With California’s primary election over and ballots still being counted in close races, Gov. Gavin Newsom and state lawmakers are turning back to Sacramento’s most urgent task: reaching a budget agreement before the constitutional deadline of June 15.
The spending plan for the 2026-27 fiscal year carries major implications across the state, including for Southern California and the Inland Empire, where many residents rely on Medi-Cal and other health and social service programs. At the center of the negotiations are billions of dollars in disagreements over how much California should spend, what services should be preserved and whether new taxes should be used to help close ongoing budget gaps.
Newsom’s revised budget proposes $334.2 billion for health and human services, with Medi-Cal making up the largest share. About three-quarters of that funding comes from the federal government. But with federal aid reduced and the state still facing a persistent budget deficit, the governor’s proposal would scale back some services.
Those proposed reductions have drawn sharp criticism from advocates for Medi-Cal recipients, who have issued a series of objections since Newsom released his revised spending plan. Medi-Cal serves roughly 15 million low-income Californians.
Legislative leaders in both the Senate and Assembly have put forward budget outlines that would restore many of the services Newsom seeks to reduce or eliminate. The two legislative plans vary in details, but both would increase spending by at least several billion dollars. Neither plan lays out a precise final bottom line.
Lawmakers are also weighing tax increases, particularly those aimed at corporations. Proposals include changing how multinational companies calculate taxable income and imposing a $285 monthly fee on large employers for each worker enrolled in Medi-Cal.
The Senate has proposed adopting that employer fee instead of renewing the state’s long-standing Managed Care Organization tax, which is supported by Newsom and the Assembly. The current tax on health plans generates about $4.5 billion per year and has helped California draw additional federal health care dollars. It is set to expire at the end of the year.
The future of that tax is complicated by new federal limits and by Proposition 35, a 2024 ballot measure approved by California voters that requires proceeds from the tax to be used for medical services rather than non-medical programs.
The California Association of Health Plans opposes renewing the managed care tax, arguing that doing so would conflict with the 2024 ballot measure and increase consumer health care costs by $1.5 billion annually.
The debate reflects the broader challenges facing Newsom and legislative leaders as they decide whether to offset federal funding cuts, restore services targeted for reductions and raise taxes to help pay for it all.
Health and welfare programs are expected to dominate the budget talks because of their size and cost, but they are not the only unresolved issues. The spending plan will be Newsom’s eighth and final budget as governor.
Newsom has said his revised proposal would close the gap between state revenues and spending, a problem that first emerged in 2022 and has continued since. He has argued that the plan would prevent his successor from inheriting a structural deficit when the next governor takes office in January.
Still, many of the tools used to balance the proposal are temporary. They include drawing from emergency reserves, relying on loans outside the main budget framework and using revenue that may be tied to a short-term boost from taxes connected to the artificial intelligence industry.
Legislative Analyst Gabe Petek has cautioned that the state remains financially vulnerable. In a review of Newsom’s budget, Petek wrote that California’s reduced reserves and growing debt leave it poorly positioned if revenues fall below expectations.
As the June 15 deadline approaches, the remaining question is whether state leaders will craft a long-term solution or once again rely on short-term measures to keep the budget in balance.
Original source: CalMatters
