On Friday, January 9, 2026, Governor Gavin Newsom unveiled his 2026–27 proposed state budget, presenting a balanced fiscal plan that aims to strengthen California’s financial footing while protecting prior progress and making historic investments in education and other core services. The proposal reflects stronger-than-expected revenues, in large part because it assumes the AI Boom will continue, resulting in a $348.9 billion budget and a smaller-than-expected $2.9 billion deficit.
The headlines over the weekend mostly focused on the big-budget picture, increases in education funding, cuts to health care (especially for immigrant communities) and refilling the “rainy day fund,” building total reserves to $23 billion.
The budget was not met warmly by livability advocates who hoped for more support for transit agencies, increased funding for bicycle and pedestrian safety projects, and more leadership on the issues of housing and homelessness. While the governor made good on commitments to support High-Speed Rail, temporary operations funding for Bay Area transit agencies in advance of a ballot measure this fall, and half a billion in funding for the Homeless Housing, Assistance and Prevention (HHAP) Grant program, advocates had hoped to see more.
Below is a first-look at the budget, with a lot more coverage coming between now and when it is revised in the spring and passed in the summer.
Transportation
Climate and transportation advocates warn that Gov. Gavin Newsom’s budget falls short on building a climate-friendly, car-independent California, even as the governor included some welcome initiatives.
ClimatePlan – whose vision is to create a healthier, more sustainable California – argues the proposal would make it “more difficult and expensive for Californians to live and get where they need to go.” They point to insufficient funding for transit operations, a stagnant Active Transportation Program, and no restoration of e-bike incentives that were abruptly cut at the end of 2025.
ClimatePlan did salute the inclusion of a Free Transit Pass program, which aims to make buses and trains more affordable for students, older adults, and low-income riders, but says the budget otherwise fails to align with the Transit Transformation Task Force’s recommendations on stable transit funding, transit priority lanes, and better walking and biking options.
CalBike’s response echoes many of those concerns, especially around active transportation funding. While acknowledging the governor’s overall fiscal leadership, CalBike points out that the budget treats the Active Transportation Program (ATP) as a past achievement rather than a priority for the future. The ATP — California’s lone statewide funding source for walking and bicycling infrastructure — was not expanded or restored in the proposal, ignoring today’s urgent needs for safer streets, cleaner air, and viable alternatives to driving.
“A single protected bikeway, safer school corridor, or connected walking network changes how an entire neighborhood moves,” said CalBike Policy Director Jared Sanchez, underscoring the program’s proven value.
“California won’t meet its climate goals…until we remodel our transportation investments,” added CalBike Executive Director Kendra Ramsey, urging lawmakers to significantly boost ATP funding during budget negotiations.
Calbike also urged the state to return $15 million funding for the popular, yet underwhelmingly programmed, E-Bike Incentive Program. The program was defunded late last year despite being oversubscribed by an order of magnitude.
It shouldn’t be too hard for Newsom or the legislature to find that $15 million. Earlier today, the Governor’s office announced $200 million for an electric vehicle program that had been discontinued a couple of years ago. Newsom had promised to restore the program when the federal government abruptly cancelled its program earlier this year, but was unable to find the funds for the current fiscal year’s budget.
Both organizations say they look forward to working with state leaders in the months ahead to improve the budget and advance transportation solutions that reflect California’s climate, equity, and safety commitments.
Housing and Homelessness
KQED reports that many housing and homelessness advocates were left disappointed by Gov. Gavin Newsom’s final proposed budget, released Friday, because it largely did not include new major funding to address California’s affordable housing shortage and homelessness crisis. While the plan projects a modest $2.9 billion shortfall and emphasizes accountability and efficiency over increased spending, advocates hoped for a stronger financial commitment to these pressing issues.
As mentioned, the budget does include $500 million for the HHAP Grant program — but it falls short of earlier years’ levels, when the state consistently dedicated around $1 billion annually to the program. Advocates say this reduced funding risks slowing progress on housing and services for people experiencing homelessness.
Newsom, in his State of the State address, urged local governments to move people “off the streets” and into housing and treatment, but critics say many cities and counties don’t have the financial resources to meet those goals without more state support.
Advocates also noted the strain from recent federal cuts and policy shifts that could further limit funding for permanent housing solutions, which heightens the need for sustained state investment. In this constrained budget climate, some supporters are pushing for a $10 billion statewide affordable housing bond on the fall ballot as an alternative source of funding.
Climate Plan also criticized a proposal to break up the Affordable Housing Sustainable Communities (AHSC) program in the budget, potentially separating transportation and housing investments that currently help deliver affordable homes in well-connected communities.
“How California funds and approves transportation and housing projects shapes daily life for millions of people,” said ClimatePlan Director Lesley Beatty, urging stronger support for complete communities.
Overall, while the budget retains some homelessness and affordable housing resources, advocates say it doesn’t go far enough to meet California’s urgent needs. Assemblymember Anamarie Ávila Farías, the co-chair of the Assembly Select Committee on Housing Finance and Affordability, put it in a statement, “…this proposal has a long way to go when it comes to affordable housing. The Legislature is once again working from zero.”
Budget Timeline
California’s annual budget process begins in early January, when the governor releases a first draft budget proposal outlining spending priorities, revenue assumptions, and policy changes – all for the fiscal year that will start July 1.
From there, the Legislature holds months of budget hearings. Policy and fiscal committees in both the Assembly and Senate analyze budget details. In May, the governor issues a revised plan, known as the May Revision, reflecting updated revenue projections. Lawmakers negotiate a final deal by June 15, the constitutional deadline to pass a budget, with final adjustments often continuing until the governor signs the budget by July 1.
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