Governor’s FY 2026-27 Budget Proposal: Capital Outlay & Deferred Maintenance Funding

On Friday, January 9, 2026, Governor Newsom’s budget proposal was delivered in a press conference by Joe Stephenshaw, the Director of Finance. 

The prior day, Governor Newsom highlighted some of the themes addressed in the budget during his State of the State Address. This is Governor Newsom’s final budget proposal before he is termed out at the end of 2026. The Governor utilized this budget presentation to take a victory lap, emphasizing the progress California has made on key initiatives addressing homelessness, disaster recovery, technology regulation, crime, and more. He championed meaningful gains for TK-12 public education resulting from the “California for All Kids” investments in universal Transitional Kindergarten, before and after care, and more. 

The proposed budget includes $348.9 billion in total spending, including $248.3 billion General Fund and $23 billion in total reserves. Mr. Stephenshaw indicated that the Governor’s budget is a “workload budget” that funds cost increases to baseline services and programs but does not include significant new adjustments. The Governor plans to monitor changes in revenues and spending over the next few months and will update his budget proposal at the May Revision accordingly. 

The Governor anticipates a modest deficit of $2.9 billion, in contrast to the Legislative Analyst’s Office estimated $18 billion deficit. The difference is explained by the Governor’s higher revenue forecast for the Big Three (Personal Income Tax, Corporations Tax, Sales and Use Tax), which is $28.8 billion – or 4.7% - higher than LAO’s forecast. Mr. Stephenshaw noted that economic and revenue risks include stock market volatility and declines, uncertainty about Federal policy, and elevated inflation with subsequent restrictive monetary policy. The budget also indicates that significant Federal policy changes in H.R. 1 are projected to increase state costs by $1.4 billion General Fund in 2026-27 ($1.1 billion for Medi-Cal and nearly $300 million for CalFresh).

The Proposition 98 Minimum Guarantee is up to $125.5 billion in 2026-27, and Mr. Stephenshaw noted that this is up from $78.5 billion in 2018-19 and is an all-time high for the Minimum Guarantee. The revised Proposition 98 levels represent an increase of approximately $21.7 billion over the three-year period of 2024-25 through 2026-27, relative to the 2025 Budget Act. The Governor’s budget proposes $15.4 billion in General Fund and property taxes for the community colleges in 2026-27. The budget indicates that California Community College enrollment levels have recovered from pandemic-related enrollment declines, with 2.2 million students in 2024-25 and further growth anticipated in 2025-26 and 2026-27.

Capital Outlay

The Governor’s budget includes $736.9 million in Proposition 2 bond funds for 10 new projects and 29 continuing projects at the community colleges.

Click here for a list of the projects.

Deferred Maintenance

The Governor’s budget includes a one-time increase of $120.7 million in Proposition 98 General Fund to address deferred maintenance needs at community colleges. There were no funds provided for community college deferred maintenance in the adopted 2025-26 budget.

Student Housing

The Governor’s budget highlights the recent investments that have been made in student housing, and acknowledges previously shifting roughly $2 billion in prior and planned General Fund support for UC, CSU, and CCC affordable student housing grants to different sources, including state-issued lease revenue bonds under the State Public Works Board for approved CCC projects. The Governor’s budget refers to the Administration’s “commitment” to these projects, and states that “For the CCCs, more than 5,800 new beds are expected to be available to students by 2029, of which more than 4,800 are projected to be subsidized as part of the program’s statutory requirements.” The budget does not appear to include a commitment of new funds for affordable student housing.

Master Plan for Career Education

In April 2025, the Administration released the state’s first Master Plan for Career Education, with the goals of:

1. Aligning state education and workforce development programs with the needs of the future economy
2. Better coordinating and streamlining programs regionally and across state agencies
3. Ensuring that the state’s students and adult learners have affordable access to the educational and career preparation opportunities needed to navigate to and obtain good paying jobs that lead to sustained career pathways. 

The 2025 Budget Act included investments to begin implementation of the Master Plan. The governor’s budget proposal for 2026-27 includes the following new investments to implement key provisions of the Master Plan:

• $100 million one-time Proposition 98 General Fund to increase access to college and career pathways for high school students, including expanding access to dual enrollment.
• $37 million Proposition 98 General Fund, of which $2 million is ongoing, to further support and expand the Credit for Prior Learning Initiative.

Other CCC Issues

The Governor’s budget includes the following proposals:

• Payment of 2025 Budget Act Deferrals – A one-time increase of $408.3 million to fully repay deferrals for the Student-Centered Funding Formula (SCFF) in 2026-27.
• CCC Apportionments Cost-of-Living Adjustment (COLA) and Growth – An increase of $240.6 million Proposition 98 General Fund to provide a 2.41 percent COLA for SCFF apportionments, and an increase of $30.6 million Proposition 98 General Fund for a 2.41 percent COLA for select categorical program. It also includes $31.9 million Proposition 98 General Fund for 0.5 percent enrollment growth, and an increase of $55.3 million Proposition 98 General Fund for additional enrollment growth of 1 percent in 2025-26.
• Student Support Block Grant – A one-time increase of $100 million Proposition 98 General Fund for a flexible block grant for the community college system.
• Common Cloud Data Platform – An increase of $41 million Proposition 98 General Fund, $5 million of which is ongoing, for further scaling of the common cloud data platform across the community college system.
• Calbright College – An increase of $38.1 million Proposition 98 General Fund to support and provide stable funding for Calbright College (the online college) for “base operations as it transitions out of its startup capacity.”
• California Healthy School Food Pathways Program – An increase of $14.3 million Proposition 98 General Fund for community colleges to support the California Healthy School Food Pathways Program, which strengthens the school food service workforce through apprenticeship and training programs.
  
  

Next Steps

The Governor’s budget is a starting point for negotiations between the Administration and the Governor. The Legislature will review the Governor’s budget proposal, holding budget subcommittee hearings over the coming months. The Governor will update his budget proposal in May to reflect updated revenue projections based on 2025 income tax receipts. The Legislature will work to meet a constitutional deadline of adopting a budget by June 15. CCFC will provide additional information as it becomes available during this process.

Rebekah Kalleen
CCFC Executive Director