Outline:
California is expected to experience a smaller budget gap in 2026 compared to the previous year, as the state plans to limit undocumented immigrants’ access to healthcare due to decreasing financial assistance from the federal government.
The office of Governor Gavin Newsom presented a $349 billion budget plan on Friday, aiming to fund certain initiatives amid economic difficulties.
Out of the $349 billion, $248 billion will be allocated as general funds, and $23 billion will be directed to total reserves.
The negative aspect is that the state will encounter a $2.9 billion budget gap. However, the positive point is that although California has had a deficit for four consecutive years, it is significantly lower than the $12 billion shortfall in 2025 and the $38 billion in 2024. Additionally, the state’s income has increased, due to favorable results from stock market investments, as stated by the governor’s office.
Find out where the state’s funds will be allocated in 2026.
Rainy day funds
As mandated by Proposition 2, approved by voters in 2014, California must reduce its debts and allocate funds to a reserve.
Out of the $23 billion allocated for the state’s overall reserves, $14.4 billion will be placed into California’s emergency savings fund.
The state government will also allocate $4.5 billion to a special fund designed for economic challenges, along with $4.1 billion for the public school emergency reserve.
California will also allocate $11.8 billion over the next four years to reduce long-term debt.
Gov. Newsom responds to critics in his last State of the State address
The Trump administration files a lawsuit against California for providing in-state tuition rates to undocumented immigrants in the United States.
Investment in education
As Newsom suggested on Thursday that the state will announce “the most substantial investments” in public education during his final State of the State address, the governor’s office stated that the state will fully finance universal access to transitional kindergarten.
With rising operational expenses for schools, the state is planning to allocate $2.8 billion to school districts.
The University of California and the California State University system will receive $716.3 million in funding.
More than $688 million will be allocated for student financial assistance, primarily for Cal Grants, which will receive $552 million.
Environment
The state will allocate $314 million in funding for initiatives focused on wildlife and landscape resilience.
EV rebate
Governor Newsom plans to establish a $200 million rebate initiative to help make electric vehicles more accessible to residents of California, according to the governor’s office.
This occurs as the Trump administration discontinued the federal electric vehicle rebate program that was initiated under the Biden administration.
The $200 million is sourced from income generated by the state’s cap-and-trade system and a fund dedicated to air pollution control.
Lawsuits against Trump administration
The budget plan allocates additional resources to the California Department of Justice as it remains engaged in combating numerous initiatives from the Trump administration.
The state has filed legal action against the federal government over 50 times in the past year.
Reduced funding from the federal government
California is expected to lose approximately $1.4 billion in federal funding that it would have otherwise received.
Under the One Big Beautiful Bill Act, Medi-Cal will experience a significant reduction in federal funding for limited scope services, including emergency care and pregnancy-related treatments.
The state will also lose $300 million that would have been allocated to CalFresh or the Supplemental Nutrition Assistance Program (SNAP).