Governor Signs $321B Budget — Impact on Monterey Bay Region
On Monday, California Gov. Gavin Newsom signed the final portion of the 2025–26 state budget. This $321 billion spending plan closes a $12 billion deficit through $5 billion in cuts, $5 billion in borrowing, $1.7 billion in funding shifts, and approximately $500 million in potential trigger cuts. This deficit is credited to outpaced spending on social services, coupled with personal and corporate income taxes and sales taxes falling short of previous projections.
Although this marks the formal end of the traditional budget process, the Governor and legislative leaders have acknowledged that ongoing federal fiscal uncertainty, delayed tax returns from the L.A. fires, and evolving tariff policies may necessitate further budget revisions in the months ahead.
Here are a few areas of note for the Monterey Bay region:
Housing: In the budget process, one of the more vigorously debated proposals—ultimately adopted—accelerates environmental review under the California Environmental Quality Act (CEQA) for infill housing, high-speed rail, utilities, broadband infrastructure, community-serving facilities, wildfire prevention projects, and farmworker housing. It also expands permitting streamlining and prohibits new residential building standards through 2031, except for emergency, fire safety, and conservation-related updates.
MBEP and partners have long advocated for CEQA streamlining for infill housing and welcome the inclusion of advanced manufacturing approvals, which align with our workforce development grants and implementation efforts.
The budget agreement includes critical housing funding that was contingent on CEQA reform which was restored from the May Revise cuts. Funding includes:
$500 million for the state Low Income Housing Tax Credits (LIHTC)
$120 million for the Multifamily Housing Program (MHP)
Increased funding for the Department of Housing and Community Development (HCD) to support the Housing and Homeless Accountability, Results and Partnership unit
$500 million for the Homeless Housing and Assistance Program (HHAP) in FY 2026-27
Sen. John Laird and Assemblymembers Gail Pellerin (Santa Cruz) and Dawn Addis (Monterey) did not support aspects of the package, citing concerns about potential CEQA exemptions for battery storage systems, insufficient tribal consultation, and weak protections for endangered species habitats. They also objected to advancing these major policy changes through the budget process, which limited public input and legislative review.
Immigration: Beginning in 2026, California will cease enrolling new adult patients without legal status in its state-funded healthcare program for low-income individuals. Additionally, starting in July 2027, the state will introduce a $30 monthly premium for undocumented immigrants under age 60 who remain enrolled. This is a scaled-back version of the Governor’s May proposal, which would have frozen all enrollment and imposed a $100 monthly premium.
Child Care: Consistent with the May Revision, the Governor continues to emphasize support for working families and economic development through expanded child care access. This budget includes full implementation of transitional kindergarten, allowing all children who turn four by Sept. 1, 2025, to enroll. It also provides continued funding for school-based after-school programs to further support working parents.
Higher Education: In a soft reversal from the proposed 7% cut in January and 3% cut in May, the University of California (UC) and California State University (CSU) systems avoided reductions. Instead, 3% of each system’s base funding will be deferred until 2026–27, totaling $129.7 million for UC and $143.8 million for CSU. Both systems will be eligible for interest-free loans to cover the deferred funds during the 2025–26 fiscal year.
