The Governor's 2025-26 Budget Preview: What You Need to Know
On Monday, January 6, Governor Newsom previewed California's 2025-26 state budget. The Governor cited a $322.2 billion balanced budget with $228.9 billion in general fund spending, $16.9 billion in total reserves, and $16.5 billion in additional revenue above what was included in the 2024 Budget Act. The additional revenue was attributed to a stronger economy, a recent stock market boom, cash receipts, and state savings from a number of government efficiency efforts. In his overview, the Governor emphasized the need to remove the constraints of Prop 2 and Prop 4, which have contributed to California’s inability to set aside more money during good budget years.
On education, the Governor indicated intent to hold the line on significant state investments, including $118.9 billion in prop 98 funding (which is subject to change in May).
He highlighted the following investments in transforming TK-16:
$4.4 billion in Before/After & Summer school
$2.4 billion in Universal TK
$2 billion in Universal School Meals
$1 billion in Arts & Music Funding Guarantee
$311 million in the Equity Multiplier
Most notably, Newsom concluded that the following education milestones "will be done" this year, raising concerns as implementation for these programs is still underway and far from completion:
- Universal TK for all four year-olds.
- Universal school meals which includes two free school meals a day for all students.
- Before, after & summer school for all high-needs TK-6 students.
- Screening for risk of reading difficulties for all K-2 students.
- The Children & youth behavioral health initiative that reimburses schools for student behavioral health services.
Newsom's Budget Preview in Contrast with LAO's Budget Outlook
In November 2024, the LAO released their 2025-26 California Budget Outlook, identifying a ‘roughly’ balanced budget with a deficit of $2 billion, but with larger operating deficits of around $20-$30 billion beginning in 2026-27. While this year’s deficit was significantly reduced because of additional tax revenues and a blooming stock market, the LAO cautions that reliance on such a volatile venue source is a “precarious” foundation for future revenue recovery.
Furthermore, much of the state’s additional revenue will be designated for Prop 98 loan repayments. Thus, while the Governor and the LAO may differ in this year’s estimated budget deficit, both agree that the budget leaves little room for any new major fiscal commitments.
What's Next?
The Governor’s full Proposed January Budget will be released this Friday, January 10. Check here for its release.