Governor Newsom Reaches Agreement With Legislature On A $321.1 Billion Budget

Governor Gavin Newsom reached a $321.1 billion budget agreement with the state legislature late on Tuesday, with large cuts of Medi-Cal that will result in the freezing of new illegal immigrant applicants from being accepted being added in.

While both the Governor and Legislature made significant cuts from other versions from earlier in the year, there is still a $12 billion budget deficit following the agreement. Many planned deep cuts were undone in the leadup to the final budget this week, including maintaining cost-of-living increases for child-care workers and undoing planned reductions to in-home caregiver hours. In fact, some areas actually saw significant budget increases, like an additional $500 million in homeless grants being pushed through.

The University of California and California State University both saw no cuts, albeit with some getting deferred payments until next year. Some, like Sonoma State University, will actually see another $45 million in grants awarded. The budget confirmed the closure of the California Correctional Center in Susanville, while doubling the film and television tax credit to $750 million.

While Newsom and many Democrats in the Legislature praised the bill, Republicans soundly denounced it, especially the extra $1 billion being pushed for California High-Speed Rail and cuts being made to Prop 36 funding.

“This is a misleading accomplishment that sacrifices public safety, and common sense in favor of political vanity projects,” expressed Assemblyman Tom Lackey (R-Palmdale). “This budget is a betrayal. Full stop. It pours billions into failed projects like the High-Speed Rail while ignoring the immediate needs of Californians. These jobs matter – but those workers could be put to better use on fire mitigation, road repairs, and real infrastructure that our communities actually need. But instead of responsible leadership, the Supermajority is too busy writing checks for dreams that died years ago.

Lackey continued: “As Los Angeles rebuilds from the devastating wildfires, the budget recklessly commits $1 billion to the Governor’s High-Speed Rail, while only offering a meager $200 million for wildfire prevention – a fraction of what the state spent in prior years. As family homes and neighborhood businesses are left in ashes, the Supermajority chooses to bankroll a mismanaged rail fantasy. This budget makes their priorities crystal clear – and voters’ priorities are not among them.

“Mere months ago, voters overwhelmingly passed Proposition 36 to reform sentencing laws and invest in drug treatment and rehabilitation. But while retail theft surges and fentanyl deaths rise, this budget fails to deliver on the core promise of Prop 36. Instead of the $400 million needed to support treatment and courts, the budget offers a patchwork of just $110–200 million – barely half of what is required.

“This budget is a shameful dismissal of California’s needs. It’s time we stop chasing flashy headlines and start fixing the issues that actually matter – public safety, and fire protection. This budget is not a true accomplishment.”

Cuts to Medi-Cal for illegal immigrants

However, there were a few areas where the GOP saw small victories. The largest of them was halting the expansion of illegal immigrants into Medi-Cal. While initially announced last month, lawmakers have been trying to save as much of it as possible, with the efforts largely futile.

While Medi-Cal was expanded to cover undocumented children in 2015 and undocumented seniors 50 and older in 2022, the governor expanded the program to cover all illegal immigrants last year ballooned the cost of Medi-Cal for all illegal immigrants under the program to $9.5 billion. The state received more than the intended number of recipients, causing a $6.2 billion deficit to open up.

In less than a year after expanding the program, Medi-Cal costs to the state shot up by $2.7 billion, as illegal immigrants were easily accepted and many did not contribute with taxes or by other means. As a result, Newsom was forced to sign a bill in April that paid off a $2.8 billion budgetary shortfall for Medi-Cal, allowing it to run through the end of the fiscal year at the end of June.

The $2.7 billion was only a stopgap however, with the real challenge coming with the revised 2025-2026 budget. The huge deficit forced his hand, and in May Newsom said that he would halt any more illegal immigrants from enrolling into the program starting in 2026. Those already in the program will not be kicked out.

This provision was kept along with illegal immigrants already enrolled needing to pay a Medi-Cal premium of $30 a month starting in 2027, a move that will likely cause many to leave the program. That amount was negotiated down from an original $100 a month. Full dental will likewise be removed, with that change coming in mid-2026. Coverage for specialty drugs, like weight loss drugs, will also be removed.

While most of the cuts were left intact, many in the GOP still blasted the agreement, as Medi-Cal funding for illegal immigrants would be left in-tact.

Conversely, many Democrats and immigrant advocates slammed the cuts, saying that open health care for illegal immigrants was needed despite Newsom and budget experts saying last month that too many illegal immigrants joined the program and that it was causing a rapid loss of state funds as a result.

“At a time when immigrant communities are facing relentless attacks by the federal government and Congress is threatening to slash safety net programs, we need the governor and state leaders to chart a different course and match their rhetoric in support of immigrants with meaningful action. Protecting immigrants means protecting their access to healthcare,” added California Immigrant Policy Center Analyst Carlos Alarcon. “We call upon state leaders to adopt a budget that reflects our values of equity and inclusion for all, regardless of immigration status. We need revenue generating solutions, not discriminatory targeting of vulnerable communities. We will continue to fight to restore the Medi-Cal cuts included in this budget.”

Assembly and Senate Budget Committees are expected to meet on Wednesday and Thursday to go over the new budget, with a vote expected on Friday and Governor Newsom expected  to sign off on the new budget by the end of the month.