Newsom budget plan fully funds Pre-K, maintains money to clear homeless encampments
Gov. Gavin Newsom is trying to fight immense uncertainty while fulfilling promises for education, climate and other programs in his proposed 2025-26 spending plan.
On Friday, state finance officials unveiled the governor’s full $322 billion budget proposal which funds Newsom’s signature educational initiatives — including universal pre-kindergarten — and starts to disburse billions of dollars from a voter-approved climate bond. It also includes $100 million to clear homeless encampments.
The document is a first draft of California’s spending plan to be adopted later this year. It showed the state has a small $363 million surplus and many uncertainties ahead.
The proposal comes as California legislators are shoring up legal resources in anticipation of litigation with incoming President Donald Trump, who has threatened to withhold disaster aid relief for wildfires like the ongoing infernos in Los Angeles County.
Newsom typically presents his spending plan in Sacramento, but remained in Los Angeles Friday to manage wildfire response.
Joe Stephenshaw, director of the state Department of Finance, sought to paint a rosy picture of the budget a year after lawmakers and Newsom filled a $47 billion deficit. He attributed the balanced budget and its “modest surplus” to a projected $16.5 billion boost in revenue due to an improved stock market performance and savings from cutting 6,500 vacant positions.
However, the Legislative Analyst’s Office has predicted deficits of at least $20 billion in each of the next few years.
“We really went a long way in moving California back on onto some solid fiscal footing, and this budget reflects that,” Stephenshaw told reporters.
Despite the revenue increase, Newsom proposed pulling $7.1 billion from the state’s rainy day fund in the upcoming fiscal year.
Stephenshaw said this was to plan for federal policy “uncertainty,” referring to the potential ramifications from Trump’s proposed tariffs and calls for mass deportations of undocumented residents. The finance director said he also anticipated wildfire victims would need to delay their tax filings, which could further complicate the state’s financial plans.
State legislators also urged restraint.
“Even with higher-than-expected revenues, we must be cautious on new spending,” Senate President pro Tem Mike McGuire, D-Healdsburg, said in a statement, noting the growing risk of uncertainty and major climate disasters.
Some Republican lawmakers criticized the governor’s plans to withdraw from the rainy day fund while proposing additional spending.
“Only Gavin Newsom could raid over $7 billion from our Rainy Day savings and have the audacity to call it a ‘surplus,’” said Senate Minority Leader Brian Jones, R-San Diego. “We’re going to have to rebuild major parts of LA infrastructure from the fires, so when we should be tightening the belt on new spending.”
The budget includes nearly $229 billion in general fund spending and $16.9 billion in total budget reserves for the fiscal year that begins July 1 and ends June 30, 2026. The general fund provides funding for ongoing state functions.
Newsom will present a firmer spending plan in May, when the state has a clearer picture of its tax revenues.
Here are some key takeaways in Newsom’s plan:
Climate and wildfire response
The Los Angeles wildfires hung over the budget briefing, but the spending plan did not appear to include any additional funds to deal with the emergency.
President Joe Biden said Thursday that the federal government would cover 100% of the fires’ management and debris removal costs for 180 days.
H.D. Palmer, spokesperson for the Department of Finance, assured reporters that the scale of the devastation and resources needed to fight the blazes would not bankrupt Cal Fire.
“There’s never a situation – even when we’ve been in very dire budget times – where the budget is any kind of impediment to Cal Fire,” he said, adding the state can pull from an account called the Special Fund for Economic Uncertainties to fill funding gaps.
Newsom proposed spending nearly $2.7 billion of a $10 billion climate bond approved by voters in November in order to accelerate water and wildfire resilience projects. The rest of the funding is expected to be allocated in future years.
It includes a total of $1 billion for drinking water, flood and drought prevention projects and $335 million for fire and forest management. The rest of the funds will be allocated to myriad other climate programs including extreme heat mitigation, sea level rise, and sustainable agriculture.
Homelessness
The budget plan maintains $100 million to clear homeless encampments and get people into shelter but includes no new funding for the Homeless Housing, Assistance and prevention program, a popular grant that allows local governments to flexibly spend homelessness dollars in their communities. There are currently unspent funds for the program.
Newsom also proposed creating a new agency — the Housing and Homelessness Agency — that would consolidate and streamline the state’s strategies for housing and homelessness. The state will reveal more details in the spring after submitting a reorganization plan to the Little Hoover Commission, an independent state oversight agency.
Education
It includes a slight trim to overall school spending — about $1.6 billion. Stephenshaw said the cut would be to “account for revenue volatility” and could be reversed in the spring depending on revenue numbers.
The plan, if adopted by the legislature, would fulfill many of Newsom’s educational initiatives, including universal pre-Kindergarten, free school meals for all students regardless of income, and screening all students up to 2nd grade for reading difficulties.
Newsom proposed the pre-K program, also known as transitional kindergarten, in 2021 and has dedicated roughly $5.4 billion over the past four years to expand it to all 4-year-olds. He said Monday it will be fully implemented if lawmakers sign off on the final $2.4 billion this year.
The spending proposal also maintains nearly 8% cuts to the UC and CSU systems, which were implemented last year to help fill the budget deficit.
Prisons and criminal justice
The state budget plan proposes trimming the prison budget by about 3%, or more than $400 million, despite a recently approved voter initiative expected to put more people behind bars for theft and drug crimes.
According to the budget document, Proposition 36 is expected to increase the prison population by about 1%. The ballot measure approved in November increased penalties for some drug and retail theft crimes.
“However, even with the expected increase from Proposition 36, the population is still projected to continue its overall long-term downward trend because of prior public safety realignment,” the document reads.
Stephenshaw said the state is managing Prop. 36 and its longer-term efforts to lower the prison population. “We will have to continue to monitor the exact impact … of Prop. 36,” he said.
Moving ahead on rainy day fund reforms
Newsom said Monday he plans to move forward with reforming the state’s rainy day fund, a move that would require voter approval.
The governor, hindered by the volatility of California’s progressive tax system in recent years, wants to double the amount of funds that can be deposited into the state’s savings account — formally called the Budget Stabilization Account — during years of high surplus, like in 2022.
Stephenshaw said the reforms “will enable us to save a lot more during the upswings” and “protect the programs and services that Californians rely upon.”
This story was originally published January 10, 2025 at 10:34 AM.
