On January 10, Governor Newsom released his proposal for the 2025-26 California state budget. The Governor’s $322 billion state spending plan estimates a surplus of $363 million and nearly $17 billion more in revenue than previously estimated and in contrast to the Legislative Analyst’s Office estimate last November of $7 billion. Despite a slight surplus and higher than expected revenues, the proposal continues to withdraw $7.1 billion in reserves.
We appreciate that the proposal honors past Medi-Cal commitments, including expansion for all regardless of immigration status and eligibility protections through June, as well as modest CalWORKs investment through pilot and a small but measurable increase in CalWORKs grant amounts.
Our hearts go out to all who are impacted by the wildfires. Unfortunately, we recognize the devastation caused by the wildfires and the uncertainty of federal funding with a new administration are most deeply felt by those without the resources to withstand the potential loss. Therefore, we urge investment and protection in the greater safety net, rather than tax credits to wealthy industries.
We look forward to working with the Legislature and Governor to leverage the pilots to Reimagine CalWORKs into a family-centered, trauma-informed program, and to protect and increase access to Medi-Cal.
Below is our brief analysis of the 2025-2026 proposed budget by issue area.
HEALTH CARE
We appreciate the Governor’s proposed budget as it maintains ongoing health care spending commitments for Medi-Cal, including no proposed changes to Health4All eligibility and benefits and continuing unwinding flexibilities through June 30, 2025. We urge continued and more comprehensive Medi-Cal investments, including:
- Protecting Medi-Cal coverage gains through permanent extension of unwinding flexibilities
- Implementation of Medi-Cal Share of Cost Reform so that seniors and people with disabilities can afford to access needed Medi-Cal services
- Making housing support a Medi-Cal benefit
Medi-Cal unwinding flexibilities that maintain Medi-Cal coverage: The Governor’s budget continues unwinding flexibilities through June 30, 2025 to maintain the improvements to the Medi-Cal redetermination process and protect lifesaving health care coverage. We urge the Legislature and Governor to permanently extend and continue funding for unwinding flexibilities which according to the Department’s estimate is expected to increase Medi-Cal coverage for nearly half a million people (450,000 people for increased costs of approximately $3 billion ($1.1 billion General Fund) in 2024-25 compared to the 2024 Budget Act).
MCO Tax and Prop 35 passage: With the passage of Prop 35, the investments linked to its failure, including Multi-Year Continuous Eligibility for Children Up to Age 5 and other provider rate increases, are not in the Governor’s budget proposal but continue to be a priority for advocates. Medi-Cal spending on provider rate increases will be subject to change based on the Department’s consultation with a stakeholder advisory committee as required by Prop 35.
HOUSING AND HOMELESSNESS
California has long supported programs that prevent homelessness, create new affordable housing, and preserve existing affordable homes. These efforts have been vital to help many low-income families and individuals across the state. Unfortunately, the Governor’s proposed budget shifts focus away from these essential programs and instead prioritizes streamlining market-rate housing and increasing funding for encampment sweeps targeting people experiencing homelessness.
We cannot ignore the urgent housing crisis facing our state. Nearly a quarter of all unhoused Americans live in California. And the numbers are rising. The state’s unhoused population increased by 3% over the past year, with more than 187,000 people now living on the streets or in shelters.
To make housing affordable for everyone, California needs to build 100,000 affordable homes each year for the next decade. Currently, we’re only achieving about 20% of that goal. Meanwhile, homelessness continues to rise. Recent fires in the Los Angeles area alone destroyed thousands of homes, pushing even more Californians into homelessness. During this time of crisis, California must demonstrate its commitment to housing by investing in affordable housing production and preservation. Instead of funding sweeps that displace unhoused individuals without addressing the root causes of homelessness, the Governor should prioritize solutions that provide housing and supportive services.
California Housing and Homelessness Agency: The Governor proposes creating a new California Housing and Homelessness Agency to centralize and streamline the administration of state housing and homelessness programs. While better coordination could be helpful, it’s unclear how this agency will impact funding for affordable housing and services.
Streamlining Housing: The budget proposal increases funding to streamline housing production, particularly near public transit. While this sounds promising, streamlining could come at a cost. For example, it might mean rolling back environmental protections under the California Environmental Quality Act (CEQA) or reducing affordability requirements for new developments. It’s also unclear how the proposal will hold local jurisdictions accountable for meeting their housing goals.
Encampment Sweeps: The budget proposal includes $100 million for encampment sweeps. These sweeps often displace unhoused individuals without providing long-term housing or services, perpetuating the cycle of homelessness rather than solving it.
Reentry: The budget proposes $12.9 million one-time General Fund allocation in 2025-26 and 2026-27 to continue the Returning Home Well (RHW) Program, originally funded in the 2022 Budget Act, for an additional two years. These funds will also enable the California Department of Corrections and Rehabilitation (CDCR) to provide important wraparound services to RHW participants. This program, initiated during the COVID-19 Pandemic, provides transitional housing to individuals who would otherwise be at risk of being unhoused at the time of their release. This is important as system involvement is an on-ramp to houselessness.
PUBLIC BENEFITS AND ACCESS TO JUSTICE
Public Benefits: The Governor’s budget proposal does not propose cuts to public benefits program which is a departure from the 2024-25 proposed budget. The only major initiative is a 3-month supply of diapers at no cost to families for newborns with no income limitations. For this program, up to $7.4 million in General Fund dollars will be allocated in 2025-26 and up to $12.5 million General Fund in the next budget year.
While we appreciate core programs are protected in the proposal, when the strong revenue performance is considered, this budget proposal largely excludes low-income and working-class Californians from the economic prosperity that the wealthy in our state are experiencing. California has a long way to go to reduce the staggering levels of inequality that have allowed the top 1% to hoard resources, while an economic underclass is left unable to meet a minimum standard of living, and unable to benefit from the fruits of their hard labor.
California’s inequality is so dramatic, that in 2021 researchers found that the life expectancy of the residents in the state’s poorest 1% of census tracts was 15 and a half years shorter than the highest income percentiles, with disproportionate impacts for racial and ethnic minorities. Poverty is painful, traumatizing, and deadly, and unfortunately this budget does not do enough to address California’s staggering rates of poverty and hunger.
Reimagining CalWORKs, protecting core programs and providing a short-term supply of free diapers to families is important and impactful progress, but California families are struggling to meet their basic needs and need a much larger boost to meet a minimum standard of living.
If our state budget does not proactively work to reduce inequality, it will continue to grow exponentially, and the most vulnerable people will suffer. As the Legislature and the Governor negotiate the budget over the coming months, we hope to see low-income and working-class families benefit from the economic prosperity that they have created with their labor.
CalWORKs: The proposed budget includes an estimated 0.2 percent increase to the CalWORKs Maximum Aid Payment at a cost of $9.1 million beginning October 1, 2025. This equates to about $2 a month for a family of three. This small increase is needed considering the rising cost of living but it does not come close to a true cost of living adjustment for families in need.
To put this increase in context, the budget proposal spends over ten times the amount proposed for this increase ($9.1 million) to displace people in dire poverty by sweeping homeless encampments ($100 million).
Reimagine CalWORKs: Since California has been chosen to be one of five pilot states to test alternative measures to facilitate employment and well-being, the administration will “continue to assess further opportunities to advance the vision of the pilot.”
Western Center and our partners will continue to work with the administration to build on the Department’s pilot proposal and reimagine the current compliance-focus program to one that empowers parents that best supports family well-being and achieve meaningful employment.
Access to Justice: The budget proposal includes increased funding for trial court operations and significant increases in law enforcement funding with a particular focus on retail theft, and investments in new prison construction.
Proposition 36, which rolled back hard-fought, crucial criminal justice reforms, is expected to increase the prison population by .9 percent. Prop 36 will also expand the parole population. We anticipate that Prop 36 will continue to exacerbate problems of over-policing and over-incarceration among impoverished communities and communities of color.
Not included in this budget is $25 million legislators plan to appropriate through the Special Session to provide legal support for the immigrant communities who have been threatened with deportation by the incoming Federal administration. We are grateful that the Legislature is working to protect immigrants. As the budget continues to be negotiated, our immigrant communities will rely on the State to continue to be responsive to the rising needs.
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