2026-27 California state budget guide: What's funded, what's cut, and what's left for the next governor

Governor Gavin Newsom signed California's 2026-27 state budget on June 29—his eighth and final spending plan before term limits end his tenure. On paper, it is a record: $351.7 billion in total spending, $35.2 billion in reserves, and a balanced General Fund through 2027-28, powered by an AI-driven revenue boom and more than $5 billion in new taxes.

Underneath the toplines, this is a budget built on scheduled pain. Most of the deepest cuts—to Medi-Cal benefits, immigrant health coverage, and clinic payments—were not canceled. They were postdated to July 2027, six months after Newsom leaves office. Schools are owed $3.9 billion the state has declined to pay on schedule. And the year's biggest climate spending decisions weren't made at all: they were punted to August.

Newsom and lawmakers enter budget talks split over $3.9 billion in education funding

As lawmakers and Gov. Gavin Newsom enter the final two weeks of budget talks before the July 1 deadline, the spending plan the Legislature passed June 15 guarantees public schools a record $127.1 billion next year—while deferring $3.9 billion of it, with no agreement on when schools will be repaid.

California TodayDr. Jennifer Trimpey | Specialist

The enacted budget is now law—AB 109 (Chapter 19), amended by SB 111 (Chapter 21), plus roughly 40 trailer bills. As of mid-July, the Department of Finance still had not posted the consolidated enacted budget summary to ebudget.ca.gov, so this guide works directly from the chaptered bills and the Legislature's official summaries. We will link the state's enacted summary here when it posts.

Key takeaways:

• The $351.7 billion budget ($251.5 billion General Fund) is balanced through 2027-28, with $35.2 billion in total reserves—but a $8.4 billion structural deficit is still projected for 2029-30.
• Schools get a record $128 billion Proposition 98 guarantee, yet the state is withholding $3.9 billion owed for 2025-26—and the California Teachers Association is threatening to sue.
• New taxes arrive: sales tax on downloaded software, caps on business tax credits, and a renewed tax on health plans, together worth over $5 billion a year.
• Most Medi-Cal cuts weren't stopped—they were rescheduled for July 2027, when a new governor will own them.
• The elected state superintendent of public instruction loses most of their authority to a governor-appointed education commissioner starting January 15, 2027—months after voters elect a new superintendent this November.

What's in the California 2026 budget?

Below, we use the official summary published by the Senate Budget and Fiscal Review Committee, the Assembly floor report, and the chaptered budget bills themselves to review the major sections of the enacted agreement—including education, health, housing, taxes, and public safety. Where the official framing softens what actually happened, we say so (more on that below).

For how the deal came together—the Legislature's June 15 vote, the two-week standoff, and the June 26 three-party agreement—see our earlier coverage of the budget's passage and the education funding fight.

The big picture: Record reserves, deferred reckoning

The Budget Act of 2026 spends $351.7 billion in total state funds in 2026-27, including $251.5 billion from the General Fund. Roughly $187 billion in federal funds flows through state accounts on top of that.

Total reserves reach a record $35.2 billion: $15.1 billion in the Rainy Day Fund, $9.2 billion in the Proposition 98 reserve for schools, $4.5 billion in the regular operating reserve, and $6.4 billion parked in a "Projected Surplus Temporary Holding Account"—a set-aside created to pre-balance the 2027-28 budget. That holding account, a budgeting experiment adopted in 2024, is now permanent law.

Two structural notes deserve attention:

• The deficit didn't disappear—it shrank and moved. Newsom's January proposal projected a $23 billion operating deficit by 2029-30. The final budget cuts that projection to $8.4 billion, through a combination of new revenues, scheduled program cuts, and the reserve set-asides. Balanced through 2027-28 is a real achievement; balanced after that is the next governor's problem.
• The revenue bet got more conservative—mostly. Lawmakers' June 15 plan assumed about $5 billion more in 2025-26 revenue than the administration forecast, based on Legislative Analyst's Office projections. The final deal reverted to the administration's lower estimates. The budget still leans on the AI-driven stock boom: if those receipts falter, the reserves—and the trigger mechanisms described below—get tested quickly.

Voters will also weigh in. ACA 20, placed on the November 3, 2026 ballot alongside the budget, would enlarge the Rainy Day Fund, require bigger deposits in boom years, exempt reserve deposits from the Gann spending limit, and extend the state's budget-debt repayment framework through 2040.

Taxes and revenue: Software, tax credits, and health plans

The quiet headline of this budget is that California raised taxes by more than $5 billion a year—without a single standalone tax vote outside the budget process. Three changes matter most:

• Sales tax on downloaded software. Starting in 2026-27, California applies sales tax to electronically delivered, pre-written ("off the shelf") software—the products most businesses and many consumers buy as downloads or licenses. Estimated revenue: $450 million in 2026-27, growing to $900 million ongoing.
• Business tax credit caps. The temporary cap limiting how much businesses can claim in tax credits is extended through tax year 2029 (with refundability provisions that let companies recover value later). Beginning in 2030, a permanent cap sets credits at $5 million or 70% of tax liability, whichever is higher—worth $1 billion in 2026-27 and growing past $4.5 billion by 2029.
• Managed care organization (MCO) tax. A renewed, federally compliant tax on health plans preserves Medi-Cal funding, generating $575 million in General Fund savings in 2026-27 and roughly $2.3 billion annually in the two years after.

There are sweeteners. First-year limited liability companies see their $800 minimum franchise tax cut to $400 for tax years 2027-2029. The CalCompetes business tax credit is extended five years at $180 million per year. And in a provision of particular interest to this publication's industry, the budget funds the California Civic Media program—$10 million in each of the next two years, matched by private contributions, to sustain local journalism statewide.

Then there is the tax that isn't—yet. The Fair Share from Big Corporations Act requires the administration to present "fully viable options" by April 1, 2027 for making large corporations pay when their employees rely on taxpayer-funded Medi-Cal instead of employer coverage. If Congress repeals the Medicaid cuts in H.R. 1, the requirement pauses. It is a study clause, not a tax—but it puts the concept formally on next year's budget table.

Education (TK-12): Record funding, a $3.9 billion IOU, and a demoted superintendent

On the surface, schools won big. The Proposition 98 minimum guarantee—the constitutional funding floor for TK-12 schools and community colleges—reaches $128 billion in 2026-27, with per-pupil funding at a record $21,148 from Proposition 98 sources (about $28,207 counting all state and federal funds).

The budget's marquee education investments, largely delivered through the education trailer bill (AB 126):

• $2.4 billion ongoing for special education base rate increases—the largest single-year special education investment in state history—plus $40 million for low-incidence disabilities and $40 million for the extraordinary cost pool.
• A 4.31% cost-of-living adjustment for the Local Control Funding Formula, well above the statutorily required 2.87%—the "super COLA" also covers districts' new obligation to provide 14 weeks of paid pregnancy leave for educators.
• A $5 billion one-time discretionary block grant—about $937 per student, distributed by attendance with essentially no strings—aimed at districts squeezed by declining enrollment.
• $1 billion ongoing to expand the Community Schools Partnership Program, cementing one of Newsom's signature initiatives.
• $500 million for kitchen infrastructure and training so schools can actually deliver universal meals, with family food pantries and school gardens now eligible expenses.
• $428 million for teacher pipeline programs, including $408 million to extend and expand student teacher stipends, and $350 million to continue reading coaches at high-poverty schools for five more years.
• $146 million for students experiencing homelessness, $100 million for the new California New Americans in Schools program, and $75 million for Dream Resource Center grants.

The $3.9 billion withholding

The number that overshadows all of the above: the state is withholding $3.9 billion it owes schools under Proposition 98 for 2025-26, waiting to see whether AI-driven revenue projections actually materialize.

The repayment mechanism, buried in the budget's fine print, works like this: 33% of any tax revenue that comes in above current projections between now and the May 2027 budget revision is automatically appropriated toward the unpaid obligation—after first deducting whatever additional Proposition 98 and Rainy Day Fund payments those higher revenues trigger. Any repayment flows into the Proposition 98 reserve for schools to receive through future legislation. If revenues don't beat projections, there is no repayment this cycle, and the obligation rolls forward to be dealt with after the 2025-26 guarantee is certified—likely during the June 2027 budget process.

Education groups are not mollified. The California Teachers Association says the maneuver violates the state constitution and has pledged to protect school funding "with every resource and legal remedy at our disposal." No lawsuit had been filed as of mid-July. The California School Boards Association sued over a similar maneuver two years ago.

The superintendent overhaul

The budget's most consequential education policy wasn't about money at all. Tucked into the education trailer bill, it shifts control of K-12 school governance from the elected state superintendent of public instruction to a new education commissioner appointed by the governor, starting January 15, 2027. The superintendent—a role California voters have declined to abolish in four separate ballot measures—becomes one of 13 members of the State Board of Education.

The timing is remarkable: voters will elect a new superintendent this November, choosing between candidates for a job that will lose most of its authority ten weeks after the election. Critics in both parties objected to running the change through the budget process; supporters, including Newsom, argue an appointed chief makes education governance coherent, as in most states.

Higher education: The compact survives, aid inches up

After last year's deferrals and near-cuts, 2026-27 is comparatively calm for the universities:

• UC and CSU receive their full 5% base increases under the Governor's five-year compact—completing the funding-for-enrollment bargain rather than deferring it, as last year's budget did.
• The Middle Class Scholarship gets an additional $166.9 million for 2026-27 awards, funding awards at 23.1% of eligible need.
• Cal Grant eligibility expands: the age limit rises to 30 through the 2030-31 award year.
• Community colleges get a structural fix: the Proposition 98 split is recalibrated to 88.9% TK-12 / 11.1% community colleges, worth an added $217.7 million in 2026-27—repairing a deficit inadvertently created when the 2025 budget moved transitional kindergarten costs. Growth funding covers 2.5% enrollment growth ($63.8 million ongoing), plus $147.2 million for the Student Support Block Grant and $70 million for campus Dream Resource Centers.

Health and Medi-Cal: Cuts delayed, not canceled

If one section captures this budget's character, it is health care. Facing tens of billions in federal Medicaid cuts under H.R. 1, the state chose to reschedule nearly every painful decision for July 2027.

What's delayed to July 1, 2027:

• Dental benefits for adults regardless of immigration status, and Proposition 56 dental supplemental payments—both were set to end July 1, 2026.
• Clinic payment reductions, at a cost of $1 billion to keep clinics whole for one more year.
• The Medi-Cal asset test. Current limits ($130,000 for individuals, $195,000 for couples) survive 2026-27. In July 2027 the limit drops to $21,000/$31,000—far below today's ceiling, though not the $2,000 the Governor originally proposed. Lawmakers say they'll revisit the level next year.
• Full-scope coverage for asylees, trafficking victims, and other qualified immigrants, roughly 150,000 people, who shift to emergency and pregnancy care only in 2027-28.
• Premiums for undocumented enrollees: the current $30 monthly premium holds through June 2027, but the next governor must set a premium between $30 and $50 in the May 2027 budget revision.

What's happening now: roughly 2 million enrollees with "unsatisfactory immigration status" begin moving from managed care to fee-for-service Medi-Cal by January 2027—a Newsom priority to preserve federal funding that saves $470 million next year but strips enrollees of benefits like case management and housing assistance. The budget includes $39 million for navigators to assist the transition.

What's rejected outright: the Governor's proposed rate caps on PACE (all-inclusive care for the elderly) and the elimination of Medi-Cal's acupuncture benefit.

What's funded:

• $250 million in grants to designated public hospitals, plus $90 million for hospitals in significant financial distress—augmentable by up to $50 million with Finance approval. (Hospital groups had asked for $500 million.)
• $300 million to cut premiums for low- and middle-income Covered California enrollees.
• $197 million for county Medi-Cal eligibility workers processing H.R. 1's new verification requirements.
• $40 million for reproductive health care and $26 million for gender-affirming care.
• A four-year, nearly $500 million "End the Epidemics" plan targeting HIV/AIDS and STIs, funded from AIDS Drug Assistance Program rebate funds—including a syphilis outbreak strategy aimed at the Central Valley's elevated rates.
• The Medi-Cal mobile crisis benefit survives until July 2027, with 988 system funding still unresolved.

What didn't make it: the $125 million counties requested to build an indigent-care backstop for people losing Medi-Cal entirely. County associations warn they'll be "forced to cut core services" without an alternative before session ends in September.

Human services: The safety net holds—for now

This is where the Legislature most clearly won the spring's battles:

• All three IHSS cuts rejected. The Governor's proposals to shift In-Home Supportive Services cost growth to counties, eliminate the backup provider system, and auto-terminate IHSS eligibility with Medi-Cal loss all died—preserving in-home care for roughly 900,000 low-income seniors and people with disabilities, at a cost of about $500 million by 2027-28.
• Food banks get $100 million through CalFood—$70 million above the Governor's proposal—as H.R. 1 pushes an estimated 750,000 Californians toward losing CalFresh benefits. Counties also get $223 million for CalFresh eligibility workload and $14 million for outreach.
• Immigration legal aid reaches $175 million total, $80 million above the May Revision, spread across removal defense, unaccompanied children's cases, and rural capacity.
• The proposed reversal of the Adult Protective Services expansion was rejected.
• Targeted adds: $100 million for housing programs serving seniors, CalWORKs families, and foster youth; $30 million for Stop the Hate; $20 million for Child Protective Services emergency response; $20 million for the CalFresh Fruit and Vegetable Pilot; $16.5 million for diaper banks; and $12 million annually for three years for Holocaust survivor assistance.

Child care and preschool: Slots up, costs shifted

After proposing in May to eliminate 6,800 subsidized child care slots, the Governor signed a budget that goes the other direction: 22,770 new child care spaces in 2026-27, plus about 2,470 of the threatened slots preserved—a net swing of roughly 25,000 spaces versus the May Revision, keeping the state on track toward its promised 206,800 new spaces above 2020 levels.

The fine print matters: the expansion's costs are "significantly absorbed" by shifting non-district state preschool into Proposition 98—moving the expense onto the school funding guarantee (which was rebenched to account for it) rather than finding new money. Providers across all child care programs receive a 2% cost-of-living adjustment.

Housing and homelessness: $900 million with strings attached

The Legislature won its homelessness fight outright. Round 7 of the Homeless Housing, Assistance and Prevention (HHAP) program is funded at $900 million—$400 million more than Newsom proposed. The money comes with a new accountability regime: standardized performance measures, pro-housing designation requirements for big cities and their counties, local match requirements (35% at disbursement, 70% by second disbursement for large jurisdictions), and a mechanism to claw back and reallocate unused funds.

Affordable housing production gets $700 million: $500 million in enhanced state Low-Income Housing Tax Credits for 2027 and $200 million for the Multifamily Housing Program. A new $100 million Disaster Rebuilding Fund will subsidize construction financing for homeowners rebuilding after wildfires and other disasters. (A separate $100 million for housing stability programs serving seniors, CalWORKs families, and foster youth is covered under Human Services above.)

The budget also positions the state for two November events: allocations are pre-staged in case voters pass the housing bond on the fall ballot, and the new California Housing and Homelessness Agency—codified in this budget package—is now led by Secretary Tomiquia Moss, sworn in June 30. Two weeks after signing the budget, Newsom signed a companion package of housing permitting reforms; we'll cover those separately.

Climate and environment: The biggest decisions weren't made

The honest summary of this year's climate budget is that it mostly didn't happen. The Legislature and Governor could not agree on how to spend the Greenhouse Gas Reduction Fund—the cap-and-trade proceeds that fund most state climate programs—after new rules adopted by the administration in May threatened to cut the fund's revenue substantially. The entire GGRF spending plan, revisions to last year's cap-and-invest laws, a $250 million legislative discretionary pot, and all Proposition 4 climate bond allocations were deferred to August budget legislation.

What did get settled:

• $1.25 billion from the GGRF backfills CalFire's budget, executing the contingency plan written into last year's budget.
• $356 million for zero-emission vehicle incentives: $135.5 million for clean trucks and buses (HVIP), $135.5 million for light-duty ZEV incentives aimed at first-time buyers of modestly priced vehicles, and $17 million a year for five years for Clean Cars 4 All, which helps low-income drivers replace older vehicles.
• $150 million in General Fund money for the Community Air Protection Program—notably funded outside the GGRF while that fight continues.
• $25 million for the Healthy Rivers and Landscapes program, contingent on the State Water Board adopting the Bay-Delta plan.
• A proposed elimination of 356 positions across resource departments—including Fish and Wildlife game wardens—was rejected.

Public safety and the courts: Prop 36 money arrives, prison closure doesn't

Eighteen months after voters passed Proposition 36's tougher drug and theft penalties, the budget provides roughly $375 million for implementation across court workload, substance use and mental health treatment, victim support, and pretrial services—on top of last year's $300 million-plus. Whether that constitutes full funding remains contested; the Senate's own summary highlights a $50 million appropriation to "fund Proposition 36 activities," and county officials have argued treatment capacity still lags the law's mandates.

Elsewhere in the public safety budget:

• Victims of crime: $50 million backfills collapsing federal VOCA grants, double the May Revision figure.
• Nonprofit Security Grant Program: $80 million ongoing for institutions facing hate violence—one of the budget's larger ongoing public safety commitments.
• Corrections: CDCR must find $75 million in savings in 2027-28 and $150 million ongoing starting 2028-29—but the Legislature's push to mandate closure of another state prison was dropped in final negotiations.
• Courts: $1.7 billion in lease revenue bond authority for courthouse construction, $150 million for deferred maintenance, and $100 million one-time plus $44 million ongoing to fund 13 new judgeships over five years. The courts trailer bill extends remote hearing authority through the decade's end.
• Targeted grants: $15 million ongoing for Missing and Murdered Indigenous People programs, $20 million total for human trafficking prosecution and victim services, $20 million for the CASA foster youth advocate program, and $40.3 million for in-prison rehabilitation programs including the RIGHT Grant.
• Next Generation 9-1-1: $141.9 million in special funds to stabilize the troubled system upgrade, now subject to independent technical evaluation and a mandated audit.

Transportation and labor: REAL ID, port automation, and worker outreach

Two transportation items stand out: $56 million for the DMV to build the state-to-state verification system required for full REAL ID compliance, and $40 million for the Clean California beautification program. A control section quietly carries a significant labor policy: state transportation and infrastructure funds may not be used to purchase fully automated cargo handling equipment—a win for dockworkers in their long fight over port automation.

On the labor side, the budget funds a $30 million-per-year, three-year expansion of the California Workplace Outreach Project, $9 million ongoing for workers' rights enforcement grants, and a $5 million Jails 2 Jobs pilot—all from the Labor and Workforce Development Fund rather than the General Fund.

General government and elections: Counting votes faster

With a high-stakes statewide election on November 3, the budget sends counties roughly $39 million for election administration: $29 million to speed up vote counting through staffing, equipment, and space, plus about $10 million for voter outreach and education—including encouraging Californians to return ballots early.

Other notable items: $80 million to backfill property tax shortfalls in San Mateo (about $77 million), Alpine, and Mono counties left short by the Education Revenue Augmentation Fund; $96.5 million for utility replacement at Exposition Park; $24.6 million ongoing for the Farm to School program; and cybersecurity funding to stand up a California Cybersecurity Integration Center playbook.

Behind the budget spin: 3 real examples

Official budget summaries are advocacy documents. Here are three places where the framing in the Legislature's own materials softens what actually happened:

1. "Rejects immediate Medi-Cal asset limit cuts…"

Official language: "Rejects immediate Medi-Cal asset limit cuts: Keeps the current asset test in 2026-27, and the asset limit would be lowered to $21,000…in 2027-28, instead of moving to the Governor's proposed $2,000 limit now."

What's happening: The word "immediate" is doing all the work. Today's asset limit is $130,000 for an individual. In July 2027, it falls to $21,000—an 84% reduction, enacted in this budget. Seniors and disabled Californians with modest savings will lose Medi-Cal eligibility; the cut was scheduled, not rejected.

2. "Prevents an automatic premium increase…"

Official language: "Prevents an automatic premium increase for Medi-Cal enrollees with 'unsatisfactory immigration status' (UIS) next year."

What's happening: The same budget package requires the next governor to set and announce a premium between $30 and $50 in the May 2027 budget revision. The increase wasn't prevented—it was converted into a mandatory decision point and handed to Newsom's successor, with $50 as the ceiling the current governor wanted all along.

3. "Prioritizes Proposition 98 'settle up' paydown…"

Official language: "Prioritizes Proposition 98 'settle up' paydown from IPO and other revenues over next year."

What's happening: Schools are owed $3.9 billion. The "prioritization" is a formula: 33% of any future revenue that exceeds projections—after two other constitutional set-asides are deducted first—goes toward repayment. If revenues merely hit projections, schools get nothing this cycle and the debt rolls into future budgets with no fixed repayment date. That's the arrangement the California Teachers Association calls a violation of the constitution's minimum funding guarantee.

The pattern across all three: this budget's official language describes cuts as rejections, mandates as preventions, and contingent formulas as priorities. Read the effective dates, not the verbs.

What's still unresolved

The Budget Act of 2026 is law, but at least five major items remain open as of mid-July:

• The climate money. The GGRF spending plan, cap-and-invest program revisions, and all Proposition 4 bond allocations were punted to August budget legislation—with Senate Democrats and the administration still at odds over the fund's future revenue.
• The CTA lawsuit. The teachers union has promised "every resource and legal remedy" over the $3.9 billion withholding but had not filed suit as of publication.
• Indigent care. Counties got nothing to care for people losing Medi-Cal under H.R. 1 and are pressing for an alternative before the Legislature adjourns in September.
• The enacted budget paper trail. The Department of Finance has yet to post the consolidated enacted budget summary to ebudget.ca.gov—the chaptered bills and legislative summaries remain the only official record.
• November's ballot. ACA 20 (Rainy Day Fund reform), the housing bond, and the superintendent's race—now effectively an election for a diminished office—will all shape how this budget plays out.

Final word: Stability now, someone else's problem later

Judged on its own two-year window, this is a genuinely balanced budget with record reserves—a better fiscal position than most large states and a stronger endpoint than California's budget watchers expected in January. Newsom will campaign on exactly that, and the numbers back him up.

But the 2026-27 budget is also a carefully engineered handoff. The Medi-Cal asset test tightens, immigrant coverage narrows, clinic and dental cuts land, and the premium decision comes due—all in July 2027, under a new governor. Schools carry a $3.9 billion IOU with no repayment date. An $8.4 billion structural deficit waits in 2029-30. And the AI-driven revenues holding it all together are, by the budget's own admission, uncertain enough that lawmakers wrote themselves an escape clause rather than pay schools what the constitution says they're owed.

Each of the sections above will be covered in depth in follow-up guides—starting with health care and education—designed to show not just what lawmakers passed, but what it means for the Californians who depend on it.

Frequently asked questions

How big is California's 2026-27 budget?

The Budget Act of 2026 authorizes $351.7 billion in total state spending, including $251.5 billion from the General Fund, plus roughly $187 billion in federal funds flowing through state accounts. Total reserves reach a record $35.2 billion.

Did Newsom sign the 2026-27 California budget?

Yes. Governor Newsom signed the budget on June 29, 2026—AB 109 (Chapter 19), amended by SB 111 (Chapter 21) to reflect the final deal, along with roughly 40 trailer bills implementing its policies.

What is the $3.9 billion school funding withholding?

The state is delaying payment of $3.9 billion owed to schools and community colleges under Proposition 98 for 2025-26, pending stronger-than-projected revenues. If revenues beat projections before May 2027, 33% of the excess (after other required set-asides) goes toward repayment. The California Teachers Association calls the maneuver unconstitutional and has threatened to sue.

What new taxes are in the 2026-27 California budget?

Three main revenue measures: a sales tax on electronically delivered pre-written software ($450 million in 2026-27, $900 million ongoing), extended and then permanent caps on business tax credits (growing past $4.5 billion by 2029), and a renewed managed care organization tax on health plans. First-year LLCs get a temporary franchise tax cut from $800 to $400.

When do the Medi-Cal cuts take effect?

Mostly July 1, 2027. That's when the asset test drops to $21,000, dental and clinic reductions land, coverage narrows for asylees and other qualified immigrants, and the next governor's premium decision (between $30 and $50 monthly) takes effect. The transition of about 2 million enrollees to fee-for-service Medi-Cal begins by January 2027.