January 13, 2026

When Governor Newsom released his final state budget proposal last week, it included revenue estimates that were higher than anticipated and avoided a massive deficit that the legislature was expecting based on the Legislative Analyst’s projections. The budget proposals for education include modest increases and avoid overt cuts, however many details remain to be seen in trailer bill language that is not expected before February 1.

The governor’s overall state budget as proposed is almost 9% higher than the current year, for a total of $348.9 billion. The state General Fund spending is about $20 billion higher, at $248.3 billion. When the 2025-26 budget was enacted, lawmakers assumed there would be a deficit in 2026-27 of $13 billion; even though California’s revenues are higher than had been expected, the governor’s plan assumes a deficit of $2.9 billion for the coming year. To balance the budget, the proposal suspends an expected deposit in 2025-26 into the state’s primary Rainy Day fund (the Budget Stabilization Account). However, the proposal shows $23 billion in total state reserves at the end of the 2026-27 fiscal year.

While the overall approach is to maintain existing programs and limit new spending or programs, there are a couple of significant proposals included in the education budget (see below). Overall, the Proposition 98 guarantee is estimated to be $21.8 billion above the 2025-26 enacted budget, with higher amounts in all three years that are included in the estimate. In TK-14, there is a fully funded statutory cost-of-living adjustment estimated at 2.41%, which will modestly increase core funding including the LCFF and the SCFF. The governor has also proposed funding increases for the University of California consistent with intent language regarding 2026-27.

In addition to the funding proposals, Gov. Newsom has also included a plan to reform the way the state’s public agency governance bodies are structured and operate. We expect the full details will become available in February when the budget trailer bills are released.

Download the full report for a summary of the major items in the January budget proposal. In the coming weeks, as the details of policy proposals become available, CFT will circulate a more detailed report about the governor’s budget proposals. As a reminder, the budget process is a months-long one, and the 2026- 27 budget will not be finalized until June. In the next few months, legislative budget hearings will occur and the state senate and assembly will develop their own budget proposals. In May, Governor Newsom will revise his proposal in advance of further negotiations with the legislature.

Download and read the full legislative update