Cities poised to clinch a bittersweet victory in the state budget

The Legislature and Gov. Gavin Newsom are set to finalize a budget deal over the next few hours. The $297.9 billion spending plan includes a big win for cities, along with some painful cuts, deferrals, and relatively modest restorations.

By far the biggest win is the restoration of $1 billion in funding for the Homeless Housing, Assistance and Prevention Program. The budget deal also largely preserves funding for a range of behavioral health programs.

"Budgets are statements of priorities, and there is no higher priority in the state of California than reducing homelessness," said San Diego Mayor Todd Gloria on behalf of the Big City Mayors group. "These funds are critical to our ongoing efforts to make homelessness in California rare, brief, and nonrecurring."

However, the funding is not nearly enough to address the statewide housing and homelessness crisis. "Another year of one-time funding will not magically fix our skyrocketing housing and homelessness crisis," Cal Cities CEO Carolyn Coleman noted last week.

The deal also includes $1.1 billion in cuts to affordable housing programs and $500 million to student housing programs, marring an otherwise difficult, but relatively palatable budget deal.

Barring any unexpected legislative jostling or "blue pencil" reductions, the deal maintains much of what lawmakers pushed for in an earlier placeholder budget. The final deal includes new, modest increases for fentanyl trafficking reduction, active transportation, and new electricity infrastructure. It also includes new cuts that would further slow local broadband expansion projects.

This year's budget battle was a far cry from two years ago when the state had an estimated $100 billion budget surplus. Gov. Gavin Newsom and legislative leaders agreed this year to pursue several changes that would reform the state's famously volatile revenue system. Although details are scant, one floated reform is a 2026 constitutional amendment that would grow the state's main reserve account.

For now, Democratic leaders agreed to dip into the state's reserves, put off a wage increase for healthcare workers, eliminate vacant state agency positions, claw back Medi-Cal funding, and pause tax breaks for businesses to help close the nearly $50 billion budget shortfall. Lawmakers are also haggling over a bond measure to fund the state's climate priorities.

Cal Cities will release a full analysis later this week after policymakers formally approve the deal.