Governor Newsom’s $349B Budget Builds Reserves, Boosts Schools as Inland Empire Leaders Split on Housing

Governor Newsom on Jan. 9 released a proposed $348.9 billion California budget for 2026-27 that his administration “says” closes a $2.9 billion shortfall with stronger-than-expected revenues while rebuilding reserves for an uncertain economy and shifting federal policy.

The spending plan would leave California with $23 billion in total reserves, including $14.4 billion in the Rainy Day Fund, and includes a $3 billion deposit into that account. The proposal also seeks $1.55 billion in state operations reductions and continued savings from eliminating about 6,000 long-vacant positions.

The Legislative Analyst’s Office said the proposal is “roughly balanced” in the near term, but warned the stock market poses serious revenue risk and that both the administration and the LAO project large multiyear deficits.

Education is the budget’s biggest emphasis. Newsom’s administration cites record per-pupil funding of $27,418 and proposes continuing universal transitional kindergarten for more than 400,000 four-year-olds, a $1 billion expansion of community schools, and continued support for before-, after- and summer-school programming.

State Superintendent of Public Instruction Tony Thurmond praised those investments while arguing the plan still does not go far enough to lift student performance statewide.

“I am heartened to see that the Governor’s proposed budget includes many important investments in TK-12 education that I have championed, including $1 billion to sustain and expand Community Schools and $4.7 billion in ongoing support of before, during, and after-school programming through the Expanded Learning Opportunity Program,” Thurmond said. “While the education funding in this budget proposal represents record per-pupil spending, I believe that this proposal falls short of funding levels and meaningful reforms needed to truly accelerate student achievement.”

Thurmond also raised concerns about a governance proposal the administration describes as moving the California Department of Education under the Executive Branch. “I am interested in reviewing the language of the Governor’s proposal on education governance reform, on which neither I nor CDE was consulted,” he said.

Housing and homelessness, persistent crises for Inland Empire communities, drew criticism that the proposal does not add major new money. The governor’s office highlights continued Homeless Housing, Assistance and Prevention funding, including $500 million planned for 2026-27 with new accountability requirements.

Assemblymember Dr. Corey A. Jackson, a Moreno Valley Democrat, said the proposal does not meet the moment for families struggling with basic needs.

“While I am continuing to review the details of the Governor’s proposed budget, I am disappointed that it does not go far enough to meet the basic needs of Californians,” Jackson said. “At a time when families are struggling, we must be more aggressive in addressing food insecurity, getting unhoused residents into stable housing, and significantly increasing the supply of affordable housing.”

The League of California Cities, which represents municipal governments statewide, said the budget fails to include new direct investments in key city priorities and would move backward on homelessness support. “This budget falls short on that vision,” said Executive Director and CEO Carolyn Coleman. “That’s why cutting the vital Homeless Housing, Assistance and Prevention grant funding by half its historic funding levels is a step backwards.”

On climate and clean transportation, legislative budget documents say the administration proposes a $2.1 billion Proposition 4 expenditure plan for 2026-27, including major allocations for water resilience and wildfire and forest resilience. The plan also includes $200 million in one-time special funds to establish a new light-duty zero-emission vehicle incentive program.

Sen. Eloise Gómez Reyes, a Colton Democrat and chair of the Senate budget subcommittee that oversees resources, environmental protection and energy, said she will evaluate whether those investments translate into improvements for overburdened regions. “So, I’m pleased that the Governor’s proposal identifies investments from the recently approved water bond (Prop 4), a new funding plan for the now extended Cap and Invest Program, and funding to ensure California remains a leader in the development and deployment of electric vehicles.”

Newsom’s administration also placed federal policy at the center of its budget risk analysis, saying recently signed changes to federal health and human services programs would add $1.4 billion in costs to California, including $1.1 billion tied to Medi-Cal and nearly $300 million tied to CalFresh.

Assemblymember James C. Ramos, a San Bernardino Democrat, echoed the governor’s warnings about federal instability while praising the reserve strategy.

“We live in volatile, even hazardous times – like walking a high wire on a windy day – and Governor Gavin Newsom’s proposed 2026-27 budget is his vision of how to balance fiscal uncertainty while attempting to ensure that needy children and families receive the services they need,” Ramos said. “Because of that principle, I was pleased to see that the Governor wants to deposit $23 billion into the state’s reserve fund to cushion us during emergencies.”

Republican Sen. Rosilicie Ochoa Bogh of Yucaipa, who issued a response after Newsom’s State of the State address on Jan. 8, argued that the administration’s optimism has not matched what many households experience.

“After years of one-party rule under Gavin Newsom, the results don’t match the rhetoric,” Ochoa Bogh said. “While speeches sound optimistic, budgets at the kitchen table don’t add up.”

The proposal now moves into legislative hearings, with an updated forecast expected in May and a final budget due by mid-June, ahead of the July 1 start of the fiscal year.