ITUP Blog: Governor’s Fiscal Year 2025-26 Budget Proposal

January 31, 2025

By Sumaira Akbarzada and Jana Wright

Governor’s Fiscal Year 2025-26 Budget Proposal

On January 10, 2025, Governor Gavin Newsom released his Fiscal Year (FY) 2025-26 Budget proposal of $322 billion total funds (TF) (). Health and Human Services makes up a large portion of the budget with proposed expenditures of $296.1 billion ($83.7 billion General Fund).

Since the signing of the 2024 Budget Act, the state’s economy, stock market, and tax revenues have outperformed expectations, leading to an upward revision in the revenue forecast. Over the next three fiscal years, California now anticipates an additional $16.5 billion in revenue compared to earlier projections. In its November 2024 report, the California Legislative Analyst’s Office (LAO) indicated that the state is on track for a “roughly balanced” budget, although a $2 billion shortfall is projected for the 2025–2026 fiscal year.

It is estimated that General Fund spending on health programs will decrease by $3.8 billion (9%) in 2024-25, totaling $40.1 billion. The majority (87%) of this funding is allocated to Medi-Cal, California’s Medicaid program, which is expected to see a 6% reduction from the previous year. Most health departments are facing budget cuts, with the exception of the California Health and Human Services Agency (CalHHS), which is projected to grow due to the transfer of grants to its Office of Youth and Community Restoration. While some modest increases in health programs are expected, most budget actions are focused on addressing the state’s General Fund deficit.

Source: 2025-26 Governor’s Budget

Following the key budget highlights summary, we discuss what to expect during the months between now and the May Revision, when the Governor will release a revised budget before it is ultimately signed into law this upcoming July. We also include advocacy opportunities and resources on budget change proposals, trailer bill language, department-specific budget highlights, and more.

Key FY 2025 – 26 Proposed Budget Highlights

This ITUP blog highlights key health and human services proposals in the FY 2025-26 proposed budget. The highlighted proposals are those that build upon California’s commitment to creating an equitable, accessible health care delivery system and addressing the social determinants of health.

1. Coverage and Access Proposals

Medi-Cal Fiscal Outlook: The budget allocates a total of $180.1 billion for the Department of Health Care Services (DHCS) in 2024-25 ($38.5 billion GF). For 2025-26, the total increases to $193.4 billion ($42.8 billion GF). DHCS is responsible for providing Californians with access to affordable, integrated, high-quality health care, including medical, dental, behavioral health, and long-term care services. The budget also includes $178.6 billion in local assistance for 2024-25, primarily for the Medi-Cal program ($38 billion GF). For 2025-26, local assistance totals $192.1 billion ($42.4 billion GF). [i]

Department of Developmental Services (DDS): The 2025-26 budget allocates $19 billion for the DDS ($12.4 billion GF). This funding is expected to support services for approximately 505,000 individuals, with an anticipated increase of nearly 40,000 individuals due to children transitioning out of the Early Start program. The Administration also plans to release the Master Plan for Developmental Services in March 2025, which will incorporate recommendations from workgroups focused on enhancing lifelong services for individuals with intellectual and developmental disabilities. [i] The 2024-25 budget allocates $15.9 billion ($10.3 billion GF) and estimates that around 465,000 individuals will receive services during that year. [v]

Managed Care Organization (MCO) Tax: The FY 2025-26 budget includes $4.4 billion in revenue from the Managed Care Organization (MCO) Tax, consistent with the passage of Proposition 35 in November 2024. As a result, previous investments authorized under the 2024 Budget Act—such as Medi-Cal continuous coverage for children aged 0 to 5 and community health worker investments—are rendered void. Proposition 35 requires that the allocation of MCO Tax revenues be developed in consultation with a stakeholder advisory committee, presenting a significant opportunity for advocacy to shape the spending plan.

Universal Coverage: Expansion of Medi-Cal to All Adults Regardless of Immigration Status: The 2024-25 budget totals $174.6 billion ($37.6 billion GF), reflecting a $2.8 billion increase in GF spending due to higher enrollment and pharmacy costs. The 2025-26 budget is $188.1 billion ($42.1 billion GF), a $4.5 billion increase. The governor’s proposed budget builds on recent Medi-Cal investments that have expanded access, improved coverage, and increased eligibility, including providing comprehensive Medi-Cal coverage to eligible adults, regardless of immigration status. The 2025-2026 California state budget continues this expansion, ensuring coverage for all income-eligible Californians, regardless of age or immigration status, while also tackling the growing cost of health care. [vi]

Covered California Health Care Affordability Reserves (HCARF): The Health Care Affordability Reserve Fund (HCARF) supports the California Premium Subsidy Program and other initiatives aimed at making health care more affordable. The 2024 budget package allocated $82.5 million from HCARF to Covered California for a financial assistance program. According to the budget agreement, funding for the program is set to increase to $165 million starting in coverage year 2025. [vii]

Home and Community-Based Services (HCBS) Spending Plan: The 2021 Budget Act allocated funds from the American Rescue Plan (ARP) to enhance and expand the Home and Community-Based Services (HCBS). The HCBS Spending Plan covers initiatives across six departments aimed at supporting individuals with disabilities who prefer home or community living. Originally, ARP funds had to be spent by March 31, 2024, but Centers for Medicare & Medicaid Services (CMS) extended the deadline to March 31, 2025. California’s deadline was then extended to December 31, 2024, and later to January 31, 2025, to allow time for finalizing revenues, expenditures, and any necessary corrections before reporting to CMS. [viii]

2. The Future of Health: Proposals to Advance Health Equity and Address the Social Determinants of Health

Behavioral Health

Proposition 1: Behavioral Health Infrastructure Bond Act of 2024: Approved by voters in November 2024, this $6.4 billion bond measure aims to modernize California’s behavioral health care system, addressing critical gaps in mental health and substance use disorder treatment infrastructure.

Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration: Effective January 1, 2025, the federal government approved $8 billion (state, local, and federal funds) for the BH-CONNECT Demonstration through December 31, 2029. This initiative, administered by the Department of Health Care Services, Department of Developmental Services, and the Department of Health Care Access and Information, aims to strengthen the behavioral health continuum for Medi-Cal members. Focus areas include children and youth, individuals experiencing or at risk of homelessness, and justice-involved populations. The program offers statewide and county opt-in components to expand access to critical behavioral health services.

Health Care Services for Incarcerated Individuals

The Budget allocates $4.1 billion General Fund in 2025-26 to ensure incarcerated individuals have access to medical, mental health, and dental care services that meet appropriate custodial care standards.

Suicide Watch Resources: $13.6 million ongoing General Fund to address increased suicide watch workload through overtime and temporary staffing.
COVID-19 Mitigation Costs: $12.8 million one-time General Fund in 2025-26 to sustain essential COVID-19 prevention and mitigation measures.
Mental Health Crisis Facility Staffing: $3 million General Fund and 13.4 positions in 2025-26, increasing to $4.4 million and 20.4 positions ongoing, to staff a 50-bed Mental Health Crisis Facility at the California Institution for Men, expected to open in October 2025.

Prescriptions

AIDS Drug Assistance Program (ADAP): The Budget allocates $8.5 million annually from the ADAP Special Fund, starting in January 2025, for program enhancements, including reimbursement of Medicare Part B premiums and expansion of employer-based health insurance premium payment support for enrollees. Compared to revised 2024-25 expenditures, the ADAP program sees a $42.3 million total funding increase in 2025-26.

Prescription Drug Affordability: To address rising pharmacy costs, the Administration will evaluate drivers of cost growth, including the role of pharmacy benefit managers. Efforts will build on the goals of the Office of Health Care Affordability and CalRx, exploring increased transparency in the pharmacy supply chain and strategies to improve drug affordability statewide.

Child Health

Diaper Initiative: The Budget includes up to $7.4 million General Fund in 2025-26 and $12.5 million in 2026-27 for a program providing a three-month supply of diapers at no cost to California families with newborns, distributed via hospital systems. This initiative aims to improve maternal and newborn health outcomes.

Social Determinants of Health Investments

Broadband Infrastructure Investments: Federal investments through the Infrastructure Investment and Jobs Act (IIJA) and the American Rescue Plan Act (ARPA) will allocate partial funding to broadband infrastructure. As of November 2024, California anticipates receiving a portion of the $61.8 billion allocated for transportation, broadband, and climate resilience projects under the IIJA. This includes $46.7 billion in formula funding and $15.1 billion in competitive funding, some of which will be directed toward expanding broadband infrastructure. California allocated over $2 billion from ARPA to expand affordable broadband, develop housing for the unhoused, and maintain state-owned infrastructure. Investments in broadband aim to improve digital connectivity and bridge the digital divide, supporting equitable access to high-speed internet across the state.

Advocacy Opportunities

Last year, health centers successfully advocated to restore funding for the clinic-based health navigator program, but significant budgetary losses still impacted community health navigator programs statewide. Navigators play a critical role in helping patients understand complex coverage rules, dispel misinformation, and enroll in Medi-Cal. Without sufficient funding, communities across California will face gaps in enrollment support, leaving many to navigate the system alone.
The passage of Prop 35 by voters in November rolled back some key investments made in the 2024 Budget Act. The Governor’s budget proposal does not include funding for continuous Medi-Cal coverage for children 0-5, a policy delayed in 2022 due to funding shifts. This presents an opportunity to restore funding for continuous coverage, support community health workers, and reauthorize programs like ACEs Aware. ACEs Aware provides Medi-Cal providers with training and resources to screen for Adverse Childhood Experiences, helping identify, address health risks early, and connect families to community resources. These investments are important to ensure California children and families, especially from underserved communities, have access to necessary care and support.

Key Government Resources

Below, we’ve provided key places to find both summary-level and detailed information on the state budget, as well as links to budget bill language (BBL), trailer bill language (TBL), and budget change proposals (BCPs).

Administration/Executive Branch Resources:

A. 2025-26 Governor’s Budget/Department of Finance (DOF): This is the official page for the Governor’s Budget, which includes both detailed fiscal information (“budget detail”) and summary level information (also known as “summary” or “A Pages”), and is updated at the January Budget Release, May Revision, and upon signature of the Final Budget Act; you can also find past budgets here.

B. 2025-26 Administration/DOF Health and Human Services Budget Summary: This is the summary of the Health and Human Services programs in the budget. There are also summary charts for the entire budget, as well as some topic-specific summary chapters, such as Homelessness and Labor and Workforce Development, that may be tangentially related to Health and Human Services. Note: there is more detail in individual departments’ budgets, see the links provided below, than is summarized here.

C. Department-Specific Highlights: Some departments release a “highlights” document that delves further into their department-specific budget proposals and changes.