On January 10, 2025, Governor Gavin Newsom released his proposed 2025-2026 State Budget that will fund state government for the 12-month period starting July 1, 2025.
State spending next fiscal year would be $322.2 billion as part of a balanced budget, with $228.9 billion in general fund spending. The Governor’s budget projects an estimated surplus of $363 million.
The proposed budget is a welcome change from the last two budgets which included significant shortfalls. The proposed budget is fully balanced with no deficit and projects $16.5 billion in additional revenue above the current budget year. With the additional revenue and the two-year budget framework established last May, this proposed budget does not include any additional reductions or funding delays. Although the lack of cuts is welcome, the proposal includes only limited new funding of $1.2 billion for workload and discretionary funding above the baseline expenditures. The proposal also cautions of economic and revenue risks including stock market volatility, federal policy changes, and possible delayed tax collections due to disasters.
Regarding state employee compensation, the Governor’s budget proposal summary states:
The Budget includes $917.8 million ($368.2 million General Fund) for increased employee compensation, health care costs for active state employees, and retiree health care prefunding contributions for active employees in 2025-2026. Included in these costs are collectively bargained salary and benefit increases resulting from contracts and side letter negotiations. The Budget also includes funding for the 2026 calendar year projected increases in health care and dental premiums and enrollment.
This employee compensation number is expected to increase as 7 of the state’s 21 bargaining units will be in bargaining for new labor contracts. As those rank-and-file groups engage in bargaining, ACSS will continue the practice of making proposals to CalHR for related excluded employees.
For excluded employees related to the nine bargaining units represented by SEIU Local 1000, the amount of the expected July 1, 2025 General Salary Increase (GSI) will likely turn on the status of funding at the time of the May Revision to the Governor’s Budget. The expected July 1, 2025 GSI for impacted employees would be 3%, but would instead be 4% if the Director of the Department of Finance projects sufficient excess funding to provide the additional 1% increase. As the May Revise approaches, ACSS will continue to advocate for excluded employee salary adjustments.
Other proposed budget items of interest include:
- In addition to the $9.1 billion state employer contribution to CalPERS for state pension costs, a supplemental $1.5 billion one-time pay down of retirement liabilities at CalPERS
- An additional $385 million in one-time funding to prefund retiree healthcare
- A reduction of 6500 vacant position for a savings of $617.6 million (this is down from the up to 10,000 vacant positons identified in the prior budget)
- State government operation reductions of $2 billion in 2025-2026 including personal services, operating expenses and equipment, and consulting and professional services costs
As the proposed state budget progresses, ACSS will continue to meet with CalHR to advocate for supervisory and managerial employees and to protect excluded employees’ interests in the Legislature.