The 2026-27 Budget: Overview of the Governor's Budget

analysis full 2026-27 BUDGET The 2026-27 Budget: Overview of the Governor’s Budget GABRIEL PETEK | LEGISLATIVE ANALYST JANUARY 2026 www.lao.ca.gov 1 analysis full 2026-27 BUDGET 2 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Executive Summary Governor’s Budget Roughly Balanced on Higher Revenues. The administration projects the budget faces a roughly $3 billion deficit. This is lower than our November Fiscal Outlook estimate of an $18 billion deficit, for two offsetting reasons. First, and most importantly, the administration’s revenue estimate is considerably higher than ours because it does not incorporate the strong risk of a stock market downturn. Second, however, these higher revenues are offset by higher spending under the administration’s assumptions and estimates. Stock Market Poses Serious Risk to Revenues. Several historically reliable signs suggest the stock market is overheated and at high risk of reversing course into a downturn in the next year or so. Should a stock market downturn occur, income tax revenues would fall considerably. These risks are severe enough that not incorporating them into this year’s budget, as the Governor proposes, would put the state on precarious footing. Further amplifying this precariousness, even under the administration’s more optimistic revenues, the budget is only roughly balanced in the near term. Multiyear Budget Deficits Alarming. Both our office and the administration expect the state to face multiyear deficits, with estimates ranging from $20 billion to $35 billion annually. These deficits are concerning for three reasons. First, after four years of projected deficits and a cumulative total of $125 billion in budget problems solved so far, the state’s negative fiscal situation is now chronic. Second, structural deficits have grown—our November outlook is the most negative forecast of the budget’s position since the pandemic. Finally, deficits have persisted even as the state’s economy and revenues have grown, underscoring that the problem is structural rather than cyclical. Taken together, these trends raise serious concerns about the state’s fiscal sustainability. Administration Acknowledges These Challenges, but Governor’s Budget Does Not Materially Address Them. In the budget summary and presentation, the Governor and administration officials have acknowledged the downside risk to the state’s revenue picture and the multiyear challenges facing the budget. However, the Governor’s budget does not include material actions to address either challenge. In this report, we offer an alternative approach for the Legislature to take that would put the state on better fiscal footing. Ultimately, this approach includes: adopting LAO revenue estimates, tackling the resulting budget problem, and shrinking multiyear deficits. www.lao.ca.gov 3 analysis full 2026-27 BUDGET 4 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET INTRODUCTION On January 9, 2026, Governor Newsom’s of the Governor’s budget based on our preliminary administration presented its proposed state budget review (as of January 10). In the coming weeks, to the California Legislature. In this report, we we will analyze the plan in more detail and release provide a high-level summary and our initial analysis many additional issue-specific budget analyses. GOVERNOR’S BUDGET ROUGHLY BALANCED ON HIGHER REVENUES In November, We Anticipated the State Higher Spending Estimates Erode Some of Faced an $18 Billion Deficit. In our November the Budget Improvement. There are several other Fiscal Outlook report, we estimated that the state differences between our November estimates of faced an $18 billion budget problem. This budget the deficit and the administration’s current forecast. problem was larger than the one anticipated by Together, these differences offset some of the the administration in June, despite strong trends in budget improvement generated by a higher revenue income tax collections in the intervening months. estimate. Specifically: There were two main reasons we anticipated • Higher Constitutional Spending. Under the deficit to grow. First, while our revenue two voter initiatives, the State Constitution forecast represented an upgrade to budget act requires the state to set aside a share of assumptions, it also incorporated the strong risk revenues for schools and community colleges of a stock market downturn, which tempered the (Proposition 98, 1988) and debt payments estimates. Second, we found that spending was and reserve deposits (Proposition 2, 2014). much higher than had been anticipated in June, Constitutionally required spending is higher in large part due to the state’s constitutional under the administration’s estimates by requirements eroding revenue gains. about $13 billion across the budget window. Administration’s Higher Revenue Estimate This increases the administration’s estimate Significantly Improves Budget Condition. The of the deficit relative to our forecast, partially administration’s revenue estimate represents a offsetting some of the revenue improvement. $42 billion upgrade from the budget act. This • Other Costs Also Higher. Across the rest of upgrade reflects strong income tax collections in the budget, the administration’s estimates of recent months and an assumption that this strength baseline costs—that is, the cost of the state’s will continue through 2026-27. The administration’s services under current law and policy—are assessment that recent gains will continue differs also higher than our November estimates by a from our Fiscal Outlook, which, in contrast, reflects couple billion of dollars. Among these, some of an assessment that recent gains are unlikely to the largest drivers of increased costs include be sustainable as they are tied to an overheated Medi-Cal, debt service on general obligation stock market. As such, the administration’s revenue bonds, and employee compensation. This estimate exceeds ours by almost $30 billion across increases the administration’s estimate of the budget window (2024-25 through 2026-27). the deficit relative to our forecast, partially This higher revenue assumption substantially offsetting some of the revenue improvement. improves the budget condition relative to our forecast and is the main driving difference between our estimates of the deficit. www.lao.ca.gov 5 analysis full 2026-27 BUDGET Even With $42 Billion Revenue Improvement, deficit. That said, it is notable that the budget is in Budget Only Roughly Balanced. Taken together, a neutral position even though the administration’s the administration projects the budget faces a revenue estimate reflects growth and is up roughly $3 billion deficit. We view this as roughly significantly relative to the budget act. balanced—that is, neither a clear surplus nor a clear DISCRETIONARY CHOICES IN GOVERNOR’S BUDGET The Governor’s budget includes three categories Because the administration does not account of discretionary proposals, which are those that for this payment, it would add to a future deficit. are not already committed to under current law or If revenues fall short of their projections, the state’s policy. First, the budget includes about ten budget settle-up obligation would decline. We understand solutions—proposals that create budget capacity, this proposal is intended, in part, to acknowledge improving the budget’s bottom line—and they revenue risks and avoid unintentionally spending total around $9 billion. Second, the Governor’s more than the minimum requirement if revenues budget includes about 60 discretionary spending decline and the requirement drops. Although the proposals—proposals that use budget capacity, settle-up proposal responds to revenue risk in the eroding the budget’s bottom line—and these total current year, downside risk to revenues is likely about $600 million. (These proposals are numerically greater in 2026-27 than it is in 2025-26. fewer than in some previous years, although roughly Suspends BSA True-Up Deposit for 2025-26. equivalent to the amount of discretionary spending Proposition 2 requires the state to make annual proposed in last year’s Governor’s budget.) Finally, deposits into the Budget Stabilization Account the Governor sets the balance of the state’s (BSA), with amounts generally increasing when discretionary reserve to $4.5 billion. We describe the revenues—particularly those from capital gains— major items in each of these categories below. are higher. Deposits may be suspended if the Governor declares a budget emergency. However, Budget Solutions deposits are later revised or “trued up” to reflect Budget solutions are proposals that create updated revenue estimates in the subsequent more budget capacity. Taken together, the two fiscal years. This occurs even if the initial budget solutions in the Governor’s budget result deposit was suspended. In last year’s budget, in an improvement in the budget’s bottom line by the state suspended the initial BSA deposit for $9 billion. Ongoing, the Governor’s spending-related 2025-26. Under the administration’s higher revenue solutions provide $5 billion in savings within a few estimates, a $2.8 billion true-up deposit would years. Appendix 1 provides a list of the Governor’s be required for the current year. The Governor budget solutions. proposes suspending this true-up deposit as well. Generates $5.6 Billion School and Community Implementing Immigrant Population-Related College Settle-Up Obligation in 2025-26. The H.R. 1 Policies in Medi-Cal. As part of the state’s State Constitution sets a minimum spending required implementation of H.R. 1, the Governor requirement for schools and community colleges. proposes taking two discretionary actions related For 2025-26, this requirement is up $6.9 billion under to immigrants that reduce state costs. The first the administration’s estimates, but the Governor’s would end comprehensive coverage for certain budget provides $5.6 billion less than this revised immigrant groups that will lose most federal cost estimate. This difference provides one-time sharing under H.R. 1. The second would extend savings, giving the state more budget capacity, new eligibility rules (such as work requirements) but if revenues meet expectations for 2025-26 for certain federally funded populations to would eventually require the state to “settle up.” additional immigrant groups with state-only-funded 6 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET comprehensive coverage. The proposals reduce (1) $76 million for utility replacement and site costs by around $900 million in 2026-27, with improvements at Exposition Park, (2) $67 million savings in future years ramping up to a few billion to the California Department of Forestry and dollars annually. Fire Protection for fixed-wing aircraft pilot and Other Budget Solutions. The budget also mechanics contract increases, (3) $60 million includes a few other, smaller budget solutions. to the Department of Health Care Access and In the budget window, for example, the Information for a reproductive health care grant administration proposes: (1) reverting $71 million program, and (4) a $50 million General Fund loan in unused EDDNext project funding early, and to the Department of Toxic Substances Control for (2) modifying In-Home Supportive Services (IHSS) residential cleanup around the former Exide facility. eligibility to align with Medi-Cal, which provides We provide a full list of the Governor’s discretionary $86 million in savings). The Governor’s budget proposals in Appendix 2. also includes some proposals that provide savings Discretionary Reserves in future years (that is, in 2027-28 and after). This includes proposals to: (1) remove the state’s share Sets Discretionary Reserve Balance to of costs associated with growth in IHSS hours per $4.5 Billion. The Special Fund for Economic Uncertainties (SFEU) is a general-purpose case, which we estimate could save $650 million by reserve commonly used to provide capacity for 2029-30 (if hours continue to grow at their current unanticipated expenditures, including state costs rates); (2) make an ongoing reduction to the Middle associated with disasters and other emergencies. Class Scholarship program, which generates On a technical basis, it can be thought of as the $541 million in savings beginning in 2027-28; and end balance of the state’s General Fund—the (3) make $12 million in previously provided ongoing money that remains after accounting for all of the federal-related litigation funding limited term. state’s expected revenues and spending. The State Discretionary Spending Proposals Constitution has a balanced budget requirement, New Spending Proposals of About which means the balance of the SFEU must be set $600 Million. The Governor’s budget includes above zero for the upcoming fiscal year. Any level around $600 million in new discretionary General above that is up to the discretion of the Legislature. Fund spending across the budget window. As a result, we consider the entire balance of the (We consider a proposal to be “discretionary” if it SFEU to be a discretionary choice. That said, recent provides more funding for a program or a service budgets have set the SFEU between $3.5 billion above what is already committed under current and $4.5 billion, so the Governor’s budget proposal law or policy.) After 2026-27, these proposals to set the balance to $4.5 billion is generally in line would add about $200 million in ongoing spending. with recent policy. Some of the largest spending augmentations proposed for the budget window include: www.lao.ca.gov 7 analysis full 2026-27 BUDGET BUDGET CONDITION General Fund Condition and community colleges has increased by nearly $21.7 billion. About half of this increase Figure 1 shows the General Fund condition is attributable to 2026-27, with smaller portions based on the Governor’s proposals and using the attributable to 2024-25 and 2025-26 (Figure 3). administration’s estimates and assumptions. The main reason for the increase is the Under Governor’s Budget, Reserves Would administration’s higher General Fund revenue Total $19 Billion at End of 2026-27. Under the estimates. Over the three-year period, the state Governor’s budget proposals and assumptions, General Fund is required to cover more than general-purpose reserves would total $19 billion by $19.4 billion of the increase, whereas growth in the end of 2026-27. This includes an SFEU balance local property tax revenue covers $2.2 billion. of $4.5 billion and $14.4 billion in the state’s main constitutional Figure 1 reserve, the BSA. These balances General Fund Condition Summary would be available to mitigate a future budget problem. (In addition, (In Millions) the state would have $4.1 billion 2024-25 2025-26 2026-27 in the Proposition 98 Reserve, Revised Revised Proposed available only for school and Prior-year fund balance $52,872 $55,951 $53,451 community college programs.) Revenues and transfers 232,309 235,162 227,385 Chronic Multiyear Budget Expenditures 229,231 237,662 248,330 Deficits Remain. For the fourth Ending Fund Balance $55,951 $53,451 $32,506 year in a row, our office and the Encumbrances $27,998 $27,998 $27,998 SFEU balance $27,953 $25,453 $4,508 administration are forecasting Reserves multiyear budget shortfalls. BSA $18,427 $11,327 $14,350 Under the administration’s SFEU 27,953 25,453 4,508 proposed budget and revenue Safety net — — — assumptions, the state faces Total Reserves $46,380 $36,780 $18,858 operating deficits of $27 billion in SFEU = Special Fund for Economic Uncertainties and BSA = Budget Stabilization Account. 2027-28, $22 billion in 2028-29, and $23 billion in 2029-30, as seen in Figure 2. In November, our office Figure 2 projected the state faced deficits Chronic Multiyear Budget Deficits around $35 billion per year, with much of the difference attributable 2027-28 2028-29 2029-30 to our lower revenue estimates. -$5 Schools and Community -10 Colleges Budget -15 School Funding Requirement -20 Revised Up $21.7 Billion -25 Across the Budget Period. -30 Compared with the June 2025 -35 budget level, the administration -40 estimates that the Proposition 98 Operating Deficits Under LAO November Outlook funding requirement for schools Operating Deficits Under DOF Estimates in Governor's Budget DOF = Department of Finance. 8 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET the budget funds several smaller Figure 3 initiatives, including (1) $62 million to increase and stabilize funding Changes in School Funding rates for certain districts Requirement Over the Budget Period participating in the Expanded (In Billions) Learning Opportunities Program, (2) $38 million for Calbright $3.9 $123.8 $10.9 $125.5 College to cover higher operational $6.9 $121.4 costs, and (3) $32 million to fund $119.9 0.5 percent systemwide enrollment $114.6 growth for the community colleges. Allocates One-Time Funds for Discretionary Grant, Eliminating Deferrals, and Various Other Initiatives. The largest one-time proposal is a $2.8 billion discretionary block grant for 2024-25 2025-26 2026-27 schools. Another significant June 2025 Enacted Budget January 2026 Governor's Budget one-time proposal allocates $2.3 billion to eliminate the school and community college payment Makes Required and Discretionary deferrals the state implemented in the June 2025 Deposits Into the Proposition 98 Reserve. budget. The budget also funds several other The Proposition 98 Reserve is a statewide reserve activities. For schools, the most notable proposals account for school and community college funding. include $757 million to restore the Learning The June 2025 budget withdrew the entire balance Recovery Emergency Block Grant to its original from this reserve. Under the Governor’s budget, level and $250 million to support teacher residency the state would make mandatory deposits totaling programs. For community colleges, the budget $4.3 billion across 2024-25 and 2025-26. These includes $121 million for deferred maintenance deposits reflect significantly higher estimates of and $100 million for a student support block grant. capital gains revenue. The budget also includes a Nearly all of the spending proposals build on discretionary deposit of $240 million in 2025-26 and activities the state has funded in previous budgets. a mandatory withdrawal of $407 million in 2026-27. After all these actions, the reserve would have a Delays $5.6 Billion in Payments Related to balance of $4.1 billion. The deposits also trigger a 2025-26. When the Proposition 98 requirement statutory cap on the local reserves held by medium increases after the budget is adopted, the state and large school districts. This cap nominally limits makes one-time settle-up payments to cover the a district’s discretionary reserves to 10 percent difference. Whereas the state usually provides of its budgeted expenditures, though various these payments as part of the subsequent budget, exemptions and exclusions typically allow higher the Governor proposes delaying $5.6 billion reserve levels. associated with higher estimates of the 2025-26 requirement. The administration indicates that the Funds Three Notable Ongoing Increases. state will make these payments after finalizing its The Governor’s budget provides approximately Proposition 98 calculations for the year (no earlier $2.4 billion for a 2.41 percent statutory cost-of-living than June 2027). For schools and community adjustment for existing school and community colleges, this delay reduces the amount of college programs. It also provides $1 billion ongoing one-time funding available in this year’s budget. to support the implementation of community (The state took a similar action in June 2025 to schools. Additionally, it provides $509 million to delay a $1.9 billion payment related to 2024-25. increase per-student funding rates for special The Governor’s budget proposes to make that education. Separate from these larger proposals, payment in full.) www.lao.ca.gov 9 analysis full 2026-27 BUDGET COMMENTS Stock Market Poses Serious Risk to economy and revenues have grown, underscoring Revenues. As we discussed in our Fiscal Outlook, that the problem is structural rather than cyclical. several historically reliable signs suggest the stock Taken together, these trends raise serious concerns market is overheated and at high risk of reversing about the state’s fiscal sustainability. course into a downturn in the next year or so. Governor Acknowledges These Challenges… Should a stock market downturn occur, income In the budget summary and presentation, the tax revenues would fall considerably. These risks Governor and administration officials have are severe enough that not incorporating them acknowledged the downside risk to the state’s into this year’s budget, as the Governor proposes, revenue picture. For example, in the budget would put the state on precarious footing. summary, the administration points out that: Further amplifying this precariousness, even under (1) much of the revenue surge is attributable to the administration’s more optimistic revenues, the investor enthusiasm around artificial intelligence, budget is only roughly balanced in the near term. (2) history suggests these gains are not sustainable, Multiyear Budget Deficits Alarming. Both our and (3) the dominant risk to the budget is the office and the administration expect the state to stock market and asset price declines. Further, face multiyear deficits, with estimates ranging from the administration notes that downside risk to $20 billion to $35 billion annually. These deficits revenues is a key motivator for its Proposition 98 are concerning for three reasons. First, after four settle-up proposal, which would allow the state years of projected deficits and a cumulative total to avoid overcommitting funding to schools and of $125 billion in budget problems solved so far community colleges in the event revenues decline in (see Figure 4), the state’s negative fiscal situation 2025-26. (However, this proposal would not provide is now chronic. Second, as we pointed out in our protection against downside risk in 2026-27.) Fiscal Outlook, structural deficits have grown—our …But Governor Proposes No Material Actions November outlook is the most negative forecast to Address Downside Risk. The Governor has of the budget’s position since the pandemic. two proposals to address downside revenue Finally, deficits have persisted even as the state’s risk: (1) its settle-up proposal, which provides a limited hedge against downside revenue risk, but only in 2025-26, Figure 4 and (2) a commitment to revisit State Addressed $125 Billion in the state’s budget condition Deficits Over the Last Three Years and multiyear situation in May. Otherwise, the Governor’s budget takes no material actions to $60 address this challenge. In fact, 50 the Governor’s two major budget solutions—that is, the settle-up 40 proposal and suspending a BSA 30 true up—mostly reduce budget resilience rather than increasing 20 it. On an ongoing basis, the 10 Governor’s budget proposes about $5 billion in spending solutions. 2023-24 2024-25 2025-26 However, these fall well short of 2023-24 Budget 2024-25 Budget 2025-26 Budget the amount needed to substantially address future deficits. 10 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Administration’s Delay Magnifies Challenges. deposits across the budget window, including The state’s deficits will require legislative action. the $2.8 billion true-up deposit in 2025-26. It is essential that the Legislature begin that work Second, increase budget resilience by setting now, rather than waiting until the administration aside $5.6 billion associated with the settle-up puts forward a revised budget in May. Beginning proposal into a reserve, rather than using deliberation now would provide time for public these funds for other budget commitments scrutiny and legislative vetting of possible (as done by the administration). This could solutions. By contrast, delaying until May forces the be achieved by depositing these funds Legislature to either accept solutions that have not into the Proposition 98 reserve or another received sufficient public discussion or defer action general-purpose reserve. Both of these even more. Given that a new administration will take actions would also require commensurate office next year, further delays would mean making budget solutions. difficult decisions during a period of transition to • Shrink Multiyear Deficits. Finally, we new leadership across the executive branch. This recommend the Legislature adopt a plan to could further complicate efforts to take timely and address at least half of the identified multiyear deliberative action. deficits. Based on the administration’s Steps for Recognizing Revenue Risk and estimates, this would require additional Addressing Structural Deficits. The budget ongoing solutions totaling at least faces two key and sizeable challenges: downside $10 billion. These solutions could include risk to the Governor’s revenue estimates in the spending reductions, revenue increases, budget window and significant structural deficits or a combination of both. Some of these in the out-years. To address these challenges, we solutions—in combination with those made recommend the Legislature: in the budget year—could be phased in starting in 2027-28 to allow programs time to • Acknowledge Downside Risk by Adopting implement the changes thoughtfully. LAO Revenue Outlook. Both our office and the administration agree the budget faces Identifying budget solutions—spending downside risk, particularly from the stock reductions and revenue increases—while revenues market. However, only our revenue forecast continue to beat expectations is challenging. explicitly incorporates the possibility of a Moreover, there is the possibility that revenues market downturn, hedging against this risk. ultimately will beat our forecast in the near term, Using our revenue forecast as the budget’s resulting in the seeming possibility of deferring starting place would make difficult choices action. But we still urge the Legislature to start unavoidable, providing a practical baseline addressing the budget’s structural imbalance for action. now. Starting now, before a crisis is at the state’s • Tackle the Budget Problem. If the Legislature doorstep, enables the Legislature to take a more adopts our revenue outlook, the primary task thoughtful approach to rebalancing the state’s will be to identify solutions that bring the commitments. Moreover, approaching the structural budget into balance. If the Legislature uses the deficit in increments allows the Legislature to administration’s revenue estimates, however, ensure those solutions ultimately improve the we recommend two steps. First, maintain— state’s fiscal position as intended and take rather than suspend—all required BSA subsequent action as needed. www.lao.ca.gov 11 analysis full 2026-27 BUDGET CONCLUSION Nearly four years ago—on the heels of the bust with mostly short-term solutions rather than pandemic and two years of extraordinary revenue realigning its structural shortfalls. As a result, growth and historic surpluses—revenues fell when California entered another recession only a sharply, posting double-digit declines. Since then, few years later—the most severe since the Great revenues resumed growing, even above historic Depression—the budget rapidly deteriorated into averages, but not fast enough to catch up with the crisis. Similar conditions also existed in the wake of state’s spending level. As a result, recent budgets the Great Recession. By contrast, in those years, have proven difficult for policymakers as deficits the state made significant ongoing reductions to have transitioned from cyclical to structural. programs and later enacted Proposition 30 (2012), In two other cases in recent history, the state raising personal income taxes. Coupled with the encountered similar conditions: deficits lingering longest economic expansion on record, these in the wake of a sharp revenue decline, despite factors eventually stabilized the budget. Today, subsequent revenue growth. Specifically, this without action to realign ongoing expenditures occurred after the dot-com bust and after the Great with ongoing revenues, the risk of repeating history Recession. The state responded to the dot-com looms large. 12 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET APPENDIX Appendix 1, Figure 1 General Fund Spending Solutions Proposed in the 2026-27 Governor’s Budget (In Millions) Department or Program Description 2025-26 2026-27 CSAC Middle Class Scholarship — —a DOJ Ongoing federal-related litigation funds made limited term — —b EDD Unused EDDNext project funding $71 — IHSS Align IHSS eligibility with Medi-Cal — $86 IHSS Eliminate permanent back-up provider system — 4 IHSS Eliminate states’ share of cost for growth in hours per case — —c Medi-Cal End comprehensive coverage for certain groups — 786 Medi-Cal Work requirements and 6-month renewals for adults with UIS — 125 Totals $71 $1,001 a Ongoing reduction of $541 million beginning in 2027-28. b Provides $12 million in savings beginning in 2029-30. c Ongoing reduction of $234 million beginning in 2027-28, which we estimate could grow to $664 million by 2029-30. CSAC = California Student Aid Commission; DOJ = Department of Justice; EDD = Employment Development Department; IHSS = In-Home Supportive Services; and UIS = unsatisfactory immigration status. Appendix 1, Figure 2 Other General Fund Solutions Proposed in the 2026-27 Governor’s Budget (In Millions) Solution Type Description 2025-26 2026-27 Borrowing Proposition 98 settle up $5,560 — Reserves Suspend true up for BSA deposit 2,819 — Revenue Related Require delivery network companies to register as marketplace facilitators — $10 Totals $8,379 $10 BSA = Budget Stabilization Account. www.lao.ca.gov 13 analysis full 2026-27 BUDGET Appendix 2, Figure 1 General Fund Discretionary Spending Proposals in the 2026-27 Governor’s Budget: Criminal Justice (In Millions) Department or Program Description 2026-27 CDCR Statewide correctional video surveillance $10.0 CDCR Telemental health staffing 8.9 CDCR Tattoo removal program 1.2 CMD Drug Interdiction program continuance 15.0 DOJ Firearms IT Systems Modernization Project 11.2 DOJ Shift support for some firearm workload to General Fund for three years 8.0 DOJ Firearm barrels workload that can be supported by fees 1.2 JB Fresno County—New Fresno Courthouse (reappropriation) 18.1 JB Supreme Court and Courts of Appeal Court-Appointed Counsel programs 11.0 JB Kings County—New shelled courtroom for new judgeship 7.6 JB Sutter County—New shelled courtroom for new judgeship 6.5 JB San Joaquin County—New shelled courtroom for new judgeship 6.4 JB Solano County—New Hall of Justice (reappropriation) 5.2 JB Plumas County—New Quincy Courthouse 2.3 JB Nevada County—New Nevada City Courthouse 1.5 Total $114.1 CDCR = California Department of Corrections and Rehabilitation; CMD = California Military Department; IT = information technology; DOJ = Department of Justice; and JB = Judicial Branch. 14 LEGISLATIVE ANALYST’S OFFICE analysis full 2026-27 BUDGET Appendix 2, Figure 2 General Fund Discretionary Spending Proposals in the 2026-27 Governor’s Budget: All Other (In Millions) Department or Program Description 2025-26 2026-27 BOE Information Technology Modernization Project — $3.2 BPPE Costs shifted to General Fund $10.0 — CCC Four new positions at Chancellor’s Office — 0.6 CDE State Preschool direct deposit — 2.1 CDE Server room air conditioning and power supply replacement — 1.3 CDE Staff for transitional kindergarten multilingual learner screening instrument — 0.3 CDE Staff to support Proposition 28 arts and music funding — 0.1 CDFA Farm to school efforts — 24.6 Child Care Prospective payments for child care providers — 43.8 CHP Sawtooth Ridge Enhanced Radio System project — 1.3 CHP Capital outlay planning and site identification — 1.0 CSAC Golden State Teacher Grants (reappropriation) — 14.4 CSL Higher rental costs (Library and Courts I and II Buildings) — 1.1 CSU Payment deferral (retire) — —a CTC Various Commission on Teacher Credentialing staff increases — 3.0 DDS Life Outcomes Improvement System IT project planning — 5.7 DOJ Additional funding for federal-related litigation — 10.0 EMSA Administrative resources — 1.4 FTB Replacement of disaster recovery mainframe servers — 13.1 GO-Biz Ongoing funding for California Export Promotion Program — 1.4 GovOps California Education Learning Lab (reinstatement) — 4.0 HCAI Reproductive Health Care Grant Program 60.0 — HHS Menopause public awareness campaign — 3.0 UC Payment deferral (retire) — —a WDB Additional Operational Resources — 5.6 Totals $70.0 $140.9 a The Governor’s budget proposes retiring the UC and CSU payment deferrals in 2027-28. BOE = State Board of Equalization; BPPE = Bureau for Private Postsecondary Education; CDE = California Department of Education; CDFA = California Department of Food and Agriculture; CHP = California Highway Patrol; CSAC = California Student Aid Commission; CSL = California State Library; CTC = Commission on Teacher Credentialing; DDS = Department of Developmental Services; DOJ = Department of Justice; EMSA = Emergency Medical Services Authority; FTB = Franchise Tax Board; GO-Biz = Governor’s Office of Business and Economic Development; GovOps = Government Operations Agency; HCAI = Department of Health Care Access and Information; HHS = Health and Human Services Agency, Secretary; and WDB = Workforce Development Board. www.lao.ca.gov 15 analysis full 2026-27 BUDGET Appendix 2, Figure 3 General Fund Discretionary Spending Proposals in the 2026-27 Governor’s Budget: Resources and Environment (In Millions) Department or Program Description 2026-27 CalFire Fixed-wing aircraft pilot and mechanics contract increases $66.5 CalFire Riverside Unit headquarters property acquisition 10.0 CalFire Permanent resources for enhanced defensible space inspections 6.2 CalFire Happy Valley Fire Center property acquisition 6.0 CalFire Hollister Air Attack Base/Bear Valley Helitack Base facility relocation 5.5 CalFire Boggs Mountain Helitack Base facility relocation 4.8 CalFire Tehama Glenn Unit Headquarters facility relocation 4.5 CalFire Parlin Fork Conversation Camp kitchen repairs 4.1 CalFire Humboldt-Del Norte Unit headquarters 4.0 CalFire Witch Creek Fire Station facility relocation 3.3 CalFire Howard Forest Helitack Base facility replacement 1.9 CalFire Hemet-Ryan Air Attack Base facility replacement 1.8 CalFire Los Angeles Moran Reforestation Center improvements 1.2 CCC Hand crew daily wildfire readiness schedule 11.7 DFW Nutria eradication program 8.2 DFW San Joaquin River basin chinook salmon restoration 5.0 DSC Independent peer review for science and monitoring 0.7 DSC Information security officer 0.2 DTSC Exide residential cleanup (loan) 50.0 DWR Delta levees program mitigation 14.0 DWR River forecast and snow survey resources 9.5 Expo Park Utility replacement and site improvements 76.0 Parks California State Parks Library Pass Program 6.8 Parks California Indian Heritage Center initial operations 0.8 Total $302.6 CalFire = California Department of Forestry and Fire Protection; CCC = California Conservation Corps; DFW = Department of Fish and Wildlife; DSC = Delta Stewardship Council; DTSC = Department of Toxic Substances Control; DWR = Department of Water Resources; Expo Park = Exposition Park; and Parks = Department of Parks and Recreation. 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. 16 LEGISLATIVE ANALYST’S OFFICE