On May 14, California Gov. Gavin Newsom announced the revised 2026-27 fiscal year budget proposal. The plan includes changes aimed at eliminating the state’s projected deficit through 2028, protecting public benefits, and increasing funds for the University of California. 

On Jan. 9, Newsom proposed the first draft of the budget. The recent May revision — a mandatory review to reflect updated economic conditions and revenue estimates — presents the latest version of financial plans for the upcoming year. The California Legislature will discuss and vote on the official budget in mid-June, and if approved, it would take effect on July 1, the start of California’s fiscal year.

The largest adjustments to the budget include: 

• A $300 million investment in California’s premium subsidy program, which maintains affordable healthcare for low-income individuals in light of the expiration of the Affordable Care Act subsidies.
• Tax cuts up to 50% for “hundreds of thousands of” small businesses.
• A $5 billion block grant for K-12 teacher support and training.
• An increase in special education funding  — the largest SPED investment in California history — of 43% or $2.4 billion.
• A $500 million investment toward English and math tutoring support in high-need schools.
• A $100 million fund for disaster rebuilding to help those affected by wildfires.
• A transfer of $560 million to the Housing Development and Finance Committee, a council focused on reducing time and cost in the construction of affordable housing.

The budget will also allocate $9.7 billion to the state’s Surplus Holding Account to prepare for revenue uncertainty and structural deficits and to create a reserve for economic shifts. The Surplus Holding Account is a temporary state budget reserve that allows the California Department of Finance to set aside anticipated surplus funds for later fiscal years. The overall budget plans to remove $1.8 billion from the initial general fund released by Newsom in January, allowing for a $0 structural deficit — expenditures exceeding the state’s revenue — for fiscal years 2026-27 and 2027-28. 

For the UC system, Newsom maintained the initial $350.6 million increase in appropriations he announced in January. The UC will receive $5.3 billion from California’s general fund in compliance with the five-year compact agreement that promised a 5% annual budget increase for the UC and California State University systems. As also proposed in the January budget, California will defer paying out $129.7 million to the UC until next year as a one-time 3% base funding reduction, which was delayed from the 2025-26 budget’s plan to reduce funding for the UC system. 

UC President James Milliken responded to Newsom’s revision in a statement released on the same day.  

“I’m deeply grateful to Gov. Newsom for his thoughtful leadership and sustained support of the University of California over the years,” Milliken said. “The UC funding included in the May revision will help ensure that the university remains affordable and accessible to California students. As the University of California faces ongoing federal funding uncertainty and increasing operational and labor costs, state funding for UC is more important than ever.”