Last week was a busy one for Governor Newsom. On Thursday, January 8, he delivered his final State of the State address in the Assembly Chamber, his first in-person address since 2020, followed the next day by the release of his last budget proposal, outlining California’s financial outlook for the years ahead.

Newsom’s address centered on California’s role as a national leader in key sectors such as health, technology, and agriculture. His tone conveyed resilience in the face of federal challenges, including disputes over funding, National Guard deployment, and border enforcement. On housing, Newsom offered only a brief update, noting a 9% reduction in homelessness and efforts to clear street encampments, alongside expanded mental health facilities funded by voter-approved Proposition 1. Still, housing advocates were left wanting stronger commitments to address the state’s housing crisis and improve affordability.

The following day, Newsom unveiled his proposed 2026–27 budget, presented publicly by Department of Finance Director Joe Stephenshaw. Key highlights include:

• $280.8 billion in General Fund resources
• $248.3 billion in General Fund expenditures
• A projected $2.9 billion budget shortfall

Notably, Newsom’s outlook was far more optimistic than the Legislative Analyst’s Office (LAO), which projected a $17.6 billion deficit. The discrepancy stems largely from the Governor’s inclusion of $31.5 billion in additional revenues not factored into the LAO forecast. The LAO also accounted for potential stock market downturn risks, which Newsom’s projection did not.

While the upcoming year’s budget is balanced, a $22 billion deficit looms in subsequent years. To address this, Newsom proposes no major new spending or investments beyond last year’s allocations. Future budgets will likely face continued uncertainty tied to federal tax legislation, tariffs, and immigration policy impacts. One bright spot: state revenues exceeded expectations, driven largely by the “AI boom,” with more growth anticipated. Click here to read our Lobbying team’s full analysis of the Goevrnor’s proposed budget.

Housing received limited attention in the Governor’s budget, but notable items include:

• Full implementation of the Governor’s reorganization plan for the Business, Consumer Services and Housing Agency (BCSH), including the creation of the California Housing and Homeless Agency and the Housing Development Finance Committee, aimed at establishing a “one-stop shop.”
• $560 million allocated to the Affordable Housing and Sustainable Communities (AHSC) program through the reauthorized “Cap-and-Invest” initiative.
• Ongoing advocacy for $500 million in state tax credits, a perennial priority for housing advocates.

CCAH joins a strong coalition of housing organizations urging the Governor and Legislature to prioritize $2.8 billion in critical investments this year to build affordable homes, prevent and end homelessness, preserve existing housing, and promote homeownership. Read the full coalition proposal signed by 63 organizations here.

Outside the budget proposal, a major development for housing finance: Senator Cabaldon’s Affordable Housing Bond of 2026 (SB 417) cleared its first legislative hurdle, passing the Senate Housing Committee on January 6 and moving to Senate Appropriations for fiscal review. If enacted, the measure would authorize $10 billion in bonds to fund affordable rental and homeownership programs, including the Multifamily Housing Program, CalHome Program, and Joe Serna Jr. Farmworker Housing Grant Program. Voter approval would still be required in the next election.