In a high-stakes end to the 2025-26 budget season, Governor Gavin Newsom and legislative leaders approved a $321 billion spending plan that closes a $12 billion deficit while preserving core programs and advancing major housing and infrastructure reforms.

This year’s budget, shaped by intense late-night negotiations, continues a now-familiar trend: tying fiscal decisions to sweeping policy changes. At the heart of this approach is the use of budget trailer bills as a strategic tool to drive legislative priorities.

No Broad Tax Hikes, But Targeted Revenue Moves
Rather than pursuing across-the-board tax increases, the final deal opts for narrower fiscal measures. One notable change is a shift to single sales-factor taxation for financial institutions—expected to raise approximately $330 million in new revenue.

Housing Policy as Leverage: The CEQA Shakeup
A defining feature of this budget was the hardball tactic used to push through housing reforms. Governor Newsom made the entire budget contingent on passing two housing-related trailer bills—SB 131 and AB 130—by June 30. This maneuver forced action on some of the most consequential changes to state environmental law in decades.

• SB 131 delivers the most extensive overhaul of the California Environmental Quality Act (CEQA) since its inception in 1970. It accelerates environmental reviews for infrastructure projects—including housing, water systems, broadband, wildfire prevention, and advanced manufacturing sites like EV and semiconductor facilities.
• The law introduces court deadlines and limits CEQA lawsuits to reduce project delays.
• Supporters argue these changes are vital to speeding up climate-resilient construction and addressing the housing crisis. Opponents warn they weaken environmental protections and undercut labor standards.

Balancing Labor and Development
A central point of contention was how to reconcile labor protections with the urgency to build housing.

• The budget maintains prevailing wage requirements for large-scale and affordable housing but eases them for smaller projects to encourage more development.
• It allocates $100 million for Proposition 36 implementation, prioritizing treatment over incarceration.
• $45 million is set aside to stabilize financial challenges at Sonoma State University.

Climate Resilience Gets a Boost
The spending plan reaffirms California’s climate commitments through major investments in fire prevention, clean energy, and grid upgrades.

• Over $1.7 billion in cap-and-trade and General Fund dollars will support CalFire operations, forest health, and wildfire mitigation.
• Streamlined permitting processes under SB 131 are designed to fast-track clean energy infrastructure and transmission line construction.

Education Remains a Priority
Despite economic pressures, education funding is largely protected thanks to Proposition 98 guarantees.

• California Community Colleges will receive a 2.43% COLA, funding for enrollment growth, and support for justice-involved programs.
• K–12 investments include $114.6 billion for universal pre-K, school nutrition, and literacy initiatives.
• Base funding increases for the University of California and California State University systems are delayed but not eliminated.
• Existing tax breaks for military retirees are maintained.

Economic Visibility and Strategic Investments
Even amid budget tightening, California is investing in high-profile sectors linked to economic growth and global visibility.

• $750 million is dedicated to Film and Television Tax Credits to retain productions and jobs in-state.
• $10 million is allocated for safety and infrastructure improvements related to the 2026 FIFA World Cup events in Santa Clara and Inglewood.

Glaring Omission: No New Homelessness Funding
While the budget avoids cuts to homelessness programs, it offers no new funding despite deteriorating conditions on the ground.

• Local governments warn of possible shelter closures and scaled-back services.
• Advocates say the state missed a critical opportunity to address one of California’s most pressing humanitarian crises.

The Road Ahead: Implementation and Accountability
Now that the budget and trailer bills are law, the focus turns to execution. Governor Newsom hailed the plan as “the most significant housing and infrastructure reform in decades.” But the response has been far from unanimous:

• Labor leaders like Lorena Gonzalez criticized the package for overlooking worker protections, saying, “Anyone who thinks this abundance movement is how we’re going to get our groove back just hasn’t talked to real people.”
• Republican lawmakers slammed the process as opaque. Senator Roger Niello called it “the worst experience… in terms of transparency,” and Senator Tony Strickland said the plan “does nothing about affordability in California.”

As the dust settles, the true test lies ahead: Will these ambitious reforms translate into meaningful, measurable progress—or fall short in the face of local challenges and logistical hurdles?