Thursday, August 28, 2025

California Budget — August 28, 2025

 California's enacted fiscal year 2025-26 budget totals $321.1 billion in state funds, including $228.4 billion from the General Fund, to address a significant deficit exacerbated by rising Medi-Cal costs and slower-than-expected revenue growth. Key measures to close the gap include reinstating an asset test for Medi-Cal/IHSS, a two-year pause in OPEB contributions, and a 3% Personal Leave Program for state employees. Despite these actions, the budget is seen by some as a temporary fix that papers over underlying structural issues and a potential call for a future tax increase, with rising expenses in Medi-Cal and higher education remaining significant concerns. 

Budget Overview 
  • Total Spending: The 2025-26 budget allocates $321.1 billion in total state funds.
  • General Fund: The General Fund portion of the budget is $228.4 billion.
  • Special Funds: $88.8 billion comes from special funds.
  • Bond Funds: $3.9 billion is from bond funds.
Key Challenges & Measures
  • Budget Deficit:
    California faced a substantial deficit, largely due to unexpectedly high Medi-Cal enrollment and costs. 
  • The budget includes a proposed pause on further expansion of the program and a potential $100 monthly premium for undocumented recipients already on Medi-Cal. 
  • Asset Test:
    To save money, the state is reinstating the asset test for Medi-Cal and IHSS eligibility, which was previously eliminated. 
  • Personal Leave Program (PLP):
    State employees will see a 3% reduction in take-home pay for two years (2025-2027), balanced by five hours of personal leave per month. 
  • OPEB Contributions:
    A pause on member contributions for future retiree health care costs is in effect for two years. 
Other Notable Issues
  • Higher Education:
    The budget maintains deferrals for the CSU and UC systems and reduces previously planned cuts. 
  • Structural Deficit:
    Some analysts believe the budget uses accounting maneuvers and reserve funds to mask a larger underlying structural deficit, signaling a potential need for future tax increases. 
  • Closing Prisons:
    The falling inmate population has led to plans to close additional state prisons. 

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