California State Budget

Governor Gavin Newsom released his May Revision of the 2025–26 California state budget on May 14, 2025, announcing a projected $12 billion deficit. The Governor proposed a $322 billion spending plan, which includes several key proposals: 

Transportation

The May Revise proposes $17.6 million one-time from the State Highway Account to support the 2028 Olympic and Paralympic Game in Los Angeles, including facility development, ongoing planning efforts, and work on the Games Route Network project. 

Cap-and-Invest

As expected, the May Revise confirmed the Governor’s commitment to extend the state’s Cap-and-Trade program this year. Accompanying trailer bill language would extend the program through 2045 and rename it as the Cap-and-Invest program but is light on other potential programmatic adjustments or changes to the expenditure plan for auction proceeds in the Greenhouse Gas Reduction Fund (GGRF). The May Revise also proposes to tap GGRF to address General Fund shortfalls, including a shift of $1.54 billion in existing GGRF to backfill General Fund support for CalFIRE’s fire prevention, fire control, and other resources management activities. 

The May Revise states Governor Newsom’s intent to work with the Legislature to design an expenditure plan while also signaling at least one Cap-and-Invest priority of his own – raising the annual funding amount for the High-Speed Rail (HSR) project. Currently, the HSR project receives 25% of GGRF revenue which fluctuates year-over-year. The May Revise proposes a flat allocation of $1 billion annually for HSR, regardless of overall auction proceeds, which will have an impact on the availability of funding for other carbon reducing programs.

Since the inception of the Cap-and-Trade program in the fiscal year 2012-13, funding generated from a 25% share of GGRF revenues has ranged from a low of $61 million in the first year to a high of $1.28 billion in 2023-24. The HSR project has received GGRF allocations greater than $1 billion in each of the last three fiscal years. As a reminder, in addition to HSR, the following programs receive ongoing percentage-based allocations of GGRF revenues under existing law: 

• Affordable Housing and Sustainable Communities (20%)
• Transit and Intercity Rail Capitol Program (10%)
• Low Carbon Transit Operations Program (5%)
• Safe and Affordable Drinking Water (5%)

Climate-Aligned Housing Policy Reforms 

The May Revise states the Administration’s intent to work with the Legislature to include legislation in the budget that advances climate-friendly housing production. During his press conference, the Governor specifically mentioned working with Senate Budget Chair Wiener and Assemblymember Wicks to advance CEQA streamlining. The two legislators have introduced SB 607 and AB 609, respectively, which make several changes to expedite or eliminate environmental review, including broad exemptions from CEQA for qualifying infill housing projects. In addition, the May Revise includes the following specific trailer bill provisions related to housing and land use: 

• Eliminates the exception in the Permit Streamlining Act for the Coastal Commission, thereby subjecting the Commission to the same timelines for discretionary land use approvals that apply to local governments and other state agencies. 
     
• Removes the $100 million cap on housing development projects under the “Jobs and Economic Improvement Through Environmental Leadership Act of 2021,” which allows qualifying projects to receive the streamlined administrative and judicial review under CEQA. The trailer bill also allows projects that demonstrate consistency with the Air Resources Board’s scoping plan to use this authority, even if the project will result in a net increase in greenhouse gas emissions.
   
• Establishes a vehicle miles travelled (VMT) mitigation banking program overseen by the Governor’s Office of Land Use and Climate Innovation (LCI), with mitigation funding flowing to HCD’s Transit-Oriented Development Implementation Fund by July 1, 2026. The trailer bill language incorporates provisions from AB 1244 (Wicks, 2025) but could provide greater flexibility for the use of mitigation funding. Unlike AB 1244, the trailer bill would allow LCI to designate location-efficient areas where transit-oriented housing development could receive mitigation funds. These provisions may facilitate funding for infill housing projects in “location efficient areas” that do not otherwise meet the standards for qualifying transit service. 

Housing and Infrastructure Bond

The May Revise indicates Governor’s support for a potential statewide housing bond measure, although with additional investments in broader types of infrastructure. Assemblymember Wicks and Senator Cabaldon have introduced nearly identical $10 billion housing bond measures, AB 736 and SB 417. While both bond bills include allocations for HCD’s Infill Infrastructure Grant Program of 2019, which funds a broad array of infrastructure improvements necessary to build affordable housing, the measures are predominantly focused on housing.

Contact: Gus Flores, UCON's Director of Government Relations

Credit: Prepared by Politico Group.