On Thursday, May 14, Governor Newsom released the final revised state budget of his tenure. The proposal outlines $246.6 billion in General Fund spending, supported by $279.1 billion in available resources, including prior-year funds, revenue, and transfers, along with $4.5 billion set aside in the state’s rainy-day reserve.
Compared to the January proposal, the state’s financial outlook has surprisingly improved, based upon the Governor’s estimates. Updated revenue estimates show an increase of about $16.5 billion, largely driven by higher personal income tax collections. As a result, what was previously projected as a $2.9 billion shortfall has now been resolved, with the revised budget presenting a balanced plan for both the 2026–27 and 2027–28 fiscal years. The update also reduces expected deficits in future years and includes very little new ongoing spending.
Most of the additional revenue comes from stronger-than-expected personal income taxes, especially from capital gains. While this has boosted the near-term outlook, the administration expects more moderate growth in the years ahead.
From a housing perspective, the revision maintains the state’s required annual funding for the Low-Income Housing Tax Credit (LIHTC) program, which is currently around $130 million, but does not include the additional $500 million boost that has been provided in recent years. While that supplemental funding is not part of the current proposal, the administration has signaled that it plans to work with the Legislature to continue prioritizing investments to address California’s housing and homelessness challenges. Housing advocates across the state are already engaged on this topic and advocating to the legislature and Newsom administration to include this funding in the final budget.
The Governor has also proposed a new trailer bill aimed at curbing local development impact fees on affordable housing projects. (To learn more about what a trailer bill is, follow the link.) The proposal encourages cities and counties to reduce or waive these fees, improving a project’s chances of securing state funding when local governments help lower overall development costs or provide other support. At the same time, it would make projects ineligible for certain state funding if a local government is involved but continues to impose those fees. The policy applies only to specific local fees, excluding school and utility charges, and primarily affects competitive state housing grants. CCAH is continuing to review the bill and assess its potential impacts.