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Newsom Unveils $322 Billion California Budget to Kick Off 2025 Legislative Session

As the 2025 legislative session begins and lawmakers start introducing bills, Governor Gavin Newsom has set the stage with his proposed $322 billion budget for the 2025-26 fiscal year. While this marks the first step in a process that will most likely see multiple adjustments before the June 15 deadline, Newsom’s initial proposal reflects optimism with a return to a balanced budget after two years of deficits. The plan aims to strengthen the state’s financial footing while addressing pressing issues like education, public safety, wildfire prevention, and homelessness.

The proposed budget is fully balanced, thanks to improved economic conditions and higher-than-expected revenues. California anticipates an additional $16.5 billion in revenue over the next three years, driven largely by a stronger economy and better-than-expected stock market performance. In addition, the state plans to save $1.2 billion over two years by eliminating 6,500 vacant government positions. Since these positions were already vacant, it could be argued that it’s not really a true “savings,” but it’s not a new move in working to balance a budget. Operational efficiencies are expected to reduce costs by an additional $3.5 billion.

Newsom’s budget prioritizes investments in key areas that impact our daily lives. One of the most significant allocations is toward education, where the budget fully funds Universal Transitional Kindergarten. This initiative will make free schooling available to approximately 400,000 4-year-olds statewide, ensuring more children have access to early learning opportunities.

Public safety remains a critical focus, with approximately $1.6 billion set aside to support state and local efforts. This includes $283.6 million specifically earmarked for the 2025-26 fiscal year. 

The budget also addresses the persistent threat of wildfires by proposing an additional $1.5 billion in spending over multiple years to enhance wildfire and forest resilience. These funds build on previous investments supported by a voter-approved Climate Bond.

To combat California’s homelessness crisis, the governor has allocated $100 million to clear homeless encampments. This funding will come with stronger accountability measures, requiring frequent and detailed reporting of how the money is spent and the outcomes achieved. 

Despite the positive outlook, challenges are anticipated. The incoming Trump administration raises concerns about potential federal funding cuts.  In anticipation of legal battles with the federal government, the budget includes a $25 million allocation for the Attorney General’s office. This funding will support litigation on issues such as climate policy, immigrant rights, and other state priorities that may come under federal scrutiny. An additional $25 million has been proposed by democratic legislators with the hopes of taking a vote prior to Inauguration Day. 

The budget also proposes to maintain nearly $11 billion in the state’s Rainy Day Fund. Additionally, an extra $4.5 billion is set aside in the Special Fund for Economic Uncertainties, ensuring California has a financial cushion to weather potential economic downturns or unexpected challenges.

Governor Newsom’s proposal highlights key priorities, including education, public safety, wildfire prevention, and homelessness, while maintaining a focus on economic stability. However, uncertainties at the federal level and potential economic volatility underscore the need for careful financial planning in the months ahead.

As the legislative session progresses, lawmakers will have the opportunity to refine and adapt the proposed budget. These adjustments will ultimately shape California’s financial roadmap for the upcoming fiscal year and beyond.

Until next time,
Adam A. Ruiz
Vice President
Rincon Strategies

Written by Adam Ruiz

Government Affairs Director, Southwest Riverside County Association of REALTORS®

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