On Friday, Governor Gavin Newsom presented a balanced $322.3 budget without a deficit.
His fiscal plan provides for $228.9 billion in general fund spending and nearly $17 billion in combined reserves – including nearly $11 billion in the state’s Rainy Day Fund and an additional discretionary set-aside of $4.5 billion in the Special Fund for Economic Uncertainties.
California Chamber of Commerce President and CEO Jennifer Barrera commended the Governor’s commitment to improving the state’s economy and protecting its competitiveness.
“We appreciate the Governor continuing to hold the line on new taxes and his support of larger film tax credits and CalCompetes grants that will benefit California’s small business employers,” Barrera said. “We encourage the Governor to consider reinstating the Research and Development tax credit which will invite innovation and spur much needed investment in our economy. Investment into wildfire recovery will be key to California recovering from this week’s devastating events and we stand ready to partner with the administration to assist the region in any way possible.”
Since the 2024 Budget Act was signed, the economy, stock market, and cash receipts have performed better than expected, resulting in an upgraded revenue forecast. Over three fiscal years, the state now projects $16.5 billion in additional revenue above original expectations.
In a statement released on Friday, the Governor cautioned that due to the change in presidential leadership, pressure on state expenditures and the prospect of another downturn in financial markets, California should remain vigilant and prudent.
“We will continue to assess the state’s ongoing fiscal position and include appropriate adjustments in the May Revision,” the Governor said. “I look forward to working with new and returning members of the Legislature on a final 2025–26 budget that assures California a strong economic future well into the 21st century.”
In its November 2024 report, the California Legislative Analyst’s Office (LAO) projected a “roughly balanced” budget with a $2 billion shortfall for 2025–2026.
Budget Details
Governor Newsom’s 2025–26 budget proposal includes:
California Film and Television Tax Credit Expansion
The fourth version of the California Film and Television Tax Credit program was established in 2023 and allocated $330 million in tax credits per year to the film and television industry. The 2025–26 Budget proposes to increase the total annual tax credit award cap from $330 million to $750 million for the fiscal years 2025 through 2030.
Climate Bond
The budget allocates resources included in Prop 4, the $10 billion Climate Bond to fund water, climate, wildfire and natural resource projects, passed by voters in November 2024. Allocations include:
• Dam Safety and Climate Resilience: $231.5 million to the Dam Safety and Climate Resilience Local Assistance Program for competitive grants for projects that support dam safety and reservoir operations, such as funding for repairs, rehabilitation, and enhancements.
• Water Reuse and Recycling: $153.4 million for water reuse and recycling projects that support treatment, storage, conveyance, or distribution facilities for potable and nonpotable use, dedicated infrastructure to serve retrofit projects, and multi‑benefit projects that allow use of recycled water.
In addition to these investments, the budget proposes $173.5 million to improve water storage, replenish groundwater, improve conditions in streams and rivers, and complete various water resilience projects and programs
Regarding agriculture-specific expenditures, the budget proposes certain climate smart agriculture‑related investments from the Climate Bond in 2025–26. One example is the
State Water Efficiency and Enhancement Program, which will be allocated $37.6 million for improving irrigation systems on farms and ranches to save water and reduce emissions from pumping.
Education
Proposition 98 funding for K-14 schools is set at $118.9 billion for 2025–26. The budget also reflects full implementation of universal transitional kindergarten, increased funding for universal school meals, and implementation grants that will be fully disbursed in 2025–26 to support the community school model to support improved educational outcomes at more than 2,000 public schools.
The budget includes a $100 million one-time Proposition 98 General Fund for the California community colleges (CCCs) to expand Credit for Prior Learning and begin building the infrastructure for the state’s first “Career Passport.” The Career Passport system will allow students to create formal documentation of their marketable skills and abilities developed through work, classes, apprenticeships, internships or other experiences both inside and outside the classroom, with the intent of scaling the system in future years to be applicable at both the secondary and higher education levels.
The budget also allocates $500 million in one-time funding for literacy and mathematics coaches in high-poverty schools.
Housing
Over the last six years, California has allocated billions in state funding to address housing and homelessness, including $5.8 billion for Homekey, $2.2 billion to address mental health and substance abuse disorders and $2.75 billion for affordable housing production. Despite these and other state investments, housing affordability and homelessness remain top issues facing the state.
The Newsom Administration is proposing to establish a new California Housing and Homelessness Agency to create a more integrated and effective administrative framework for addressing the state’s housing and homelessness challenges. The purpose of this new agency is to strengthen California’s ability to plan, produce, and preserve housing while enhancing the state’s homelessness response now and over the long term by aligning housing initiatives with complementary policy areas—such as transportation, health, climate, energy, and community planning. More details are to be provided in the spring through a Reorganization Plan submitted to the Little Hoover Commission.
Public Safety
The budget maintains an investment of approximately $1.6 billion since 2022–23—including $283.6 million in 2025–26—to support state and local public safety efforts. This includes funds to implement new laws to enhance enforcement, prosecution, and accountability are included in the proposal.
Technology
The budget proposes investments that support job creation and growth for California’s economy. In November 2024, the U.S. Department of Commerce and Natcast, the non-profit entity designated by Commerce to operate the National Semiconductor Technology Center (NSTC), announced Sunnyvale as the location for the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Design and Collaboration Facility (DCF). Leveraging California’s unmatched talent and world-leading research and education institutions, this facility is expected to drive more than $1 billion in research funding and create more than 200 direct jobs over the next 10 years.
The DCF will be multi-functional, serving as a critical location for the operations and administrative functions of Natcast and the NSTC, including:
- Conducting advanced research in chip design, electronic design automation, chip and system architecture, and hardware security; Hosting programmatic activities, including the NSTC Workforce Center of Excellence, Design Enablement Gateway, and a future Investment Fund; and
- Convening NSTC members and stakeholders from across the semiconductor ecosystem.
The budget proposes $25 million one-time General Fund in 2025–26 to reimburse Natcast for capital expenditures to build the facility.
Wildfire, Forest Resilience
The budget builds on $2.5 billion in wildfire and forest resilience activities in recent years by proposing an additional $1.5 billion in spending over multiple years from the voter-approved Climate Bond. This $4 billion in total funding will go toward projects to protect communities, keep wildfires from growing larger and more dangerous, and aid firefighters in combating wildfires.
In addition, the state is investing $200 million annually through 2028–29 for healthy forest and fire prevention programs, including prescribed fire and other fuel reduction projects.
Investments since 2021 have supported over 2,000 wildfire resilience and forest health projects that are completed or underway, including fuel breaks around communities, prescribed fire projects, and landscape scale forest health projects.
Spending Cuts
The budget proposal includes savings from the elimination of 6,500 vacant government positions, which result in taxpayer savings of $1.2 billion over two years. The budget also includes operational efficiencies, including a reduction in state travel budgets, printing, and IT system modernization that result in $3.5 billion in reduced taxpayer costs.
The full text of the Governor’s Budget summary document is available at www.ebudget.ca.gov.
