What’s in Gov. Gavin Newsom’s $348.9 billion budget?
Gov. Gavin Newsom’s $348.9 billion budget proposal for the upcoming fiscal year contained no new major investments in state programs — nor did the financial document contain major cuts.
Instead of pursuing new initiatives, the Newsom administration plans to continue funding education and climate programs that Department of Finance Director Joe Stephenshaw said were already successfully serving the state’s population.
During a Friday budget presentation, the finance director reiterated that the budget would be revised in four months when another proposal will be presented. Changes to California’s budget position between January and May should be expected, Stephenshaw said
When asked where cuts might be made in the event the stock market takes a downturn in the coming months, Stephenshaw said that he was confident that the revenue forecast would remain positive. The administration was less certain about the future fiscal impacts of the Trump administration’s tariffs and immigration enforcement.
As to what areas the administration might make cuts, the finance director said, “We have to understand what both sides of the ledger look like before we make those decisions.”
Here’s a breakdown of some of the largest areas of spending in Newsom’s proposed budget.
Education
A significant portion of California’s budget must be spent toward funding all levels of public education, which stems from a proposition voters approved decades ago. Proposition 98 funding has grown significantly over the last decade, and in the next fiscal year the administration expects to spend $125.5 billion on public education, from transitional kindergarten to the community college level.
Key areas of investment in education that the administration proposed in Friday’s budget included: $1.9 billion for universal transitional kindergarten for 4-year-olds, $4.1 billion to support the growth of community schools across the state, $4.6 billion for before- and after-school programming and $1.8 billion for universal school meals.
For higher education the administration proposed spending $1.2 billion on resources for community colleges and nearly $700 million toward financial aid programs.
Newsom is also proposing a shift in oversight of California’s Department of Education from State Superintendent of Public Instruction Tony Thurmond’s control to the executive branch.
The budget document presented Friday stated that moving the education department would “strengthen governance of California’s education system to provide coherence and meaningful accountability to address the needs of students, parents, teachers, school staff, and administrators.” The document did not suggest that additional funds would be needed for the change, and it is not clear what action from lawmakers or voters would be needed to make it happen.
Housing and homelessness
During his final State of the State address, Newsom touted his record on homelessness and past major investments, which he said contributed to a decrease in the number of people living on the streets, according to recent numbers.
The 2026-27 budget proposal didn’t contain major investments in new housing or homelessness programs.
Previous budgets allocated $1 billion to local governments through the Homeless Housing, Assistance, and Prevention program, but Friday’s document proposed reducing that amount to $500 million, “contingent on enhanced accountability and performance requirements.”
The state’s Housing Development and Finance Committee could see an increase of funding, by $560 million from cap and trade revenue, if the Legislature adopts the proposal.
Health and human services
After the Trump administration passed legislation that removed a significant number of Californians from health care plans that were funded through federal dollars, the state is expecting to pay $1.3 billion more on social service programs.
To compensate for decreases in federal funding that helped pay for Medi-Cal, the state’s option for health care for low-income residents, the Newsom administration proposed an increase of $2 billion in spending.
The budget anticipates that the state’s Medi-Cal expenditures will cost California $49 billion in the next fiscal year, which is 5% higher than last year’s estimate. That increase is largely driven by a decrease in the Managed Care Organization Tax revenue and the end of the Medical Provider Interim Payment loan this fiscal year.
Climate and environment
Two years ago voters approved a $10 billion climate bond to help California prepare for and minimize the impacts of wildfires, flooding and other disasters. On Friday, the Newsom administration noted that $2.1 billion of those funds are included in the budget for climate change resiliency projects.
Additionally, the budget proposal allocated $5.3 billion for the California Department of Forestry and Fire Protection to continue building out the state’s firefighter workforce. The agency is in the process of transitioning to a healthier schedule for those on the front lines of fighting fires.
One notable new climate-related investment proposed on Friday was a $200 million one-time injection of cash to create a new zero-emission vehicle incentive program that would ideally help ensure these cars remain affordable to Californians.
This story was originally published January 9, 2026 at 1:33 PM with the headline "What’s in Gov. Gavin Newsom’s $348.9 billion budget?."
