California Budget Deal Includes Reserves Boost and Housing Investments

SACRAMENTO, California — Governor Gavin Newsom and legislative leaders announced a $351.7 billion balanced budget agreement on Friday, capping weeks of negotiations with a plan that boosts reserves, invests in housing and homelessness, and places a constitutional amendment on the November ballot to reshape the state fiscal rules.

The deal transforms what had been projected as a $12.6 billion deficit into a $4.5 billion surplus, driven by a surge in capital gains tax revenue linked to artificial intelligence-related stock market gains. The budget directs $6.4 billion into a Projected Surplus Temporary Holding Account to offset deficits through the 2027-28 fiscal year and projects total state reserves of $28.8 billion.

"We want to leave the next governor not only a balanced budget, but a budget that is substantially structurally sound, and we are going to accomplish that. We were very cautious in terms of new spending," Newsom said.

The budget includes nearly two billion dollars in new revenue from corporate tax increases, a new levy on software sales, and a revamped tax on managed care organizations. It allocates $900 million for homeless housing assistance and prevention grants, a $400 million increase over the May proposal, and places an $11.25 billion affordable housing bond on the November ballot.

Pleasanton, located in the Tri-Valley region of Alameda County approximately 40 miles east of San Francisco, has a population of roughly 80,000 and is home to Workday and Clorox corporate headquarters.

"You see us save more and you see us try to address the immediate needs of our community, but also the structural budget that potentially awaits us," said Senate President Pro Tem Monique Limon.

The constitutional amendment would raise the rainy day fund cap from 10 percent to 20 percent of general fund revenue and exempt reserve deposits from the Gann Limit, the state constitutional spending cap. Republican State Senator Tony Strickland criticized the amendment, arguing it enables more spending rather than addressing the state $22 billion unemployment insurance debt.

The Legislative Analyst Office warned that an operating deficit during a revenue boom is a "red flag" and cautioned the state remains ill-prepared for even a modest stock market downturn, noting a chronic annual gap of roughly ten billion dollars between ongoing revenue and spending.