By Joe W. Bowers Jr., California Black Media
Gov. Gavin Newsom presented the final May Revision of his administration on May 14, outlining a state budget proposal he says balances California’s finances through 2027–28 while preserving major investments in education, health care, behavioral health and housing programs.
During a presentation at the State Capitol, Newsom framed the proposal as a response to economic uncertainty, federal policy changes and long-term pressures on state spending.
“We’re not just the fourth largest economy in the world,” Newsom said, describing California as the “tentpole” of the U.S. economy while pointing to the state’s $4.1 trillion economy and leadership in innovation, manufacturing, agriculture and trade.
Newsom said California’s strong economy continues to drive growth and investment but warned that federal Medicaid reductions and other policy changes are creating new fiscal pressures for California and other states.
The revised budget proposal totals about $349 billion, including roughly $248.3 billion from the General Fund.
The administration says revenues came in about $16.5 billion higher than expected over the multiyear budget window, driven largely by personal income tax collections tied to capital gains earnings.
Newsom and California Department of Finance Director Joe Stephenshaw said the improved revenues allowed the administration to eliminate projected deficits for the next two fiscal years while increasing reserves.
“This is a balanced budget structurally for the next 18 months after I’m gone,” Newsom said during the presentation.
Stephenshaw later told reporters the May Revision reflects a multiyear balancing strategy rather than focusing only on the next fiscal year.
“It really is a conservative approach,” Stephenshaw said.
The budget relies on spending reductions, fund shifts, reserve adjustments and new revenue proposals, including changes to corporate tax credit rules and expansion of sales taxes to some software products and services.
Education is one of the largest spending areas in the budget.
Under the proposal, Proposition 98 funding for TK–14 education would rise to about $127.1 billion, pushing total per-pupil funding to a record high of about $27,700 when state, local and federal funding are combined.
The budget also includes a 4.31% cost-of-living adjustment (COLA), a $2.4 billion ongoing increase for special education, $1 billion ongoing for community schools, literacy funding for reading coaches and specialists, and $5 billion in flexible funding for teacher training and recruitment.
State Superintendent of Public Instruction Tony Thurmond praised the budget, saying the investments would strengthen literacy, special education, community schools and teacher recruitment.
“I am grateful to Governor Newsom for advancing a budget proposal that continues California’s commitment to investing in our students, educators, and schools,” said Thurmond.
EdVoice CEO Marshall Tuck also welcomed the education funding, particularly investments in literacy and educator support.
The California School Boards Association (CSBA) raised concerns about the state continuing to withhold roughly $3.9 billion inProposition 98 funding owed to schools.
“Unfortunately, the Governor’s May Revise masks the underfunding of the Proposition 98 school funding guarantee,” CSBA President Dr. Debra Schade said in a statement.
Medi-Cal spending is one of the state’s largest fiscal pressures. The administration projects a $4.2 billion Medi-Cal (California’s Medicaid program) shortfall in the current year, driven by rising enrollment, health care costs and federal policy changes stemming from H.R. 1, known as the “One Big Beautiful Bill Act.”
The budget proposes several Medi-Cal cost-control measures, including restoring asset tests for some recipients, stronger oversight of care services, and changes affecting some immigrant populations.
Federal changes could eventually reduce Medi-Cal enrollment by about 1.3 million Californians by 2029–30, according to administration projections.
The budget continues Newsom’s homelessness strategy, including $500 million for the Homeless Housing, Assistance and Prevention (HHAP) program.
Newsom said California reduced unsheltered homelessness by about 9% in 2025 through programs such as Homekey and behavioral health reforms connected to Proposition 1, the 2024 voter-approved measure that expanded funding for mental health treatment facilities, housing and services for people experiencing homelessness.
The budget also includes funding for wildfire rebuilding assistance, affordable housing efforts, behavioral health programs, and workforce initiatives.
State Controller Malia Cohen said the revised budget reflects stronger-than-expected revenues but cautioned that California remains vulnerable to Wall Street volatility and continued dependence on high-income taxpayers.
The administration says the budget reduces projected future operating deficits by more than half compared to earlier forecasts.
The January budget projected a negative $22 billion balance for 2027–28, while the May Revision now projects a positive balance for that year.
Republicans criticized the budget and questioned whether the administration had fully resolved California’s long-term structural budget issues.
Senate Republican Leader Brian Jones (R-San Diego) criticized the budget’s approach to affordability and business costs, warning that it would “increase taxes on employers by $5 billion in a move that will devastate our beleaguered business community.”
Assemblymember David Tangipa (R-Fresno), vice chair of the Assembly Budget Committee, said the budget reflects “a pattern of deferred decision-making — kicking structural problems down the road for the next governor and legislature to inherit.”
Democratic legislative leaders generally supported the administration’s framework while signaling that negotiations remain underway.
Assembly Speaker Robert Rivas (D-Salinas) said lawmakers must “safeguard health care and food assistance, advance housing affordability, and manage every taxpayer dollar with discipline.”
Senate President pro Tempore Monique Limón (D-Santa Barbara) said the Senate remains focused on strengthening reserves while maintaining critical investments.
“We look forward to working with our partners in the Assembly and the Governor’s Office to deliver an on-time budget that strengthens the fiscal foundation of the state,” said Limón.
The Legislature now begins formal negotiations with the Governor’s office to finalize the 2026–27 state budget. Under the California Constitution, lawmakers must pass a balanced budget by June 15 before the new fiscal year begins July 1.
