagher said. “We’ve made long-term commitments to programs that Democrats have championed, and now, just like everybody warned, the money is not there to support them all, and they don’t want to cut back their program that they helped expand.”
Budget Details
The cuts lawmakers and the governor ultimately agreed to will reduce the expansion of state-sponsored healthcare to undocumented immigrants and reinstate asset limit tests for Medi-Cal enrollees. The final deal, however, achieves less savings for the state than Newsom originally proposed. The plan restores cost-of-living adjustments for child-care workers, which the governor wanted to nix, and rejects his call to cap overtime hours for in-home caregivers. Democrats in the Legislature successfully pushed to provide another $500 million in funding for Homeless Housing, Assistance and Prevention grants.
A Housing Caveat
Description of the Housing Proposal
Described colloquially as a “poison pill” inserted into the budget bill, the agreement between the Legislature and Newsom will only become law if legislators send the governor a version of a proposal initially introduced by Sen. Scott Wiener (D-San Francisco). Wiener’s bill is expected to lessen the number of building projects that would require a full environmental review under CEQA and make the process of developing environmental impact reports more efficient. Paired with another proposal that could exempt more urban housing developments from CEQA, the legislation could mark a significant change in state policy that makes it easier to build.
Changes to Med-Cal Funding
Medi-Cal cost overruns are causing major problems for the California budget. The challenges stem from a higher-than-expected price tag for the expansion of state-sponsored healthcare to all income-eligible undocumented immigrants and medical care for other enrollees. Newsom’s budget proposal in May suggested substantial trims to the healthcare program for people who are undocumented. His plan included freezing new enrollment as of Jan. 1, requiring all adults to pay $100 monthly premiums, eliminating long-term care benefits and cutting full dental coverage.
Shifting Money Around
The negotiations resulted in less general fund spending than the Legislature proposed in a counter to Newsom’s budget revision in May, dropping from $232 billion to an estimated $228 billion for 2025-26. Officials are using more money from California’s cap-and-trade program, which sets limits on companies’ greenhouse gas emissions and allows them to buy pollution credits from the state, including $1 billion next year. They are also using $300 million from climate change bonds instead of the general fund to pay for environmental programs.
Trump Uncertainty
The plan continues an agreement to take $7.1 billion from the state’s rainy day fund to help cover the deficit and taps into another $6.5 billion from other cash reserves to balance the budget. California leaders for months have warned about the so-called Trump effect on the state budget. Financial analysts at UCLA predict that the state economy is expected to slow in the months ahead due to the effects of Trump’s tariff policy and immigration raids on construction, hospitality, agriculture and other key sectors.
More to Come
The final budget agreement is being publicly released in bits and pieces this week through a series of trailer bills that appear online at random hours. Lawmakers are expected to pass a main budget bill on Friday and approve additional legislation by Monday, before the July 1 deadline for the budget to go into effect. Some legislation, such as the CEQA housing exemptions, will not appear in print until the end of the week. Other decisions, such as reauthorizing California’s cap-and-trade program, will be considered later in the year outside of the budget process.
Conclusion
The budget deal between Newsom and the Democrats marks a significant step in addressing California’s financial woes, but it also highlights the ongoing challenges the state faces in balancing its budget and addressing long-term financial problems. The inclusion of a housing reform proposal as a condition of the budget deal underscores the importance of addressing the state’s housing crisis, which has been exacerbated by the COVID-19 pandemic and other factors.
FAQs
What is the total amount of the California budget deal?
The total amount of the California budget deal is $321.1 billion.
What is the main condition for the budget deal to become law?
The main condition for the budget deal to become law is the passage of a housing reform proposal that lessens the number of building projects that require a full environmental review under CEQA.
How will the budget deal address the state’s deficit?
The budget deal will address the state’s deficit by borrowing money, tapping into state reserves, and shifting funding around to close the shortfall.
What are the potential risks to the state’s budget in the future?
The potential risks to the state’s budget in the future include the effects of Trump’s tariff policy and immigration raids on construction, hospitality, agriculture, and other key sectors, as well as potential federal funding reductions to California.
When is the budget expected to go into effect?
The budget is expected to go into effect on July 1.
