The 2025-26 California Spending Plan

Other Provisions

Business, Consumer Services, and Housing Agency

The budget provides the Business, Consumer Services, and Housing Agency (BCSH) with $23 million in 2025-26, including $18.2 million from the General Fund. This is a decrease of $1.8 million (all funds), or about 7 percent, compared to the revised 2024-25 level. This decrease is due to the combined effects of the expiration of $4.6 million in limited-term General Fund support for the California Interagency Council on Homelessness (Cal ICH) approved in a prior year, offset by other changes, including the augmentations described below.

Funding to Reorganize BCSH Into Two New Agencies. The 2025-26 budget provides an augmentation of $4 million General Fund and $456,000 in reimbursement authority—generally increasing to $6.2 million General Fund and $456,000 in reimbursement authority by 2026-27 and ongoing—to enable the planned reorganization of BCSH. Under the reorganization, which will go into full effect on July 1, 2026, BCSH will split into two agencies: the California Housing and Homelessness Agency (CHHA) and the Business and Consumer Services Agency (BCSA), as shown Figure 1 below. The funding provided in 2025-26 will be used to begin standing up the new agencies and initiate the transition and administrative separation.

Budget for Housing and Homelessness Reorganization. In addition to creating CHHA, the reorganization includes two other notable changes pertaining to housing and homelessness. First, beginning in 2026-27, it establishes Cal ICH as a separate business unit under CHHA. (Currently, Cal ICH is funded within the BCSH agency proper’s budget.) Second, the reorganization authorizes the Housing Development and Finance Committee (HDFC), which will be charged with centralizing administration of various affordable housing programs currently spread across departments within BCSH. Figure 2 shows that, beginning in 2026-27, a total of $14.9 million (all funds) and 65 positions will transfer from BCSH (as well as the Department of Housing and Community Development) to CHHA, Cal ICH, and HDFC. In addition, the budget package adds $6.2 million General Fund and 12 new positions (divided between CHHA and HDFC) beginning in 2026-27 as part of the reorganization.

Business and Consumer Services Agency Funding. Under the reorganization, the budget for BCSA will consist of $3.5 million in ongoing reimbursement authority derived from administrative costs charged to the departments overseen by BCSA. This amount includes $3 million in existing authority shifted from BCSH and $456,000 in new authority. BCSA will also receive 15 existing positions from BCSH.

California Hope, Opportunity, Perseverance, and Empowerment (HOPE) for Children Trust Account Program

Transfers $40 Million from Fund Providing Investment Accounts for Foster Youth to General Fund. The 2022-23 budget provided $100 million and $15 million ongoing to the California HOPE for Children Trust Account Fund. Using these resources, the State Treasurer’s Office will fund investment accounts to foster youth and other eligible individuals, which they can access at age 18. The 2025-26 budget transfers $40 million from the fund to the General Fund.

California Public Utilities Commission

The budget includes a total of $1.9 billion from special funds and federal funds for the California Public Utilities Commission (CPUC) in 2025-26. This represents a substantial decrease compared to CPUC’s estimated expenditure level in 2024-25 ($5.4 billion). This decrease is primarily a result of the expiration of one-time funding available in 2024-25, including substantial carryovers from prior years. Notable changes to CPUC’s budget include the following.

Provides Additional Funding for LifeLine. The budget includes $528 million in 2025-26 from the Universal LifeLine Telephone Service Trust Administrative Committee Fund to support the California LifeLine program, which provides low-income California households with discounted cellphone and wireline services. This represents an increase of $151 million (or roughly 40 percent) compared to the amount provided in the 2024-25 budget, largely due to increased projected enrollment in the program.

Reduces Previously-Provided Funding for Community Renewable Energy. To help address the budget shortfall, the spending plan reverts $33 million of General Fund that had been appropriated in 2023-24 for community renewable energy activities as part of the Clean Energy Reliability Investment Plan.

Supports Implementation of Recent Legislation. The budget includes $15 million in 2025-26 and $11 million ongoing from the Public Utilities Commission Utilities Reimbursement Account (PUCURA) and other special funds and 50 positions to support the implementation of over a dozen policy bills. For example, the budget includes $3 million on an ongoing basis from PUCURA to implement Chapter 413 of 2024 (AB 2666, Boerner), which is aimed at ensuring electric and gas utilities do not recover more than their authorized rates of return from consumers.

Supports Battery Energy Storage and Generation Facility Compliance. The budget includes $4 million in 2025-26 and 2026-27 and $3 million ongoing thereafter from PUCURA, as well as 12 permanent positions, to oversee and implement safety standards and regulations for battery energy storage.

Generative Artificial Intelligence (GenAI)

Requires Reporting on Outcomes of First Round of GenAI Proofs of Concept (POCs). Control Section 11.25 of the budget act requires the administration to submit a report or, if mutually agreed, to appear and testify at a legislative committee or subcommittee on the outcomes of, and lessons learned from, the state’s first round of GenAI POCs. (Administrative policy generally defines a POC as a test of the functionality of a solution or technology.) The control section also requires all state entities to comply with certain administrative policy requirements related to GenAI and submit relevant GenAI planning documentation to the Legislature. For more information on the first round of GenAI POCs, as well as the state’s new process for planning and approving GenAI projects (the Project Delivery Lifecycle), please see our April 29, 2025 budget and policy post—Preliminary Assessment of Significant Changes to State’s Technology Project Approval and Oversight Processes.

Governor’s Office of Business and Economic Development (GO-Biz)

Provides Funding for National Semiconductor Technology Center. The budget provides $25 million in one-time funding to reimburse Natcast for capital expenditures associated with the creation of a National Semiconductor Technology Center in Sunnyvale. This center will be part of an effort to advance semiconductor research and development as enacted in the federal CHIPS and Science Act.

Funds an Additional Round of California Regional Initiative for Social Enterprise Grants. The California Regional Initiative for Social Enterprise program provides grants and technical assistance to organizations that train and employ individuals who face high barriers to work, such as homelessness, prior incarceration, and substance use. The budget allocates $17 million to the program, with around $15 million for an additional round of grants and the remainder for administration and reporting.

Accelerates Fresno Infrastructure Plan Funds. The budget accelerates $100 million of previously allocated funds from 2026-27 to 2025-26 for public infrastructure investments in the City of Fresno.

Allocates Additional Resources to the SEED Initiative. The Social Entrepreneurs for Economic Development (SEED) program awards grants, training, and technical assistance to support entrepreneurs, particularly those who either (1) have limited English proficiency or (2) are neither U.S. citizens nor lawful permanent residents. The budget provides $7.5 million of additional funding for the program.

Allocates Funding to New California Civic Media Program. The budget provides $10 million to a new California Civic Media Program, which is tasked with supporting California’s press corps and local new organizations.

Reappropriates Funds for Various GO-Biz Programs. The budget reappropriates General Fund monies for three GO-Biz programs:

• $11.5 million for the Performing Arts Equitable Payroll Fund.

• $700,000 for the Containerized Ports Interoperability Program.

• $240,000 for the Women’s Business Center Enhancement Program.

Provides Funding for Local Nonprofit. Initiating Change in Our Neighborhoods Community Development Corporation (ICON CDC) is a nonprofit focusing on small business assistance in the San Fernando Valley. The budget provides $2 million General Fund for ICON CDC.

Labor, Employment, and Workforce Development

Background

California’s major labor, employment, and workforce development programs provide work-related services and benefits to its residents, enforce its employment laws, oversee its workers’ compensation system, and regulate workplace safety and health. Many of the work-related services and benefits are funded or required by the federal government, including unemployment insurance (UI) benefits and federal workforce training programs. The labor and employment programs are administered at the state level by the Employment Development Department (EDD), the Department of Industrial Relations, the California Workforce Development Board (CWDB), and the Agricultural Labor Relations Board. The state’s Labor and Workforce Development Agency (LWDA) oversees these entities and works to set policy and coordinate programs.

Key Budget Actions

Allocates $643 Million for Interest Payment on Federal UI Loan. The budget agreement includes $643 million General Fund to make the required annual interest payment on the state’s outstanding federal UI loan. As of September 2025, the state’s outstanding federal loan was $20.9 billion, approximately the same amount as was originally borrowed during the pandemic. The interest rate on the outstanding loan is variable and for this year was 3.1 percent.

Borrows Again From Labor and Workforce Development Fund to Address Budget Problem. The 2025-26 budget plan includes a $400 million one-time loan from the Labor and Workforce Development Fund (LWDF) to the General Fund. Funds in the LWDF generally are set aside for labor law enforcement and education. These funds come primarily from Private Attorneys General Act (PAGA) lawsuit settlement proceeds. In recent years, PAGA proceeds flowing into the LWDF have exceeded expenditures from the fund. The 2024-25 budget plan also included a $125 million loan from the LWDF.

Continues Funding for Fourth Year of State’s New Technology System at EDD. The budget includes $62 million General Fund ($124 million all funds) for year-four development of a new technology system to manage EDD benefits. The system, to be called EDDNext, would replace aging technology the state currently uses to manage the UI program and the Disability Insurance/Paid Family Leave programs. The 2025-26 budget amount for EDDNext represents a reduction from the prior year, but this was possible due to a one-time shift of unspent funds from previous years to the budget year that has the effect of augmenting available funding for the budget year. The 2025-26 Budget Act authorizes funding to be available to be spent through the end of 2026-27.

Provides $10 Million to Renew the Helping Justice-Involved Reenter Employment Program. The 2025-26 budget plan includes $10 million for a grant program supporting non-profits who provide training and employment to individuals who were recently incarcerated. The program, which is administered by the CWDB, received $50 million in the 2022-23 budget.

Funds Initiatives to Improve Coordination in Workforce Development. The 2025-26 budget includes funding for two initiatives, one in the LWDA and one in the Government Operations Agency (GovOps), to improve coordination between the state’s workforce development and education agencies. In the LWDA, the budget provides $1 million to study different coordination models used by regional workforce and education entities. In GovOps, the budget includes $1.5 million to a new body consisting of leaders of statewide college systems and workforce agencies.

Statewide Infrastructure

Debt Service

The budget provides $7.8 billion from various funds for debt service payments in 2025-26. This represents an increase of 7 percent from 2024-25. This total includes $6.7 billion for general obligation bond debt ($5.3 billion from the General Fund) and $1 billion for lease revenue bond debt ($617 million from the General Fund).

Capital Outlay

Appropriates Notably Less Funding for Capital Outlay in 2025-26 Compared to Recent Years. The 2025-26 budget package includes $631 million for 90 capital outlay projects. This includes $257 million from university revenue bonds (for the University of California and the College of the Law, San Francisco), $144 million from the General Fund, $129 million from the Public Buildings Construction Fund (lease revenue bonds), and the remainder from various other special funds including general obligation bonds. (In many cases, the General Fund ultimately pays off the debt service costs for projects that are initially supported by bonds, as highlighted by the above paragraph.) These spending totals are considerably lower than prior years. In comparison, the 2022-23 budget package included $7.9 billion for 190 capital outlay projects, the 2023-24 budget included $2.6 billion for 93 projects, and the 2024-25 budget package included $863 million for 35 projects.

Budget Includes More Than $600 Million for Capital Outlay Appropriations. Figure 1 shows a summary of projects receiving funding in 2025-26 by administering department. A more detailed list of the capital outlay projects—including which phases are being funded in 2025-26—is available for download at this link. As highlighted in the figure, $328 million (just over half) of capital outlay funding provided in the 2025-26 budget package is focused within the education sector, including $151 million for renovating the McAllister Tower at the College of the Law in San Francisco, as well as support for 30 different projects within the California Community College system. Additionally, the spending plan includes $163 million for 14 projects at fire stations and helitack bases operated by the California Department of Forestry and Fire Protection. The figure also shows that while the 2025-26 budget provides over $600 million for certain phases of the selected projects, the total cost associated with completing the projects is much more significant—$6.3 billion. While some of that funding may have been provided in previous years, in many cases the bulk of the estimated costs is for forthcoming phases and additional state funds will be requested in future years to complete the projects.

For a variety of reasons, we do not reflect certain capital outlay projects in the figure or linked table. Specifically, to avoid double counting previously provided funds or because specific data are not available, we do not include projects for which funding is: (1) continuously appropriated, such as some bond funds; (2) reappropriated, which provides additional time for the completion of the project; (3) reverted, if a project ended or requires modification; (4) previously appropriated but shifted to a different fund source, with no net change in the appropriation amount; or (5) provided to support local infrastructure projects. We also exclude funding for capital outlay projects undertaken by the California Department of Transportation (Caltrans). While the Legislature annually approves Caltrans’ overall budget, individual projects generally are approved by the California Transportation Commission rather than through the state budget process and therefore the 2025-26 planned projects and corresponding amounts have not yet been specified.

California Department of Food and Agriculture

The budget provides $719 million from various fund sources to support the California Department of Food and Agriculture (CDFA) in 2025-26, which represents a decrease of $110 million (13 percent) when compared to the revised 2024-25 expenditure level. The decrease is primarily associated with the expiration of one-time General Fund support the department received in prior years, partially offset by new funding from Proposition 4 (the climate bond approved by voters in November 2024). We describe the notable budget actions below.

Funding for Farm to School Grants. The budget includes $24.9 million from the General Fund on a one-time basis for additional support for the California Farm to School Program, which provides grants to educational agencies, food producers, and other organizations and partnerships to increase the amount of locally grown and produced foods in schools. Of this amount, $20 million is allocated for the Farm to School Incubator Program, $3 million for climate smart technical assistance grants, and $1.9 million for statewide outreach and support.

Funding to Address Animal Disease Outbreaks. The budget includes $11.1 million ($6.1 million General Fund and $5 million federal funds) and 29 permanent positions in 2025-26, and $10.5 million ($5.5 million General Fund and $5 million federal funds) in 2026-27 and ongoing, to respond to animal disease outbreaks such as avian influenza (“bird flu”). Funding will be used to hire specialized staff and provide more resources for animal disease prevention, surveillance, and response efforts.

Other Budget Changes. Other notable features of CDFA’s 2025-26 budget include:

• Augmentations From Climate Bond. The spending plan includes $169 million for CDFA from Proposition 4, which we discuss in more detail in a separate budget and policy post—The 2025-26 California Spending Plan: Proposition 4.

• Baseline Ongoing Reductions. The budget assumes reductions to CDFA’s budget of $11 million ($9.8 million General Fund) authorized by Control Sections 4.05 and 4.12 of the budget act. This includes $8.2 million ($7 million General Fund) in efficiency reductions and $2.8 million General Fund in vacant position reductions. Please see the forthcoming “New and Ongoing Efforts to Achieve Efficiencies” section of this post for more information on these budget-wide reductions.

• Funding From Cap-and-Trade Revenues. The budget package provides $7 million from the Greenhouse Gas Reduction Fund for CDFA to continue providing grants that support methane reduction projects on livestock and dairy farms.

Governor’s Office of Service and Community Engagement

The 2024-25 budget package established the Governor’s Office of Service and Community Engagement (GO-SERVE) as part of a reorganization of the former Governor’s Office of Planning and Research. GO-SERVE oversees three notable programs: the California Volunteers, the Office of Community Partnerships and Strategic Communications (OCPSC), and the Youth Empowerment Commission. The spending plan includes $225 million for the office in 2025-26. This represents a net decrease of $63 million (22 percent) compared to estimated 2024-25 spending, due largely to a year-to-year reduction in federal funding for the AmeriCorps program and the phasing out of some limited-term General Fund augmentations. The budget package includes a few notable changes for GO-SERVE in 2025-26, including:

• Expansion and Extension of College Corps Program. The budget includes a $5 million one-time General Fund augmentation for College Corps in 2025-26 to expand the program, laying the groundwork for more campuses to operate the program beginning in 2026-27. This brings total funding for the program to $68 million in 2025-26. Additionally, the budget agreement includes intent to provide $83.6 million in General Fund and 48 positions for College Corps in 2026-27 and ongoing, making the program permanent. (Previous funding for the program was only provided on a pilot, limited-term basis through 2025-26.)

• New Belonging Campaign. The budget includes $5 million in one-time General Fund for a belonging campaign to be administered by OCPSC. The office indicates that the primary goal of this initiative is to “strengthen and coordinate the administration’s efforts to help communities identify pathways to social connectedness and engagement.” According to the administration, the funding will be used primarily for developing and implementing a branding public awareness campaign for existing state programs, including programs operated by California Volunteers.

• Student Success Coaches. The budget provides $5 million in one-time General Fund for California Volunteers to offer grants to AmeriCorps programs to fund coaches at K-12 schools. This program has received limited-term funding in prior years, including $5 million in 2024-25.

• Shifts Support for Climate Corps to General Fund. The budget shifts $9.4 million in support for the California Volunteers’ Climate Corps program from the Greenhouse Gas Reduction Fund to the General Fund on an ongoing basis.

Governor’s Office of Land Use and Climate Innovation

The 2024-25 budget package established the Governor’s Office of Land Use and Climate Innovation (LCI) as part of a reorganization of the former Governor’s Office of Planning and Research. LCI’s budget includes $669 million in 2025-26, which represents a notable reduction ($1.1 billion, 62 percent) compared to the prior year due to significant one-time funding reflected in the 2024-25 total. The 2025-26 spending plan includes four notable changes for LCI:

• Reduction to Extreme Heat Program. To help address the state budget shortfall, the budget package includes a reduction of $15 million in one-time General Fund that had been provided in a prior year for the Extreme Heat and Community Resilience Program.

• Augmentation From Climate Bond. The spending plan includes $24.8 million for LCI from Proposition 4, the climate bond passed by voters in November 2024. These funds will support activities to mitigate the impacts of extreme heat, primarily through the Extreme Heat and Community Resilience Program. This augmentation will help offset the programmatic impacts of the General Fund reduction to this program.

• Funding to Support New California Environmental Quality Act (CEQA) Legislation. Budget trailer legislation (Chapter 650 of 2025 [SB 158, Committee on Budget and Fiscal Review]) allocates $2.1 million in one-time General Fund to LCI to conduct activities pursuant to Chapter 24 of 2025 (SB 131, Committee on Budget and Fiscal Review), including developing maps of infill sites eligible to qualify for new exemptions from CEQA. (Please see our forthcoming post, The 2025-26 Spending Plan: Housing, Homelessness, and Local Government for more detail on the CEQA changes.)

• Final Year of Funding for California Education Learning Lab. The budget package includes a final year of funding totaling $5.5 million from the General Fund for the California Education Learning Lab, with the intention to eliminate the program beginning in 2026-27 (which will achieve $4 million in ongoing savings). This maintains the previously planned amount for the program for one final year. (The Governor had proposed eliminating the program beginning in 2025-26.)

Tax Policy Changes

Expands Size of California’s Film Tax Credit. The budget package increases the annual allocation of credits available under the Film and Television Tax Credit from $330 million to $750 million. This increase applies to version 4.0 of the program from fiscal years 2025-26 through 2029-30 and is estimated to reduce state revenues by $209 million per year by 2028-29, and more than this in subsequent years. Relatedly, action taken in Chapter 27 of 2025 (AB 1138, Zbur and Allen) makes additional changes to version 4.0, including but not limited to: increasing the size of tax credit awards as a percentage of qualified expenditures, expanding the range of productions that are eligible for the credit, and enhancing the size and scope of the Career Pathways Program.

Extend the Pass-Through Entity Elective Tax. California’s Pass-Through Entity Elective Tax (PTET) allows certain businesses to elect to pay additional corporation taxes at a rate of 9.3 percent on qualified net income. Taxpayers utilizing this option receive credits that can be claimed against their income taxes. For many taxpayers, this election also has the effect of reducing their federal taxes. The budget package (1) extends the PTET through tax year 2030, and (2) allows taxpayers to make a late prepayment for tax years 2026 onward, subject to a 12.5 percent reduction in the corresponding credit.

Moves Financial Institutions to Single Sales Factor Apportionment. Multistate and multinational corporations have their California tax liability calculated using a process known as apportionment. Most firms use the Single Sales Factor method, which calculates the percentage of a firm’s sales that occur in California, and then subjects that percentage of the firm’s profits to California taxation. Firms earning over 50 percent of their total income from a list of “qualified business activities” (QBA) are subject to a different apportionment method that includes the location of their sales, payroll, and property. The budget package removes both (1) savings and loans, and (2) banking or financial business from the list of QBA from tax year 2025 onwards. The administration estimates this change will increase revenues by $330 million in fiscal year 2025-26, decreasing slightly to $270 million by 2028-29.

Excludes Some Military Retirement Income From Income Taxes. The budget package excludes the first $20,000 of military retirement benefits, including retirement pay and survivor benefits, from state income taxation starting in tax year 2025. This exclusion is limited to individual taxpayers with less than $125,000 in adjusted gross income (AGI) or joint taxpayers with less than $250,000 in AGI. This change is estimated to reduce state revenues by $135 million in fiscal year 2025-26 and $85 million annually thereafter.

Excludes Wildfire Settlements From State Income Taxation. The budget package provides a blanket exemption for settlements related to any wildfire occurring between tax years 2021 and 2029. Previously, state law provided income tax exemptions for wildfire settlements on a case-by-case basis. The administration estimates that this change will decrease revenues by a total of $56 million from fiscal years 2024-25 through 2028-29, though this amount could vary significantly due to uncertainty about damage caused by future wildfires.

Excludes Chiquita Canyon Landfill Settlements From State Income Taxation. The budget package excludes any settlements related to the Chiquita Canyon elevated temperature landfill event from state taxation. This exclusion applies to tax years 2024 through 2028 and is estimated to reduce revenues by $600,000 in fiscal year 2024-25.