California Budget Deal⁤ Hinges‌ on Housing reform amid Deficit Concerns

Updated June 25,⁢ 2025

California’s leaders have tentatively agreed on‍ a ⁣state budget, effective July 1, dependent on the Legislature’s approval⁤ of Gov. Gavin⁢ Newsom’s⁤ housing reform proposal. This agreement addresses a $12 billion deficit and navigates the political complexities of modifying environmental regulations‍ to accelerate housing construction.

The ​budget⁣ deal reflects resistance to Newsom’s ⁤proposed cuts,⁢ with ⁤lawmakers citing uncertainty​ about the‌ state’s financial outlook. Izzy Gardon, a ⁢spokesperson ⁤for Newsom, emphasized that the​ governor’s signature is contingent on legislation that reduces red tape and promotes housing and infrastructure development.

The consensus follows weeks of discussions on ⁣offsetting the deficit, which stems ⁣from overspending. The deal primarily involves borrowing, utilizing state reserves, and reallocating funds. Assembly Republican Leader James Gallagher criticized the budget for masking the state’s underlying financial issues, attributing ‍the situation to long-term program‌ commitments.

The ⁣agreed-upon‌ cuts will affect the expansion of state-sponsored healthcare ​for undocumented immigrants and reinstate asset limit tests for⁢ Medi-Cal ⁤enrollees, although to a lesser extent ​than Newsom initially proposed.The plan restores cost-of-living adjustments ⁣for child-care workers​ and‍ rejects ⁤capping overtime for in-home caregivers.

Legislators successfully secured an additional $500 ‍million for⁤ Homeless Housing, Assistance and Prevention grants, despite Newsom’s initial reluctance. Assembly Budget Chair Jesse Gabriel defended the Legislature’s approach, emphasizing the ⁣need to balance compassion and fiscal duty.

The budget preserves Newsom’s plan⁣ to allocate $750 million to expand the California Film ‍and Television Tax Credit.​ The agreement is expected to precede further financial discussions regarding additional reductions.

Key elements of the budget deal include a ​housing caveat, changes to Medi-Cal funding, fund shifting, ⁤and concerns⁢ about federal funding.

A Housing Caveat

The agreement hinges on the passage of a proposal initially introduced⁣ by‌ Sen. Scott ​Wiener, which aims to reduce the number of projects requiring full environmental review under⁤ the California Environmental ⁤Quality Act (CEQA) and streamline the environmental​ impact report process. newsom is ‌conditioning the budget deal on CEQA exemptions, reflecting his push for⁢ increased housing construction.

Changes to Med-Cal⁣ Funding

The budget addresses Medi-Cal cost overruns by requiring undocumented immigrant adults ages 19 to ⁣59 to pay $30 monthly premiums starting ‌in July 2027. It⁣ also adopts ‍Newsom’s enrollment ‌cap,‍ allowing a ⁢three-month reapplying period. Full dental coverage for adult⁣ immigrants who‍ are undocumented will be cut starting July 1, 2026.

Asset limits for medi-Cal‍ beneficiaries will be reinstated at $130,000 ‌for individuals and $195,00 for couples. The plan also withdraws Medi-Cal benefits for specialty weight-loss drugs.

Shifting Money‌ Around

The negotiations resulted in‍ less general fund spending, dropping to an estimated $228 billion for 2025-26. ​Officials are utilizing ⁢more funds from California’s cap-and-trade program and climate change bonds.

Lawmakers and the governor agreed to delay a ​$3.4 billion loan payment for Medi-Cal cost overruns ⁢and increase the loan‌ by another $1 billion next year.

Trump Uncertainty

The plan continues an agreement to draw $7.1 billion from the state’s rainy‌ day fund and $6.5 billion⁣ from other reserves. California leaders have expressed ⁤concerns about the potential ‍impact of federal policy⁤ changes on⁢ the state ​budget.

What’s next

The final budget agreement is being released through a series of bills. Lawmakers ⁤are expected ‌to pass a main budget⁢ bill and approve additional ​legislation before the July⁢ 1 deadline. Further decisions, such as​ reauthorizing California’s cap-and-trade program, will be considered later in the year.