California leaders reached a tentative agreement on the state budget Tuesday night, depending on Gov. Gavin Newsom's request to the Legislature pass a housing reform proposal.
The 11-hour negotiations on the spending plan that came into effect on July 1 talked about the political challenges to long-standing environmental regulations to speed up housing construction in a Democratic-controlled country.
Despite the governor’s pressure and state criticism of a law, reform advocates say the party has been reluctant to adjust the California Environmental Quality Act, or approve a one-time exemption, or approve a one-time exemption.
The proposal is a series of policy news agencies that Democratic lawmakers are expected to advance in the coming days, part of the budget of $321.1 billion. The agreement reflects the legislature's boycott of the governor's proposed cuts to reduce the expected $12 billion budget deficit in the coming year, citing uncertainty in the scope of the state's financial problems.
“We thank the strong partnership with the Legislature for reaching a budget agreement,” Newsom spokesman Izzy Gardon said. “The governor's signature depends on finalizing the Traditional Tape Festival, releasing the traditional Tape Festival across the state, releasing the development of housing and infrastructure – built at a faster, faster pace.”
During weeks of conversations, weeks of conversations were held on how to offset the deficit caused by California’s overspending and began to address larger financial issues expected in the future, including potential federal policy changes.
The tentative transactions rely heavily on borrowing money, leveraging state reserves, and transferring funds to narrowing shortages. By reducing and delaying the governor’s many proposed cuts, the budget continues to suffer from higher state plans in the practice of the state Capitol, from direct pain while avoiding the long-term budget dilemma of California.
Parliamentary Republican leader James Gallagher (R-Yuba City) said the budget transactions were related to the state’s financial problems.
“We are in this situation due to overspending,” Gallagher said. “We have made a long-term commitment to the programs advocated by Democrats, and now, like everyone warns that the money is not about supporting everyone, they don’t want to cut down on the programs they help expand.”
Cuts of lawmakers and governors eventually agreed to reduce state-funded healthcare expansion for undocumented immigrants and resume asset restrictions testing for Medi-Cal participants. However, the final agreement for the country's savings is much lower than that originally proposed by Newsom.
The plan resumed the governor’s hope for the cost of living adjustments for child care workers in Nix and rejected overtime hours he called home care workers.
Democrats in the Legislature have successfully pushed for another $500 million in funding for homeless housing, aid and prevention grants. The governor initially refused to provide more money to the county, scolding them for not showing the billions of dollars in state funding they received to reduce the results of the homeless.
Parliamentary Budget Chairman Jesse Gabriel (D-Encino) delayed the notion that the legislature did not engage in “real belt-close connection”. He said lawmakers are trying to balance sympathy with fiscal responsibility before making substantial cuts to the safety net program Californians rely on.
“That's the balance we're trying to achieve here, it's a responsible budget, focusing on the work we need to do, but also understanding that there is a high level of uncertainty for many reasons,” Gabriel said.
The budget also retains a $750 million plan for Newsom to expand the California Film and TV tax credit, a proposal supported by Hollywood film studios and unions representing workers in the industry.
The agreement is expected to be a pioneer in more challenging financial discussions about the additional reduction in the coming months.
California expects the Trump administration and state officials to lose federal funds, with greater funding plight expected in 2026-27.
Here are several key elements of a budget agreement, detailing the summary of the agreement and legislation:
Housing warning
Commonly known as the “poison” inserted in the Budget Act, the agreement between the Legislature and the News Agency becomes law only if the legislator sends the governor a version of the proposal originally proposed by Senator Scott Wiener (D-san Francisco).
Vienna's bill is expected to reduce the number of construction projects that require a comprehensive environmental review under the CEQA and make the development environmental impact reporting process more effective.
With another proposal that would exempt CEQA from more urban housing developments, the legislation could mark a significant change in national policies that make it easier to establish.
Newsom effectively forced the Wiener proposal to refuse to sign a budget agreement without a CEQA waiver. The proposal is still being drafted as of Tuesday night.
The governor announced the lofty goal of building more housing in the 2018 governor campaign, but he failed to stimulate enough buildings to meet housing needs and make homes more affordable.
New York Times columnist Ezra Klein effectively announced inaction due to the state’s box office environmental laws and the lack of political will in his recent book, Abundance, has heightened pressure on the governor and other Democrats to rethink their approach and push for a more substantial solution this year.
The CEQA reform bill must be passed under a budget agreement on Monday, which omits separate news calls to simplify the Delta Tunnels project.
Changes to Med-CAL funds
MEDI-CAL cost overruns creates a major problem with the California budget. The challenge stems from the expanded state-funded health care price tags for all income-eligible undocumented immigration, as well as health care services for other participants.
Newsom's budget proposal in May recommended large-scale trimming of undocumented people. His plans include freezing new enrollment rates as of January 1, requiring all adults to pay a monthly premium of $100, eliminating long-term care benefits and cutting all dental insurance. These changes offer a small amount of savings in the coming year, but can save billions of dollars in the coming years.
Legislators finally agreed to require a monthly premium of $30 starting in July 2027, requiring them to pay a $30 fee. They plan to adopt Newsom's admission limit, but it will take three months to reapply if their coverage errors instead of immediately cutting eligibility.
Democrats agreed to cut dental coverage for undocumented adult immigrants, but delayed the change until July 1, 2026.
State leaders agreed that the recovery restrictions were much higher than the Governor initially proposed on assets that might have been the Medi-Cal beneficiaries, but still received coverage. The new limit for individuals is $130,000, while the new limit for couples is $195,00, while the previous limit is a few thousand dollars.
They also adopted a proposal made by Newsom to withdraw Medi-Cal benefits for weight loss medications.
Transfer money
The general fund expenditure caused by negotiations was less than the Legislature's objection to the Newsom budget revision in May, down from $232 billion to $228 billion in 2025-26.
Officials are using more funds from California’s cap and trade plan that sets restrictions on companies’ greenhouse gas emissions and allows them to buy pollution credit from the state, including $1 billion next year. They also use climate change bonds instead of $300 million in general funds to pay for environmental plans.
Legislators and governors agreed to delay $3.4 billion in payments on loans to cover MEDI-CAL cost overruns and add $1 billion in loans next year.
Trump's uncertainty
The plan continues a deal that calls for $7.1 billion from the state’s rainy day fund to help cover the deficit and $6.5 billion in attacks from other cash reserves to balance the budget.
California leaders have warned for months about the so-called Trump impact on the national budget.
UCLA financial analysts predict that the national economy is expected to slow in the coming months due to the impact of Trump’s tariff policies and immigration raids on construction, hotels, agriculture and other key sectors.
Meanwhile, the state warns that a reduction in federal funding for California at a special session in the fall or early next year could require lawmakers to make additional budget cuts in August or September.
According to a summary of budget transactions, state officials expect future deficits to range from $1.7 to $24 billion a year.
And more
The final budget agreement will be released this week through a series of trailer bills that appear online at random times.
Legislators are expected to pass a major budget bill on Friday and approve additional legislation by the July 1 deadline for the budget to take effect. Some legislation, such as the CEQA housing exemption, did not appear until this weekend.
Other decisions, such as reauthorizing California’s cap and trade plan, will be considered in a year outside the budget process.
