Gov. Gavin Newsom’s proposed $348.9 billion 2026-27 California state budget is built to weather uncertainty — from volatile revenues and potential federal funding cuts to the rising costs of climate-driven disasters such as wildfires — even as critics warn that fiscal restraint may shift risk onto communities already facing deep inequities.

The proposal includes $248.3 billion from the General Fund, with the remainder supported through special funds and bond spending. Administration officials say the budget prioritizes rebuilding reserves, paying down debt, and limiting new ongoing commitments to avoid deeper cuts if economic conditions worsen.

State Controller Malia M. Cohen praised the emphasis on reserves and debt reduction, calling them “fiscally responsible steps that improve California’s resilience” and protect the state’s ability to maintain essential public programs during downturns.

But progressive policy analysts argue the budget’s caution comes at a cost.

Following the budget’s release, the California Budget and Policy Center, a nonpartisan research and analysis nonprofit, criticized the proposal for failing to confront the scale of federal harm facing Californians under Republican-led budget actions in Washington.

“California’s state budget is a reflection of our shared values and our responsibility to care for one another,” said Chris Hoene, the center’s executive director. “Unfortunately, the governor’s 2026-27 spending plan balances the budget by dodging the harsh realities of the Republican megabill and maintains state cuts to vital public support, like Medi-Cal, enacted as part of the current-year budget.”

Legislative leaders emphasized the same federal threats while urging restraint.

“California’s budget calls for caution,” Assembly Budget Chair Jesse Gabriel and Assembly Speaker Robert Rivas said in a joint statement. “With Trump targeting our state, we must defend vulnerable communities and protect essential programs that help families put food on the table and see a doctor.”

At the heart of the debate is whether rebuilding reserves and avoiding new revenue measures is enough to shield Californians from federal policy shifts — particularly cuts to Medicaid, food assistance, and immigration services — or whether the state must act more aggressively to offset those losses.

Health Care

Health and Human Services represents the largest share of the proposed budget, totaling $143.3 billion, reflecting California’s reliance on Medi-Cal and public health systems to serve low-income residents.

African Americans are disproportionately reliant on Medi-Cal due to wage gaps, employment discrimination, and higher rates of chronic illness, including hypertension, diabetes, and asthma. Public health leaders warn that even limited reductions within Medi-Cal, particularly to behavioral health and disease surveillance systems, could worsen racial health disparities and strain already overburdened county systems.

Hoene warned that the governor’s proposal “leaves millions of Californians worse off as a result of federal cuts” and would leave many without health care or food assistance, even as California’s economy remains strong.

The County Behavioral Health Directors Association sharply criticized a proposal to convert Medi-Cal’s mobile crisis benefit from a statewide mandate to an optional service, warning that it could leave communities without 24/7 crisis response.

“Make no mistake, this is a significant cut to a proven and successful Medi-Cal benefit,” said CBHDA Executive Director Michelle Doty Cabrera. “This will open up new gaps in our safety net and leave families without an immediate answer to their crisis calls when a loved one is at risk.”

County health leaders also warned that eliminating funding for public health information technology systems could undermine disease surveillance and emergency response. These risks would be compounded by possible federal cuts that could push more Californians off Medi-Cal and onto county indigent care programs.

Cohen defended the administration’s broader fiscal posture, saying rebuilding reserves and paying down debt are necessary to preserve essential services during downturns.

“The state’s Rainy-Day Fund (formerly known as the Rate Stabilization Account) along with a disciplined approach to debt reduction are essential tools for stabilizing the budget,” Cohen said, emphasizing the need for transparency and long-term planning.

Housing and Homelessness 

Housing and homelessness programs receive just $1.9 billion, less than 1% of the budget, despite California’s ongoing housing crisis.

African Americans are overrepresented among the state’s unhoused population, a disparity rooted in redlining, exclusionary zoning, wage inequality, and displacement driven by rising rents. Advocates argue that underinvestment in housing, paired with reductions in health and crisis services, risks reversing modest gains in reducing homelessness.

The wildfire devastation in Altadena illustrates these risks with particular clarity. The January 2025 Eaton Fire tore through the historically Black community in Los Angeles County, destroying or severely damaging thousands of structures. Altadena, home to roughly 42,000 residents, has long been a rare enclave of Black homeownership in Southern California. During the fire, an estimated 2,800 Black households were forced to evacuate, and nearly half of Black households in the burn area lost their homes or suffered major damage, a higher rate than non-Black households.

Many Black homeowners in Altadena were paying mortgages at the time of the fire, complicating recovery and increasing the risk of permanent displacement and loss of generational wealth. Community leaders also have raised alarms about rising land speculation, insurance shortfalls, and rebuilding costs that could permanently alter the neighborhood’s demographic makeup.

Labor leaders praised the budget for including targeted funding to help child care providers whose homes and businesses were destroyed in the fires, allowing essential services to reopen in devastated neighborhoods. However, they cautioned that wildfire recovery funding remains fragmented, even as climate disasters increasingly intersect with housing instability.

Behavioral health leaders warned that cuts to mobile crisis services would disproportionately impact unhoused individuals experiencing mental illness or substance use disorders and push more people into emergency rooms, jails, or encampments.

“Reducing the availability of the mobile crisis benefit eliminates a critical tool for connecting unhoused people struggling with mental illness or substance use disorder to services and housing,” Doty Cabrera said. “Elimination of this benefit will put pressure again on hospital emergency departments and result in more unnecessary law enforcement involvement.”

Labor leaders also cautioned that reductions in In-Home Supportive Services and Medi-Cal could destabilize families already struggling to remain housed, increasing the risk of displacement and homelessness.

K-12 And Higher Education

Education remains a major component of the budget, with $90.5 billion for K-12 schools and $27.4 billion for higher education, totaling nearly $118 billion in state funding.

African American students continue to face disparities in school discipline, academic achievement, and college access, making both funding levels and governance decisions critical. While legislative leaders praised the governor for protecting education funding during a deficit year, unions representing educators raised concerns about delayed Proposition 98 payments and proposed changes to education governance.

“We should not delay these essential payments to our schools,” said Jeff Freitas, speaking on behalf of educators and classified professionals. “The state superintendent of public instruction is vital to providing independent oversight of California schools. This move will leave California’s top school officials accountable to the governor, not voters.”

State Superintendent of Public Instruction Tony Thurmond also weighed in, welcoming continued education investments while warning that funding levels alone will not close long-standing opportunity gaps.

In a statement, Thurmond acknowledged record per-pupil spending and praised continued funding for community schools, expanded learning programs, literacy initiatives, and universal transitional kindergarten — programs that disproportionately serve students from low-income communities and students of color.

At the same time, Thurmond said the proposal “falls short of the funding levels and meaningful reforms needed to truly accelerate student achievement,” particularly for students who have been historically underserved, including Black students.

Thurmond also expressed concern about the governor’s proposal to restructure education governance by reshaping the role of the independently elected superintendent and consolidating authority within the executive branch. He emphasized the importance of independent oversight and democratic accountability, noting that any governance changes should be clearly tied to improved student outcomes.

SEIU California President David Huerta praised the governor’s commitment to higher education funding, emphasizing the importance of stable investment in institutions and the workers who support them.

“We applaud the governor’s clear and ongoing commitment to higher education funding,” Huerta said.

Sen. Dave Cortese highlighted increased per-pupil funding and called for further action to equalize funding across school districts statewide, arguing that inequities in per-student funding continue to disadvantage students in lower-wealth communities.

Corrections, Transportation, And Climate Spending

Corrections and Rehabilitation funding remains high at $18.1 billion, raising continued concerns about California’s reliance on incarceration, particularly given the disproportionate impact of the criminal legal system on African Americans.

Transportation funding totals $18.6 billion, a critical investment for Black Californians who disproportionately rely on public transit to access jobs, schools, and health care. Labor leaders praised the proposal’s efforts to prevent transit system collapse.

Environmental Protection and Natural Resources receive more than $14.6 billion combined, investments that supporters say are essential for environmental justice, as African American communities are more likely to face pollution-related health risks.

A Budget Defined By Tradeoffs

As the May budget revision approaches, the central question remains whether California’s emphasis on reserves and restraint is sufficient to counter unprecedented federal rollbacks or whether a more aggressive revenue and investment strategy is required to protect vulnerable communities.

“As federal leaders continue to undermine health care, food assistance, and support for immigrant communities,” Hoene said, “California must lead with an alternative vision rooted in people and justice.”

Whether the Legislature reshapes Newsom’s proposal into that vision will determine how and for whom California’s budget ultimately works.