California Gov. Newsom's budget plan fully funds Pre-K, maintains money to clear homeless encampments

Lia Russell and Nicole Nixon, The Sacramento Bee on Jan 10, 2025

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SACRAMENTO, Calif. — State budget officials unveiled more details Friday about Gov. Gavin Newsom’s proposed $322 billion budget. It funds Newsom’s signature educational initiatives — including universal pre-kindergarten —and starts to disburse billions of dollars from a voter-approved climate bond.

The budget plan maintains $100 million to clear homeless encampments and get people into shelter but includes no new funding for the Homeless Housing, Assistance and prevention program, a popular grant that allows local governments to flexibly spend homelessness dollars in their communities. There are currently unspent funds for the program.

Newsom also proposed creating a new agency — the Housing and Homelessness Agency — that would consolidate and streamline the state’s strategies for housing and homelessness. The state will reveal more details in the spring after submitting a reorganization plan to the Little Hoover Commission.

The proposal comes as California legislators are shoring up legal resources in anticipation of litigation with incoming President Donald Trump, who has threatened to withhold disaster aid relief for wildfires like the ongoing infernos in Los Angeles.

Joe Stephenshaw, director of the state Department of Finance, sought to paint a rosy picture of the budget a year after lawmakers and Newsom filled a $47 billion deficit.

Stephenshaw said the state had reversed a projected $2 billion deficit for the upcoming fiscal year with a “modest surplus” of $363 million, but said there was little disagreement between the Legislative Analyst’s Office and budget officials.

“We really went a long way in moving California back on onto some solid fiscal footing, and this budget reflects that,” Stephenshaw told reporters.

Despite the revenue increase, Newsom proposed pulling $7.1 billion from the state’s rainy day fund in the upcoming fiscal year..

Stephenshaw said this was to plan for federal policy “uncertainty,” referring to the potential ramifications from Donald Trump’s proposed big tariffs and calls for mass deportations of undocumented residents. Stephenshaw said he also anticipated wildfire victims would need to delay their tax filings, which could complicate the state’s financial plans.

President Joe Biden said Thursday that the federal government would cover 100% of the fires’ management and debris removal costs for 180 days.

The state budget plan proposes trimming the prison budget by more than $400 million, despite a recently approved voter initiative expected to put more people behind bars for theft and drug crimes.

According to the budget document, Proposition 36 is expected to increase the prison population by about 1 percent. The ballot measure approved in November increased penalties for some drug and retail theft crimes.

“However, even with the expected increase from Proposition 36, the population is still projected to continue its overall long-term downward trend because of prior public safety realignment,” the document reads.

Stephensaw said the state is managing Prop 36 and its longer-term efforts to lower the prison population. “We will have to continue to monitor the exact impact … of Prop 36,” he said.

The budget, which Stephenshaw presented in full to reporters Friday, includes nearly $229 billion in general fund spending and $16.9 billion in total budget reserves for the fiscal year that begins July 1 and ends June 30, 2026. The general fund provides funding for ongoing state functions.

The governor typically presents the budget by January 10, when he is constitutionally required to submit a spending proposal to the Legislature. Lawmakers have until June 15 to pass the budget.

Newsom remained in Southern California Friday to oversee the response to the ongoing Los Angeles wildfires after canceling plans to attend former President Jimmy Carter’s funeral Thursday in Washington, D.C.

Newsom gave reporters a preview of the budget earlier this week at a press conference in Turlock, but gave few details about spending or how his officials managed to overcome the $2 billion shortfall that the Legislative Analyst’s Office forecast in November. He attributed a projected $16.5 billion boost in revenue to an improved stock market performance and savings.

He also said the state had saved $1.2 billion from cutting 6,500 vacant positions, with exemptions for public health and safety jobs like Highway Patrol and firefighters.

It’s a major turnaround from the previous two years, when Newsom had to negotiate with the Legislature over how to close budget shortfalls of $47 billion in 2024 and $22.5 billion in 2023.

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