The 2025-26 Budget: Overview of the Spending Plan

2025-26 BUDGET The 2025-26 Budget: Overview of the Spending Plan GABRIEL PETEK | LEGISLATIVE ANALYST OCTOBER 2025 www.lao.ca.gov 1 2025-26 BUDGET 2 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET INTRODUCTION Each year, our office publishes the California Governor. All figures in this publication reflect the Spending Plan to summarize the annual state administration’s estimates of actions taken through budget. In this publication we: provide an overview early July 2025, however, we have updated the of the 2025-26 budget package, give a brief text to reflect actions taken later in the legislative description of how the budget process unfolded, session. In addition to this report, we will release a and then highlight the major features of the budget series of issue-specific, online posts that give more approved by the Legislature and signed by the detail on the major actions in the budget package. THE BUDGET PROBLEM For the third year in a row, the state faced a This budget problem is slightly higher than the one budget problem, or deficit. Although the budget addressed by the Governor in the May Revision problem this year was smaller than in recent years (around $14 billion), and results from two somewhat ($15 billion this year compared to $55 billion in offsetting differences. First, compared to the May 2024-25 and $27 billion in 2023-24), addressing Revision, the final budget package assumed higher this year’s budget problem required the state to revenues in major taxes by $1.1 billion, reflecting adopt more ongoing solutions. In this section, we cash receipts to date, which have come in slightly first present our estimates of the budget problem higher than the administration’s May estimates. the Legislature addressed in the 2025-26 budget (This improves the budget condition.) Second, package, focusing on the three-year budget these higher revenues are more than offset by more window under consideration: 2023-24 through discretionary spending, which totals $4 billion in the 2025-26. Second, we briefly summarize the key final package, compared to $1.6 billion in the May actions taken to address projected out-year Revision. (The difference between these two—over deficits, and describe the administration’s $2 billion—increases the budget problem.) June 2025 estimates of the state’s multiyear budget Actions Taken Last Year Reduce the Budget condition under the enacted spending plan. Problem. In June 2024, the Legislature not only What Is a Budget Problem? A budget addressed the budget problem for 2024-25 but also problem—also called a deficit—arises when proactively adopted solutions intended to reduce resources for the upcoming budget are insufficient the anticipated shortfall in 2025-26. At the time, to cover the costs of currently authorized services. the June 2024 budget package included $28 billion A budget problem is inherently a point-in-time in budget solutions for 2025-26, although savings estimate that reflects information available at the from some of these actions have since diminished. time of development, forecasts of future revenues Importantly, these budget solutions also included and spending, and assumptions about which cost a planned withdrawal from the state’s rainy-day changes reflect current law and policy (referred fund, the Budget Stabilization Account (BSA), of to as “baseline changes”). When cost changes $7.1 billion. The June 2025 spending plan maintains do not occur automatically under current policy, these actions, including the reserve withdrawal. we classify them as either budget solutions or We provided further detail and updated estimates of discretionary augmentations. these solutions in our January report, The 2025-26 Budget Package Addressed a Nearly Budget: Overview of the Governor’s Budget (see $15 Billion Budget Problem. We estimate Appendix 1). These early decisions substantially the Legislature addressed a nearly $15 billion reduced the size of the budget problem the budget problem in the 2025-26 budget package. Legislature faced this year. www.lao.ca.gov 3 2025-26 BUDGET New Discretionary Spending Increases the As the figure shows, the budget primarily relies on Size of the Budget Problem. Most of the reason borrowing to close the gap, representing about that the state faces a budget problem is that the two-thirds of the total solutions. (We describe underlying costs of state services continue to our use of this term in more detail below.) After outpace the state’s revenue collections. However, borrowing, spending-related solutions, including about $4 billion of the budget problem results from both reductions and fund shifts, total $5 billion new, discretionary General Fund spending in the and represent nearly all of the remaining one-third budget package, as well as some budget actions of the total solutions. (Revenue-related solutions, adopted in a special session, which we describe totaling about $300 million, represent the small in the box on page 16. (We define discretionary remainder.) Note that while the state is also making spending as new spending or revenue reductions a $7.1 billion withdrawal from the BSA in 2025-26, that were not previously authorized under current this withdrawal is not reflected in Figure 1 because law or legislative policy.) Total discretionary General it was authorized in the 2024-25 budget package. Fund spending (excluding Proposition 98) in the The remainder of this section provides additional 2025-26 budget package are listed in Appendix 1. detail on each category of solution. Appendix 2 lists all the budget solutions. HOW THE SPENDING PLAN Borrowing ($10 Billion) ADDRESSES THE BUDGET The budget package primarily addresses the PROBLEM budget problem using borrowing—these solutions The state has several types of solutions—or represent $10 billion or roughly two-thirds of the options—for addressing a budget problem, but total solutions. We define “borrowing” as budget the most important include: reserve withdrawals, actions that achieve savings in the present, but spending reductions, revenue increases, and result in an obligation or higher cost for the state borrowing (for example, loaning money from in a future year. (Until recently, we had used the other funds to the General Fund). Figure 1 term “cost shift” [instead of borrowing] to describe summarizes the solutions that the budget package these types of actions because they are not always used to address the $15 billion budget problem. explicitly structured as loans or similar instruments. However, we have found the term cost shift is Figure 1 unclear for many readers and, as a result, can obscure the fiscal implications of these actions. How the Spending Plan Addresses the Accordingly, we have adopted terminology that $15 Billion Budget Problem more transparently reflects the underlying nature of these budget solutions, if not always their precise mechanics.) Spending- Major categories of borrowing in the Related budget include: Reductions • Medi-Cal Maneuver ($4.4 Billion). Under state law, the administration can transfer funds to the Medical Provider Interim Payment Fund Shifts (MPIP) Fund to help cover an appropriation Borrowing deficiency in Medi Cal. These transfers are capped as a percent of Medi Cal’s - appropriation. On March 12, the administration - notified the Joint Legislative Budget Revenue-Related Committee it had transferred $3.4 billion General Fund (around the maximum allowed) to the MPIP Fund to cover unanticipated cost increases in Medi Cal. While this payment - 4 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET has been made on a cash basis, the May will finalize its calculation of this obligation Revision proposes that the state not recognize in May 2026. (In January and May, we had it in the budget this year (instead, it would categorized settle up as a spending delay, but be recognized over multiple years and fully upon further deliberation, we view this action reflected by 2034). This maneuver essentially as borrowing.) creates a loan from the state’s cash resources, • Middle Class Scholarships (MCS) Arrears and a future obligation that is repaid when the Budgeting ($1 Billion). The budget package state recognizes the payment that was already reflects $1 billion in savings by deferring made. The final budget reflects a Medi-Cal recognition of MCS program costs from maneuver of $4.4 billion. 2025-26 to 2026-27 on a budgetary basis. • Special Fund Loans ($2.1 Billion). The However, on a cash basis, these costs would spending plan includes loans from special still be paid in 2025-26 as they are incurred. funds, which compared to other actions in Like other budget maneuvers, this creates this section, are a more traditional form of a misalignment between the state’s cash borrowing used to help balance the budget. position and its budgetary costs. Notably, These loans are made on a budgetary basis this cost shift is intended to continue on an from borrowable special funds with unspent ongoing basis—meaning costs incurred in balances. The spending plan includes two 2026-27 would be recognized in 2027-28, and types of these loans: $550 million in loans so on. Undoing this maneuver in the future will allocated to specific funds ($150 million require the state to pay for two years’ worth of from the Unfair Competition Law Fund and program costs in a single fiscal year. $400 million from the Labor and Workforce • University Payment Deferrals ($274 Million). Development Fund) and $1.5 billion in The budget defers University of California unallocated special fund loans, authorized (UC) and California State University (CSU) through Control Section 13.40. Through that payments that otherwise would have been control section language, the Department of made in May to June or July. By shifting Finance (DOF) is authorized to collectively payments to the next fiscal year, these transfer $1.5 billion from various special funds deferrals create one-time savings in 2025-26. to the General Fund during the 2025-26 year. Similar to other forms of borrowing, undoing As of this writing, DOF is still working on these deferrals in the future (and reverting identifying the list of those funds to borrow payments to their typical schedule) will require from to achieve this target. the state to provide one-time back payments • Proposition 98 “Settle Up” ($1.9 Billion). to the universities. Proposition 98 (1988) sets a minimum funding Balance of the State’s Outstanding Budgetary requirement for schools and community Borrowing Has Increased. The actions described colleges based on formulas in the State in this section increase the amount of outstanding Constitution. The state makes an initial borrowing the state has used to address its estimate of this requirement when it enacts budget problems. (This borrowing is similar to the budget, then revises this estimate over the the measures used during the Great Recession— following two years to reflect updated data. collectively previously referred to as the state’s “wall The estimate of the requirement for 2024-25 of debt”—and create obligations that should be is up nearly $4.7 billion (4 percent) from the repaid or reversed in the future.) While the state has June 2024 level, but the budget appropriates various financial and accounting reports that allow just over $2.7 billion in additional funding for policy makers and observers to track a variety of that year. Funding schools and community the state’s outstanding liabilities, the administration colleges at this level—$1.9 billion below the does not produce an easily accessible, public estimate of minimum requirement—provides list of the state’s outstanding budgetary temporary savings but requires the state to borrowing incurred to address recent deficits. settle up using future revenues. The state www.lao.ca.gov 5 2025-26 BUDGET We have provided this list in Figure 2. As shown to individuals with UIS by changing the payment in Figure 2, the 2025-26 spending plan includes methodology for this population—resulting in about nearly $10 billion in new borrowing, increasing total $1 billion in savings ongoing. outstanding budgetary borrowing from $12 billion Fund Shifts ($3 Billion). Fund shifts are budget to $22 billion. solutions that use other fund sources—for example, special funds—to pay for a cost typically incurred by Spending-Related Solutions ($5 Billion) the General Fund. These shifts reduce expenditures Reductions ($2.5 Billion). Under our definition, from the General Fund as they simultaneously a spending reduction occurs when the state displace spending that these other funds otherwise reduces spending relative to what was established would have supported. As a result, we consider under current law or policy. More colloquially, these these to be a type of spending-related solution are spending cuts. We estimate the budget package because they typically result in lower overall state includes about $2.5 billion in spending-related spending, inclusive of all funds. We estimate the reductions. Many spending reductions enacted as budget package includes nearly $3 billion in fund part of this year’s budget will increase over time, shifts. The largest categories include: such that spending reductions grow to $10.5 billion • $1 Billion for California Department of ongoing by 2028-29. For example, the budget Forestry and Fire Protection (CalFire) package freezes enrollment in Medi-Cal for the Activities. The budget shifts $1 billion in adult population with unsatisfactory immigration costs for CalFire’s operational expenses status (UIS)—an action that saves less than from the General Fund to the Greenhouse $100 million in the budget window, but increases to Gas Reduction Fund (GGRF, which is over $3 billion over time. The budget also includes funded with auction revenues from the unallocated operational improvements at the state’s cap-and-trade program) in 2025-26. Department of Health Care Services, Department The budget agreement expresses intent to of Social Services, and Department of Corrections continue such a shift in the coming years to and Rehabilitation, which the administration provide additional General Fund relief but in assumes will eventually yield over $1 billion in differing amounts, depending upon the budget ongoing savings. The budget package also condition. Specifically, if the General Fund reduces payments to clinics for services rendered continues to experience deficits, the plan intends that GGRF would cover $1.25 billion Figure 2 of CalFire’s costs in 2026-27, $500 million The State’s New Wall of Debt in 2027-28, and $500 million in 2028-29. If the General Fund is not projected to be in (In Billions) a deficit in 2026-27, GGRF would only cover Borrowing type Amount $500 million for CalFire in that year. • About $300 Million for Various Existing Payroll deferral $1.6 Environmental Activities. The budget Proposition 98 maneuver (cash borrowing) 6.4 package reduces about $300 million in Special fund loans 4.0 planned General Fund support for nine Total $12.0 categories of environmental activities— Adopted in 2025-26 Budget Package including dam safety, offshore wind Medi-Cal maneuver (cash borrowing) $4.4 development, and wildfire resilience projects Settle up 1.9 Special fund loans (unallocated) 1.5 at State Parks—and then provides at least Middle Class Scholarships arrears budgeting 0.9 as much funding for similar activities from Special fund loans (allocated) 0.6 Proposition 4, the climate bond authorized by University payment deferrals 0.3 voters in November 2024. (In some cases, the Total $9.6 bond-supported programs—and, therefore, Total Outstanding Budgetary Borrowing $21.6 projects that ultimately will end up being 6 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET funded—may differ slightly from those that in ongoing spending solutions, and $300 million might have been funded with the General in ongoing revenue increases. Nearly all of these Fund. However, the general categories overlap spending solutions are reductions. The reductions and were selected and proposed by the are largely concentrated in the health area, with Governor as fund shifts.) ongoing solutions in Medi-Cal—the state’s Medicaid program—reflecting about two-thirds of the total. Reversions ($70 Million). Costs for state (We describe the health-related budget solutions programs sometimes come in lower than the in more detail below.) In addition to the ongoing amount that was appropriated. This often occurs, solutions, the budget includes $20 million for for example, when the state overestimates uptake DOF to contract with consultants to assist and in a new program or as a routine matter in programs advise DOF on analyzing and creating process where spending is uncertain due to factors like improvements within state government. The overall caseload. When actual state costs are below aim of this effort is to find other areas of ongoing budgeted amounts, a reversion occurs after a savings for future legislative action. period of time—typically, three years. The reversion Multiyear Deficits Persist Under returns the unspent funds to the General Fund. Administration’s Estimates. Based on the This year’s budget package accelerates some administration’s June 2025 projections and reversions that would have otherwise occurred in assumptions, budget deficits are expected to the future and proactively reverts certain funds that persist despite the ongoing solutions included otherwise are continuously appropriated (which in the 2025-26 spending plan. Specifically, the has the effect of realizing savings from the unspent administration projects annual operating deficits funds that would not otherwise occur). While not all ranging from roughly $15 billion to $25 billion of these amounts represent lower state spending throughout the outlook period (see Figure 3). over the long term, they do result in savings today at These projected shortfalls represent future budget a cost of forgone savings in the future. As a result, challenges the Legislature would need to address. we count them as spending-related solutions. However, multiyear estimates—particularly The budget package includes less than $100 million revenue projections—are subject to considerable in reversions. uncertainty. Revenue estimates can vary by billions Revenue-Related Solutions of dollars in the near term and by tens of billions ($300 Million) of dollars in later years. As such, these estimates should be interpreted cautiously, as shortfalls of Change in Tax Rules for Financial Institutions. these magnitudes are far from guaranteed. The spending plan changes the rules about how taxable profits are determined for multistate financial institutions. This change is assumed to Figure 3 increase revenues by $330 million in 2025-26 and State Faces Future Budget Deficits $250 million per year thereafter. Under the Administration’s Estimates MULTIYEAR BUDGET PROBLEM (In Billions) The budget package has taken steps to 2026-27 2027-28 2028-29 partially address the state’s persistent multiyear deficits. We describe those actions at a high level -$5 in this section, and then provide an overview of -10 the administration’s estimates of the out-year -15 condition of the budget after accounting for these -20 ongoing solutions. -25 Ongoing Budget Solutions Total $11 Billion. -30 The spending plan includes roughly $11 billion in ongoing budget solutions, including $10.5 billion www.lao.ca.gov 7 2025-26 BUDGET BUDGET CONDITION In this section, we describe the overall condition and 2025-26. In particular, from the BSA, the of the General Fund budget, the condition of state has used $5 billion in 2024-25 and $7 billion the school and community college budget, in 2025-26, bringing the balance to $11 billion and state appropriations limit (SAL) estimates remaining at the end of 2025-26. The state under the spending plan. As is the case in the already used the entire balance of the Safety Net previous section, all of the figures here use the Reserve—nearly $1 billion—in 2024-25. Along with administration’s budget estimates as of June 2024. the planned balance of $4.5 billion in the SFEU, the state’s reserves total nearly $16 billion at the end GENERAL FUND of 2025-26 under the spending plan. (The state reserve for schools and community colleges is also Figure 4 summarizes the condition of the fully withdrawn by the end of 2025-26.) General Fund under the revenue and spending assumptions in the June 2025 budget package, Revenues as estimated by the administration. Under Figure 5 displays the administration’s revenue these projections, the state ends 2025-26 with projections as incorporated into the June 2025 $4.5 billion in the Special Fund for Economic budget package. As the figure shows, the Uncertainties (SFEU). (The SFEU is the state’s administration expects revenues from the state’s operating reserve and essentially functions like an three largest sources—the personal income tax, end-of-year balance.) corporation tax (CT), and sales and use tax—to Reserves grow about 10 percent between 2023-24 and 2024-25. This primarily reflects strong stock General Fund Reserves Nearly $16 Billion market growth between June 2023 and June 2025. Under Spending Plan. Although the state did The spending plan anticipates negative growth not withdraw any funds from reserves to address in these three major sources from 2024-25 to the 2023-24 budget problem, reserves have been 2025-26, primarily driven by the CT. In this case, the used to address budget problems in 2024-25 15 percent decline is attributable to the expiration of a policy that temporarily increased CT receipts. Figure 4 Figure 5 reflects several tax policy changes, General Fund Condition Summary including an expansion of the state’s film tax credit, (In Millions) a new partial tax exclusion for military retirement income, and additional state low-income housing 2023-24 2024-25 2025-26 tax credits. In addition, “transfers and loans” in Revised Revised Enacted Figure 5 include transfers from the state’s rainy-day Prior-year fund balance $51,769 $41,977 $35,145 fund, described elsewhere, as well as loans from Revenues and transfers 195,879 226,745 215,733 the state’s special funds, which have been used to Expenditures 205,670 233,577 228,366 Ending fund balance $41,977 $35,145 $22,513 partially address the budget problem. Encumbrances $18,001 $18,001 $18,001 SFEU Balance $23,976 $17,144 $4,512 Spending Reserves Figure 6 displays the administration’s June 2025 BSA $23,194 $18,291 $11,191 estimates of total state and federal spending in the SFEU 23,976 17,144 4,512 2025-26 budget package. (The amounts displayed Safety net 900 — — Total Reserves $48,070 $35,435 $15,703 in the figure do not include some notable actions Note: Reflects administration estimates of budget actions taken taken late in the summer legislative session, through July 1, 2025. including appropriations of $3.3 billion from the SFEU = Special Fund for Economic Uncertainties and BSA = Budget Proposition 4 climate bond and $540 million Stabilization Account. from GGRF, which we discuss later in this post.) 8 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Figure 5 General Fund Revenue Estimates (Dollars in Millions) Revised Change From 2024-25 Enacted 2023-24 2024-25 2025-26 Amount Percent Personal income tax $115,166 $126,277 $125,962 -$316 — Sales and use tax 33,339 33,706 34,862 1,156 3% Corporation tax 35,456 41,696 35,613 -6,083 -15 Totals, Major Revenue Sources $183,962 $201,679 $196,437 -$5,243 -3% Insurance tax $3,966 $4,177 $4,359 $182 4% Other revenues 7,333 7,182 5,626 -1,556 -22 Transfers and loans 618 13,707 9,312 -4,395 -32 Totals, Revenues and Transfers $195,879 $226,745 $215,733 -$11,012 -5% Note: Reflects administration estimates of budget actions taken through July 1, 2025. As the figure shows, the spending Figure 6 plan assumes total state spending Total State and General Fund Expenditures of $317 billion in 2025-26. This is lower than the 2024-25 total (Dollars in Millions) by 5 percent. Declines in state Revised Change From 2024-25 spending this year are generally Enacted 2023-24 2024-25 2025-26 Amount Percent attributable to the state’s budget problem and actions taken to General Fund $205,670 $233,577 $228,366 -$5,211 -2% lower spending to address the Special funds 93,320 98,637 88,799 -9,838 -10 Budget Totals $298,991 $332,214 $317,164 -$15,050 -5% budget problem. (The “Major Bond funds $4,255 $5,720 $3,886 -$1,834 -32% Features” section of this report Federal funds 149,484 172,349 174,506 2,157 1 also describes some of the major Note: Reflects administration estimates of budget actions taken through July 1, 2025. discretionary spending choices and budget solutions reflected in the local property tax revenue. Compared with spending plan.) As of June 2024, federal funds are the June 2024 enacted budget level, the total expected to be flat between 2024-25 and 2025-26, requirement is up $3.9 billion across 2024-25 and but these projections do not include any potential 2025-26 (Figure 7 on the next page). This increase effects of House Resolution 1: One Big Beautiful Bill primarily reflects a higher requirement in 2024-25 Act (H.R. 1), which was signed by the President on due to higher General Fund revenue estimates. July 4. The box on the next page gives a high-level A decrease in the 2025-26 requirement partially description of the major changes in H.R. 1 for health offsets this increase. The budget, however, funds and human services programs, as well as some late an increase of only $2 billion over the two years. session state responses. (The difference reflects the $1.9 billion settle-up obligation the state will be required to pay in the SCHOOLS AND COMMUNITY future.) Of this additional funding, the state General COLLEGE BUDGET Fund covers $1.2 billion and local property tax revenue covers $797 million. Overall School and Community College Fully Withdraws Proposition 98 Reserve Funding Up $2 Billion. School and community Balance. The Proposition 98 Reserve is a college spending in California is governed by statewide reserve account for school and the rules of Proposition 98. The state meets the community college funding. Constitutional formulas Proposition 98 funding requirement through and legislative actions determine the size of the a combination of state General Fund and deposit or withdrawal each year. The June 2025 www.lao.ca.gov 9 2025-26 BUDGET House Resolution 1—One Big Beautiful Bill Act Major Federal Changes to Health and Human Services Programs. Federal House Resolution 1 of 2025 (H.R. 1)—the One Big Beautiful Act passed by Congress and signed by the President in July 2025—introduced multiple, significant changes to states’ health and human services programs. These changes primarily impact states’ Supplemental Nutrition Assistance Programs (SNAP, known as CalFresh in California) and Medicaid (known and Medi-Cal in California). California’s programs will be affected in a number of ways, including by tightening eligibility, reducing federal funding for services and programs, and placing stricter limits on the use of certain financing mechanisms. The H.R. 1 changes to these programs will be phased in over multiple years, beginning in 2025 and continuing through federal fiscal year 2028. State Spending Plan Actions in Response to H.R. 1. As part of the final 2025-26 budget package, the Legislature provided modest funding and made some statutory changes in response to the more immediate impacts anticipated as a result of H.R. 1. These legislative actions were primarily administrative in nature—focusing on ensuring that (1) the state and counties have the funding needed to implement the changes, (2) the computer systems and staffing are positioned to operationalize the changes, and (3) actions are taken now to reduce possible future federal fiscal penalties included in H.R. 1. It is important to note that, although the final budget package did not include any funding to backfill any anticipated lost benefits for individuals, it did provide some select augmentations for certain health and food programs in response to H.R. 1 provisions. For example, the spending plan includes enhanced funding for food banks and to help ensure access to abortion services. Figure 7 Tracking Changes in Proposition 98 Funding (In Millions) 2024-25 2025-26 Change From Change From Change June 2024 June 2025 June 2024 June 2025 June 2024 Across (Enacted) (Revised) Enacted (Enacted) Enacted Both Years Proposition 98 Guarantee $115,283 $119,946 $4,663 $114,558 -$724 $3,938 Funding Allocated $115,283 $118,029 $2,746 $114,558 -$724 $2,022 By Source: General Fund $82,612 $85,711 $3,099 $80,738 -$1,875 $1,224 Local property tax 32,670 32,317 -353 33,821 1,150 797 By Segment: K-12 schools $101,121 $104,101 $2,979 $102,055 $933 $3,913 Community colleges 13,108 13,473 366 12,959 -149 217 Reserve deposit/withdrawal (+/-) 1,054 455 -599 -455 -1,509 -2,108 Funding Owed (Settle Up) — $1,917 $1,917 — — $1,917 10 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET budget package rescinds a $1.1 billion discretionary fiscal years. These savings allow the state to cover deposit into this account in 2024-25. It makes a the cost of these increases in 2025-26. Entering new mandatory $455 million deposit in 2024-25 2026-27, however, the savings expire and the state and a mandatory withdrawal of this same amount will need to cover the $1.7 billion shortfall with new in 2025-26. These actions together draw down the ongoing funds, ongoing reductions, or additional entire balance. one-time actions. Shifts Ongoing Funding From Community Colleges to Schools. The state typically STATE APPROPRIATIONS LIMIT divides Proposition 98 funding between schools Under Proposition 4 (1979), the Constitution and community colleges using an uncodified limits how the state can spend revenues that methodology known as “the split.” The exceed a certain limit—a set of formulas known methodology involves allocating about 89 percent as the SAL. During the revenue surges in the early of the available funding to schools and about 2020s, the SAL was an important constraint in the 11 percent to community colleges, with certain budget process and had significant implications expenditures excluded from these percentages. for the Legislature’s budget decisions. For the last The budget establishes a new exclusion, beginning few years, however, the SAL has not been salient in 2025-26, for the costs associated with the recent to the budget process. This is because declines expansion of transitional kindergarten. Compared in revenues have meant the state has more room with the previous methodology, this modification under the limit. Figure 8 provides an overview of shifts $233 million in ongoing Proposition 98 the SAL estimates in this year’s budget. As the funding from community colleges to schools. figure shows, the state is expected to have room Uses One-Time Savings to Cover Ongoing across all years in the budget window, including Program Costs. The budget funds several $15 billion in 2023-24, $9 billion in 2024-25, and increases for ongoing school and community $35 billion in 2025-26. college programs, including a 2.3 percent cost-of-living Figure 8 adjustment (COLA). These actions increase the cost of ongoing State Appropriations Limit (SAL) Estimates programs beyond the ongoing (In Billions) Proposition 98 funding level by nearly $1.7 billion. To cover the gap, 2023-24 2024-25 2025-26 the budget relies upon one-time SAL Revenues and Transfers $233.4 $258.6 $252.6 savings generated through Exclusions -106.6 -119.5 -120.5 Appropriations Subject to the Limit $126.8 $139.0 $132.1 three main actions: (1) deferring payments from 2025-26 to Limit $141.5 $147.6 $166.9 Room/Negative Room $14.7 $8.5 $34.8 2026-27, (2) withdrawing funds Excess Revenues? No from the Proposition 98 Reserve, Note: Reflects administration estimates of budget actions taken through July 1, 2025. and (3) repurposing some unused Proposition 98 funds from previous www.lao.ca.gov 11 2025-26 BUDGET EVOLUTION OF THE BUDGET This section provides an overview of the 2025-26 true was that, in June 2024, the Legislature took budget process. Figure 9 contains a list of the proactive steps to address the anticipated budget budget-related legislation passed on or before problem for 2025-26. (These actions are described July 1, 2025. at a high level earlier in this report.) Governor’s Budget Included Discretionary Governor’s January Proposal Proposals That Used and Created Budget January Budget Roughly Balanced. Governor Capacity. The Governor’s budget included Newsom’s administration presented its proposed discretionary proposals, which are those that are state budget to the California Legislature on not already committed to under current law or January 10, 2025. At the time, both our office policy, that both used and created budget capacity. and the administration found that the underlying In particular: condition of the budget was roughly balanced. • Savings Proposals Provided $2.2 Billion in (In other words, we did not describe the budget as Short-Term Budget Capacity. Some January having a surplus or a deficit.) A key reason this was proposals provided short-term budget savings, creating more budget Figure 9 capacity. These proposals Budget-Related Legislation Passed on or Before resulted in $2.2 billion in General Fund savings within the budget July 1, 2025 window. This total included a Bill Number Chapter Subject proposal to provide $1.6 billion Budget Bills and Amendments less in total funding for schools SB 101 4 2025-26 Budget Act and community colleges than ABX1 4 1 Amendments to the 2024-25 Budget Act the estimated constitutional SBX1 3 2 Amendments to the 2024-25 Budget Act SBX1 1 3 Amendments to the 2024-25 Budget Act minimum funding level for AB 100 2 Amendments to the 2023-24 Budget Act and 2024-25, generating a future 2024-25 Budget Act settle-up payment of the same AB 102 5 Amendments to the 2025-26 Budget Act AB 104 77 Amendments to the 2025-26 Budget Act amount. In addition, the January SB 103 6 Amendments to the 2022-23, 2023-24, and budget increased revenues by 2024-25 Budget Acts $300 million and shifted nearly Trailer Bills $300 million in General Fund AB 116 21 Health AB 118 7 Human services spending to the Proposition 4 AB 121 8 Education finance (2024) climate bond. AB 123 9 Higher education • Discretionary Proposals Used AB 130 22 Housing AB 134 10 Public safety $700 Million Budget Capacity. AB 136 11 Courts The budget also included AB 137 20 General Government new discretionary proposals AB 143 12 Developmental services that used budget capacity by SB 120 13 Early childhood education and childcare SB 124 14 Public resources increasing spending or reducing SB 127 15 Climate change revenues. These totaled roughly SB 128 16 Transportation $700 million, including nearly SB 131 24 Public resources $600 million in new spending SB 132 17 Taxation SB 141 18 California Cannabis Tax Fund proposals and $150 million in SB 142 19 Deaf and disabled telecommunications program revenue reductions associated Note: This figure includes budget bills and trailer bills identified in Section 39.00 in the 2025-26 with expansions to existing tax Budget Act that were passed by the Legislature on or before July 1, 2025. Ordered by bill number. expenditures and the creation of new ones. 12 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET Governor’s May Revision in spending-related solutions, including reductions ($4.9 billion), fund shifts ($3.2 billion), and delays In Spring, Revenues Exceeded Expectations, ($1.3 billion). A significant portion of these solutions but Outlook for Future Growth Weakened. were ongoing, and under the administration’s Following release of the January budget, forecast, their value would grow to $17.5 billion revenues for the prior and current years came in by 2028-29. $6 billion above expectations, primarily due to stronger-than-anticipated personal income tax May Revision Focused on Reducing Growth collections, which were running $4 billion ahead in Medi-Cal. Reductions to the Medi-Cal program of prior projections as of April. Ordinarily, such accounted for roughly two-thirds of the ongoing collections would indicate a stronger revenue spending reductions proposed in the May Revision. outlook. However, both our office and the These changes were intended to substantially administration lowered our revenue projections slow the program’s projected cost growth in future for 2025-26, with the administration revising its years. Under our estimates, the May Revision forecast downward by $11 billion. Several factors proposals would have reduced Medi-Cal’s out-year contributed to tempered revenue expectations for cost growth from about 9 percent (as our office 2025-26, including: the state’s stagnant economy, estimated in November 2024) to approximately uncertainty about the sustainability of recent stock 1 percent. market gains, and potential negative effects from Legislature’s Budget expanded tariffs. The Legislature passed an initial budget on Costs of State Programs—Particularly June 13, 2025. The Legislature’s budget package Medi-Cal—Exceeded Expectations After differed structurally from the Governor’s May January Budget. Compared to the Governor’s Revision in two key ways. First, it included two new January budget, the administration’s May major actions to increase budget capacity. Second, Revision estimated that baseline spending it used that additional capacity to reject some of (excluding Proposition 98 spending on schools the Governor’s proposed spending solutions and to and community colleges) was $12 billion higher. fund other augmentations. We describe these major This was an unusually large upward revision in structural differences in more detail below. spending for the budget window. The increase was primarily driven by higher projected costs Legislative Actions Increased Budget in the Medi-Cal program, which were estimated Capacity by $5 Billion. The Legislature’s to exceed January levels by $10 billion over the budget package included two major actions that three-year budget window. This increase was increased available budget capacity by a combined largely due to higher-than-anticipated per-enrollee $5 billion. First, it expanded internal borrowing by costs, reflecting a combination of factors such as approximately $2.5 billion. This included increasing increased utilization of services, rising medical care the size of the Medi-Cal-related cash flow maneuver prices, and expanded use of high-cost specialty by $1 billion and making a $1.5 billion loan from the drugs. Although these cost pressures affect all state’s internal cash resources to the General Fund. enrollee groups, the administration attributed a (The final budget maintained these actions, but as significant share of the increase to higher costs of this writing, we understand DOF will administer associated with individuals with UIS. this as a set of traditional special fund loans, rather than one loan from the state’s cash resources. DOF As a Result, a $14 Billion Budget Problem is still working to identify the fund[s] that would Emerged. Taken with other factors—such as make these loans.) Second, the budget reduced new discretionary spending proposals and lower the 2025-26 year-end balance of the SFEU from required General Fund spending on schools and $4.5 billion to $2 billion, freeing up an additional community colleges—the net effect of these $2.5 billion in budget capacity. (The final budget changes was the emergence of a $14 billion budget reflected an SFEU balance at the same level of the problem at the time of the May Revision. To address Governor’s May Revision.) this shortfall, the Governor proposed $9.5 billion www.lao.ca.gov 13 2025-26 BUDGET Legislative Budget Made Changes to May Budget Act Included Language That Revision Solutions and Provided Targeted Placed Budget Contingent on Passage of Augmentations. The Legislature used the SB 131. Control Section 37.00 of Chapter 5 of additional budget capacity to modify several of the 2025 (AB 102, Gabriel) contained extraordinary Governor’s May Revision proposals and to fund a language that made the entire state budget limited number of augmentations. In the Medi-Cal contingent on the passage of SB 131, a trailer bill, program, for example, the budget restored the by June 30, 2025. SB 131 appropriated funding for asset limit to $130,000, rather than adopting the a homelessness-related program and contained Governor’s proposed limits of $2,000 per individual a number of policy changes to the California and $3,000 per couple. It also modified the Environmental Quality Act (CEQA). (The CEQA Governor’s proposal to establish premiums for the changes are described in more detail in the section UIS population by reducing the monthly premium on major features below.) After the Legislature from $100 to $30, and delayed the proposed enacted Chapter 5 and Chapter 24 of 2025 (SB 131, $1.1 billion ongoing reduction to Health Centers Committee on Budget and Fiscal Review), the and Rural Health Clinics. Beyond Medi-Cal, the Legislature enacted Chapter 77 of 2025 (AB 104, legislative package also rejected the Governor’s Gabriel), which repealed Control Section 37.00. proposal to reduce UC and CSU by 3 percent ongoing (instead deferring payments to the universities but Figure 10 providing the cash earlier to offset Budget-Related Legislation Passed After July 1, 2025 the effects of those deferrals) and Bill Number Chapter Subject rejected the Governor’s proposal to cap overtime hours for In-Home Budget Bills and Amendments Supportive Services providers. In AB 104 77 Amendments to the 2025-26 Budget Act SB 105 104 Amendments to the 2021-22, 2023-24, 2024-25, addition, the budget included a and 2025-26 Budget Acts limited number of augmentations, Trailer Bills particularly for the MCS program AB 138 78 State bargaining and various housing and AB 144 105 Health homelessness initiatives. AB 149 106 Public resources AB 154 609 Climate disclosures SB 119 79 Social services Final Budget Package SB 146 107 Human Services The Legislature passed SB 147 744 Education finance an amended budget act and SB 148 745 Higher education SB 151 108 Early childhood education and child care associated trailer bills on SB 153 109 Transportation June 27, 2025. The Legislature also SB 155 649 California Civic Media Program took some additional actions later SB 156 110 Labor in the legislative session, which SB 157 111 Public safety SB 158 650 Land use are listed in Figure 10. The next SB 159 112 Taxation section of this report describes SB 160 113 Background check the major features of the final SB 161 114 State employment budget package. SB 162 115 Elections Note: This figure includes budget bills and trailer bills identified in Section 39.00 in the 2025-26 Budget Act that were passed by the Legislature after July 1, 2025. Ordered by bill number. 14 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET MAJOR FEATURES OF THE 2025-26 SPENDING PLAN This section briefly describes the major spending $150,000 per college in each district. In addition actions in the 2025-26 budget package, including to these discretionary grants, the budget funds some actions that were taken as part of special several smaller grants for schools related to learning sessions. We also discuss the programmatic recovery, teacher training and recruitment, school features of the budget in more detail in a series of meals, and career technical education. It also funds online publications. In the box on the next page, several smaller grants for community colleges we also describe special session actions taken that focusing on other student support initiatives and have budgetary implications. career technical education. Implements Payment Deferrals. The budget K-14 Education reduces spending in 2025-26 by deferring Funds COLA and a Few Other Ongoing $2.3 billion in payments to 2026-27. Of this amount, Augmentations. The state calculates the statutory $1.9 billion pertains to schools. The state will COLA each year based on a price index published implement the school deferral by shifting a portion by the federal government. For 2025-26, the of the June 2026 payment to July 2026. The law budget provides $2.2 billion to cover a 2.3 percent exempts districts and charter schools that can COLA for existing school and community college demonstrate the delay would make them unable programs. For schools, the budget also provides an to meet their financial obligations. The remaining ongoing increase of $607 million for the Expanded $408 million in deferrals pertains to community Learning Opportunities Program. (This program colleges. The state will implement the community funds before and after school activities and summer college deferral by moving payments from May enrichment.) This augmentation will increase the and June 2026 to July 2026. The purpose of share of districts qualifying for the program’s higher these deferrals is to free up funding for additional “tier 1” funding rate. For community colleges, one-time and ongoing spending that would the budget also provides $140 million to cover otherwise exceed the available Proposition 98 2.35 percent enrollment growth across 2024-25 funding in 2025-26. and 2025-26. Health Funds One-Time Discretionary Grants. For schools, the budget provides $1.7 billion for the Adopts Ongoing Budget Solutions in Student Support and Professional Development Medi-Cal, With a Focus on Undocumented Discretionary Block Grant. Districts can use these Immigrants. To help address a multiyear budget funds for any local purpose, but trailer legislation problem, the spending plan reflects a number of encourages them to prioritize teacher training and ongoing budget solutions in Medi-Cal. The largest professional development, teacher recruitment pertain to adults with UIS. The UIS population and retention, career pathways for high school largely consists of undocumented individuals, but students, and dual enrollment programs. The also includes certain lawful immigrants lacking state will distribute funds on an equal per-pupil citizenship status. Medi-Cal services to this basis (about $312 per student). For community population are relatively costly to the state because colleges, the budget provides $60 million for they are eligible for federal funds in only limited the Student Support Block Grant. Districts can cases. The UIS-related budget solutions mostly use these funds for a range of student services, begin in 2026 and are estimated to result in over including basic needs (such as food, housing, and $5 billion of General Fund savings by 2028-29. transportation), financial aid, counseling, and job They affect several areas, including eligibility placement activities. The state will allocate funds (a freeze on new enrollment for comprehensive based on student headcount and the share of coverage), benefits (the end of dental coverage), students qualifying for fee waivers or nonresident provider rates (lower payments to safety net tuition exemptions, with a minimum grant of clinics for services to the UIS population), and new www.lao.ca.gov 15 2025-26 BUDGET Special Session Had Notable Budgetary Implications This year, the Governor called a special session of the Legislature that had notable budgetary implications. (The special session was initially called in November 2024, and then subsequently amended in January 2025.) The measures approved in the special session provided funding for (1) response and recovery costs related to the January 2025 Southern California wildfires and (2) activities to address federal government actions impacting the state. Below, we provide a high-level summary of these measures. Funding for the January 2025 Southern California Wildfires. During the special session, the Legislature added Control Sections 90.00 and 90.01 to the 2024-25 Budget Act providing up to $2.5 billion one-time for response and recovery costs related to the January 2025 Southern California wildfires. Specifically, the control sections authorized the Department of Finance (DOF), through June 2025, to augment both General Fund and special fund appropriations for state agencies to support activities such as emergency protective measures, sheltering for survivors, assessment and remediation of post-fire hazards, and other actions necessary to protect persons or property and expedite recovery. The control sections required DOF to publish expenditure reports documenting the use of the funds. As of June 30, 2025, $335.9 million exclusively from the General Fund had been allocated through the control sections by DOF for these purposes. After the special session, the sections were amended to allow funds to be used to reimburse local governments through June 2026 for (1) unmet response and recovery costs, and (2) lost property tax revenue. DOF has not yet received official claims from all affected local governments, but early estimates indicate expenditures for these purposes could be around $200 million across the 2024-25 and 2025-26 budget years. (Modified versions of Control Sections 90.00 and 90.01 were also added to the 2025-26 Budget Act, extending the availability of these funds. For more on this please see our forthcoming publication, The 2025-26 California Spending Plan: Other Provisions.) Addressing Federal Actions Impacting the State. During the special session, the Legislature amended existing Control Section 5.25 and also added Control Section 5.26 to the 2024-25 Budget Act, providing a total of up to $50 million one-time General Fund for legal and administrative activities that address federal actions impacting the state. Specifically, up to $25 million was made available through June 2028 for legal activities to allow the Department of Justice (DOJ) and other state departments to defend the state against federal actions or to challenge federal actions more generally. These funds are also available to allow state departments to take administrative steps to mitigate the impacts of federal actions. DOJ is required to report regularly on how these funds are used. The remaining $25 million was made available through June 2028 for grants to legal service providers as follows: • $10 million to the judicial branch for indigent civil legal services for individuals likely to be impacted by potential or actual federal actions. • $10 million to the Department of Social Services (DSS) for immigration-related legal services. • $5 million to the judicial branch to supplement its existing contract with the California Access to Justice Commission for legal services nonprofits generally. The judicial branch and DSS are required to report to the Legislature on grant awardees. (Details on similar ongoing funding included as part of the 2025-26 budget is discussed in our forthcoming publication The 2025-26 California Spending Plan: Judiciary and Criminal Justice.) 16 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET cost-sharing requirements (a new $30 monthly State Modifies University Funding Plan for premium to access comprehensive coverage). Next Couple of Years. Under the Governor’s Implements First Year of Proposition 35 compact with the universities, the Governor (2024), With a New Limited-Term Budget intended to provide annual 5 percent base Solution. In November 2024, voters passed increases through 2026-27. Instead of providing a Proposition 35, which creates new rules over 5 percent base increase in 2025-26, the multiyear how the state spends money from the managed budget plan includes intent to provide UC and care organization (MCO) tax. A tax on health CSU each a 2 percent increase in 2026-27, plan enrollment, the MCO tax historically has followed by a 3 percent base increase in 2028-29 helped support the existing Medi-Cal program. (both attributable to 2025-26). In 2027-28, the Proposition 35 largely continues to use the state also intends to provide to a one-time back associated tax funds to support Medi-Cal, but payment totaling $493 million to UC and CSU with a greater focus on expanding, rather than (also attributable to 2025-26). maintaining, the program. Accordingly, the Budget Includes Higher Financial Aid spending plan includes an initial plan to implement Spending in the Current and Budget Years. Proposition 35’s rules over the next two years. Specifically, for 2024-25, the package increases The plan supports a number of ongoing and ongoing General Fund by a total of $187 million one-time augmentations ($5.2 billion MCO tax from the June 2024 enacted level to cover funds over two years), including provider rate higher-than-anticipated costs in the Cal Grant increases and workforce initiatives. Some of the and MCS programs. From the revised 2024-25 supported provider rate increases are scored level, the budget includes a $243 million ongoing as a limited-term budget solution to the General General Fund augmentation in 2025-26 to cover Fund ($1.6 billion over 2025-26 and 2026-27). projected cost increases in the Cal Grant program. This is because the state had previously planned For the MCS program, the state changes its to cover the cost of the increases using General budgetary approach beginning in 2025-26— Fund support. basically converting MCS from a typical categorical program to an entitlement program funded one Higher Education year in arrears. Under previous state law, the state State Defers Rather Than Reduces Base adjusted award coverage, as needed, to remain University Funding in 2025-26. The budget within the annual state appropriation. Under the defers $274 million General Fund for UC and CSU new rules, the state set MCS award coverage at combined from May/June to July 2026, thereby 35 percent of remaining student financial need for generating one-time state savings in 2025-26. 2025-26. The state is covering costs in 2025-26 The deferral equates to 3 percent of General Fund using a General Fund loan. On August 11, 2025, the support for UC and CSU. The deferral takes the Governor issued an executive order authorizing a place of earlier proposed ongoing General Fund loan of $996 million. The state intends to provide an reductions (of 3 percent in the May Revision and associated budget appropriation in 2026-27. 7.95 percent in the Governor’s budget). The state California Environmental Quality Act offers UC and CSU short-term, no-interest General Fund loans, if needed, in response to cash flow Budget Package Addresses State’s challenges resulting from the payment deferrals. Long-Standing CEQA Policy. The budget The budget plan does not specify when the state package included a number of notable policy would provide a one-time back payment to retire changes aimed at speeding up and streamlining these deferrals. Beyond General Fund support, CEQA, which was originally enacted by the both UC and CSU are raising additional ongoing Legislature in 1970. Unless a project falls under a revenue through increases in their tuition charges statutory or certain other type of exemption, public and anticipated enrollment growth. The state agencies (such as cities and counties) generally budget also includes a total of $157 million General must conduct a detailed study of the potential Fund for one-time UC and CSU initiatives. environmental effects of new housing construction www.lao.ca.gov 17 2025-26 BUDGET (and many other types of development) prior to to fund VMT-reducing projects such as affordable approving it. These studies, known as negative housing near transit stops. The Governor’s Office declarations and environmental impact reports, can of Land Use and Climate Innovation is required provide valuable information to decision-makers by July 2026 to issue initial guidance for this new and the public and help to avoid unnecessary program, including providing details such as the environmental impacts (pertaining to traffic, air methodologies for determining the amount of the and water quality, and other matters). Yet, required fee and estimating the anticipated reduction in VMT CEQA studies generally are time consuming and resulting from payment of the fee. costly and the CEQA process can be used to stop Recent Voter-Approved or limit housing and other development. In addition, CEQA’s complicated procedural requirements give Bond Allocations development opponents significant opportunities Budget Contains First Allotment of to continue challenging housing projects after local Proposition 2 Bond Funding. Proposition 2, governments have approved them. approved by voters in November 2024, authorizes Amends CEQA Requirements Pertaining $10 billion in state general obligation bonds for to Various Housing and Other Development. school and college facilities. Of this amount, The changes, which are contained in three budget $8.5 billion is for schools and $1.5 billion is for trailer bills, include: (1) narrowing the scope community colleges. The 2025-26 budget package of existing required environmental reviews for begins drawing down these bond funds. The housing projects that meet all but one criterion budget assumes the state will award $1.5 billion for an exemption from the CEQA process and for school projects, consistent with the state’s (2) eliminating the requirement for CEQA review existing application processing rate. For community entirely when local governments rezone (change colleges, the 2025-26 budget package authorizes land-use restrictions for) neighborhoods to meet the preliminary plans and working drawings phases their state-mandated housing goals, subject to of 29 new projects and the design-build phase certain restrictions. In addition, trailer bill legislation of 1 existing student housing project. The total creates new exemptions from CEQA requirements Proposition 2 cost across all phases of these for various categories of projects, including 30 projects is $863 million. specified “infill” housing developments (such as Proposition 4 (Climate Bond). The certain projects on vacant land within an urban budget package appropriates $3.5 billion from area), farmworker housing, rural health clinics, day Proposition 4, the $10 billion bond approved care centers, food banks, broadband deployment by voters in November 2024 for climate and in a right-of-way, and advanced manufacturing environmental activities. This includes $181 million facilities (with each exemption type subject to provided through actions taken in April to amend various requirements and limitations). The trailer the 2024-25 budget (Chapter 2 of 2025 [AB 100, bill legislation also makes some limited changes to Gabriel]) and $3.3 billion approved through permitting rules for certain residential projects in Chapter 104 of 2025 (SB 105, Wiener). This total the coastal zone. includes $1.2 billion for water-related activities and Authorizes New Statewide Vehicles Miles $600 million for projects to improve the state’s Traveled (VMT) Mitigation “Bank.” In addition, wildfire resilience. the budget package creates a new option for Cap-and-Invest Program Spending developers to meet their transportation-related CEQA requirements for projects. Specifically, trailer 2025-26 Spending Package Includes Over bill language allows projects to mitigate their VMT $4 Billion From GGRF. The budget package impact (at the discretion of the local public agency) assumes spending totaling $4.1 billion from GGRF by paying a fee. Fee revenue is to be deposited in 2025-26. The bulk of these funds support into a fund administered by the Department of existing statutory commitments—most of which Housing and Community Development and used are continuously appropriated—such as for the 18 LEGISLATIVE ANALYST’S OFFICE 2025-26 BUDGET high-speed rail project and programs for housing, of 2025 (AB 1207, Irwin) extends the statutory transit, forest health, and drinking water. As noted authorization for the existing cap-and-trade earlier, 2025-26 GGRF spending also includes a program from 2030 to 2045, makes a number of $1 billion backfill for CalFire’s operational budget changes to the program’s structure, and renames in order to achieve General Fund savings while it “cap-and-invest.” Chapter 121 of 2025 (SB 840, avoiding programmatic impacts. At the end of the Limón) revises the existing statutory allocation legislative session, Chapter 104 of 2025 (SB 105, amounts that support particular activities, including Weiner) appropriated an additional $540 million changing several from being set percentages of from GGRF for a number of activities including GGRF revenues to fixed amounts. For example, related to transit, zero-emission vehicles, and beginning next year, the high-speed rail project will community air protection. receive $1 billion annually rather than 25 percent Program Reauthorization Legislation Will of auction revenues. The legislation also reserves Affect GGRF Allocations in Future Years. $1 billion annually from GGRF for the Legislature to Separate from the budget package, the Legislature allocate based on its budget priorities each year, approved legislation that will affect GGRF spending and expresses intent for particular activities to be allocations beginning in 2026-27. Chapter 117 funded in 2026-27. APPENDICES Note: In the online version of this report, we decisions and budget solutions reflected in the include a series of Appendix tables that have 2025-26 Budget Act. detailed information on the discretionary spending www.lao.ca.gov 19 2025-26 BUDGET LAO PUBLICATIONS This report was prepared by Ann Hollingshead with contributions from analysts across the office, and reviewed by Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 20 LEGISLATIVE ANALYST’S OFFICE