Network Response to the May Revise

Governor Newsom released an updated budget proposal known as the ‘May Revision’ or ‘May Revise’. With new information on state revenues and expenditures, the proposal now balances a $12 billion deficit, compared with a modest $363 million surplus projected back in January. This change is largely due to what Governor Newsom referred to as the “Trump Slump”, the economic impact of Trump’s tariffs, which Newsom claims have taken a toll on tourism and capital gains, and are estimated to cost California $16 billion in lost tax revenue.

Top-line Overview of the Governor's 2025-26 May Revision Budget Proposal

• Total Budget: $321.9 Billion

• General Fund: $226.4 Billion

• Total Reserves: $15.7 Billion

• Budget Shortfall: $11.9 Billion (or 5.8% of the overall budget)

Department of Social Services (Child Care and Development)

• Maintains 2024 level funding to continue the “Cost of Care Plus” monthly payment for state-subsidized providers.

• Adds $44.8 million in General Funding (GF) to prepare the state to implement Monthly Cost of Care Plus Rates.

• Includes $21.7 million to support the automation of Rate Reform, and $70 million to Alternative Payment Programs for additional admin support. There is no additional funding proposed to increase provider reimbursement rates, but the Governor’s Budget Summary states there is a continued commitment to work towards a single rate structure and alternative methodology for estimating the cost of care.

• Adds approximately $52 million to prospectively pay providers (equivalent to the private market, where parents pay in advance for services delivered rather than retroactively bill for services rendered).

• Suspends Cost of Living Allowances (COLA) for early childhood contractors beginning 2025-26 (including contracts for R&R, LPC, CCTR, CFCC, CMIG, CMAP, CHAN, and CSPP) to generate $60.7 million in savings to the GF.

• Decreases the Emergency Child Care Bridge for Foster Care Children program to $42.7 million in 2025-26 reflecting current level spending and maintains $51 million in annual ongoing funding for the program.

Proposition 98 Funding and Transitional Kindergarten (TK)

• Provides $2.1 billion in ongoing Prop 98 GF (inclusive of all prior years’ investments) to support the full implementation of Universal Transitional Kindergarten.

• Provides an additional $1.2 billion ongoing Prop 98 GF to support lowering the average student-to-adult ratio from 12:1 to 10:1 in every TK classroom

Before, After, and Summer School

• Maintains full implementation of the Expanded Learning Opportunities (ELOP) fund (for students in grades TK-6) and estimates its ongoing cost at $515.5 million to increase the number of small Local Education Agency (LEAs).

• Adds an additional $10 million to increase the minimum grant amount from $50,000-$100,000 per LEA.

The proposed budget comes at a time of great uncertainty around federal funding, a significant source of state revenue. Federal funding makes up one third (34.6%) of California’s budget, with almost 4 in 5 federal dollars flowing through Health and Human Services. The largest share of federal funds is appropriated to Medi-Cal, which provides healthcare for more than 14 million Californians (California Budget & Policy Center).

If programs like Medicaid or SNAP are cut, the cost shifts onto states pose significant concerns for parents and child care providers. Child care already makes up approximately 25% of a family’s budget (2023 California Child Care Portfolio) and 43% of all Early Care & Education (ECE) providers still rely on at least one public assistance program including 1 in 4 providers who rely on Medicaid (Center for Law and Social Policy). Stagnant wages for child care providers, cuts to family services including health care and nutritional assistance, in addition to the potential loss of federally funded Head Start programs will only make child care more unaffordable.

Over the past few years, the state has made significant commitments and increased investments in ECE. In 2019, the state committed to pay providers equitable wages based on the “true cost of care” and in 2021 Governor Newsom promised to expand subsidized child care spaces to increase family access. While last year’s budget deficit delayed the release of 60k+ spaces until 2026-27, our child care workforce cannot wait another 3-5 years to receive equitable wages, nor can families wait for more subsidy support.

The Network acknowledges the state’s budgetary limitations, however, the Governor’s May Revise overlooks the immediate pain that people are experiencing. While expanding Transitional Kindergarten at this time is important and well-intentioned, the state should be mindful of allocating resources that could help stabilize our fragile child care ecosystem. Community-based child care providers cannot survive without fair subsidy rates, nor with an expanding public system in which child care alternatives and campus-based (ELOP) can threaten their livelihood. We cannot afford any net loss to our child care infrastructure and need to make strategic investments with our dollars to survive and build during this “growth recession.” - Linda Asato, Executive Director of the California Child Care Resource & Referral Network

Difficult decisions must unarguably be made. However, as the 4th largest economy in the world, we urge state leaders to prioritize raising state revenues and increasing investments to support working families, children, and communities most at risk from proposed federal actions.

We stand ready to work with all state contractors, coalitions, legislators, and state partners to protect access to basic needs and services while advocating for solutions that ensure sustained investment for our children and families.