On January 9, 2026, Governor Gavin Newsom released his proposed 2026-27 State Budget that will fund state government for the 12-month period starting July 1, 2026.
Governor Newsom previewed the proposed budget in his State of the State address on January 8, while his Director of Finance Joe Stephenshaw presented the proposed budget on January 9, 2026.
State spending next fiscal year would increase to $348.9 billion as part of a balanced budget, with $248.3 billion in general fund spending. The Governor’s budget projects a modest shortfall of $2.9 billion which would be offset by delaying a $2.8 billion dollar “true-up” to the Budget Stabilization Account. The Governor’s proposed budget assumes modest growth in revenue which contrasts with the Legislative Analyst’s Office which previously estimated an $18 billion shortfall.
While the proposed budget is balanced in the upcoming fiscal year with a discretionary reserve of $4.5 billion, it projects a deficit of roughly $22 billion in the 2027-28 fiscal year and shortfalls in the two years following. The Administration plans to present a revised plan with the May Revise to reflect updated revenue and spending data. While revenue this fiscal year has come in significantly higher than anticipated in the 2025 Budget Act with tech company stocks driving higher than expected personal income tax revenue, potential stock market and asset price declines remain a threat. The proposed budget summary notes that a twenty-percent market correction could have a $25 - 30 billion budget impact.
The good news is that the proposed budget does not contain significant cuts to any programs. But the budget does not include any new significant spending proposals with an increase of only $1.6 billion for baseline workload increases.
Regarding state employee compensation, the Governor’s budget proposal summary states:
The Budget includes $260.7 million ($116.9 million General Fund) in 2026-27 for increased employee compensation and health care costs for active state employees. Included in these costs are collectively bargained salary and benefit increases resulting from contract negotiations and funding for 2027 calendar year projected increases in health care and dental premiums and enrollment.
The budget notes that the state will be bargaining for new labor contracts with the nine units represented by SEIU Local 1000. While ACSS will continue to pursue proposals for all excluded employees, as has been the practice, ACSS will make proposals for the supervisory and managerial employees related to the nine units for consideration by CalHR in connection with the bargaining cycle.
Other proposed budget items of interest include:
- $9.8 billion state employer contribution to CalPERS for state pension costs, with a supplemental $2.5 billion supplemental pension payment toward retirement liabilities at CalPERS
- Scores the savings of $487.1 million with 6002 vacant positions eliminated beginning in 2025-26
- State operations ongoing reductions of $1.56 billion which were included in the 2025 Budget Act for 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.