CCFC State Budget Update: Governor Releases May Revision for FY 2026-27 Budget

On Thursday, May 14, the Governor released his May Revision budget update for FY 2026-27, which includes $349.9 billion in total spending, including $246.6 billion in General Fund; this is approximately $1.8 billion lower than estimated in the January budget.

During his final press conference to deliver a budget, Governor Newsom declared that California is a “global economic powerhouse,” with the fastest-growing developed economy in the world, up 40% since 2019. State revenues have come in substantially above projections, buoyed by the performance of and enthusiasm for technology companies.

The Governor indicated that his budget plan would eliminate the deficit for the next two years, through the end of FY 2027-28. In January, the Governor estimated that the state would face a modest budget deficit of $2.9 billion in FY 2026-27, and in February the Legislative Analyst’s Office adjusted its revenue estimates for that year to align with the Governor’s. At the May Revision, the Governor estimates that General Fund revenues from the Big Three sources (Personal Income, Corporate, and Sales and Use Tax) are $16.5 billion higher than projected in January over the three-year budget window. Most of this – $13.6 billion – is derived from Personal Income, boosted by a 2025 increase in capital gains. The Governor’s May Revision proposal prioritizes rebuilding reserves to draw from in future years; he proposes a total of $29.9 billion in combined reserves in FY 2026-27, including $15.1 billion for the Budget Stabilization Account, $4.5 billion in the Special Fund for Economic Uncertainties, and $10.3 billion in the Public School System Stabilization Account (up from $0 in FY 2025-26).

Despite the relatively rosy economic picture, the Governor proposed a number of solutions to help address a looming structural deficit and ensure a balanced budget in FY 2027-28. This includes a first-of-its-kind proposed transfer of $9.7 billion into the Surplus Holding Account, to be allocated in FY 2027-28. This is a new tool that was created in 2024 to help protect against “overcommitting projected resources until revenues are realized and expenditures are finalized.” Other tools to address projected out-year structural deficits include: revenue solutions, including the Managed Care Organization Tax and a proposal to tax digital prewritten software and software as a service; spending reductions and reforms related to health care and Medi-Cal expenditures; and using special fund dollars in lieu of the General Fund for some expenditures.

Proposition 98

The Governor estimates Proposition 98 revenues will be $6.4 billion higher as compared to January estimates, and $28 billion higher over the three-year period relative to the 2025 Budget Act. The revised Guarantee for TK-14 schools is calculated to be $124.9 billion in 2024-25, $125.1 billion in 2025-26, and $127.1 billion in 2026-27. Much of the funding increase is required to be deposited into the Proposition 98 Rainy Day Fund and will not be immediately available for TK-14 schools. The May Revision maintains a $3.9 billion settle-up amount in FY 2025-26, to be repaid in future years.

Capital Outlay and Proposition 2

The Governor’s January budget proposal included $736.9 million in Proposition 2 bond funds:

• $27.8 million for the design phase (Preliminary Plans and Working Drawings) for 10 new projects worth $399 million in State funding through construction.
• $709 million for construction of 29 continuing projects.

The May Revision does not appear to make any changes to this proposal.

During the Legislature’s review this spring of the proposed capital outlay funding, the Legislative Analyst’s Office raised questions about the process for prioritizing and allocating scarce bond dollars. Click here to view a prior update for more information.

CCFC supports the Governor’s January budget proposal for capital outlay.

Deferred Maintenance

The Governor’s January budget included $120.7 million (one-time Proposition 98 General Fund) for the Scheduled Maintenance and Instruction Support Program. The May Revision does not appear to make any changes to this proposal.

CCFC supports the Governor’s January budget proposal, and has requested an increase to this funding if revenues allow for additional one-time investments. We also request trailer bill language to eliminate the statutory project funding caps for architectural barrier removal and seismic retrofit projects, which are currently capped at $1,103,000.

Other CCC Issues

The May Revision includes the following additional proposals for community colleges:

• Student Centered Funding Formula (SCFF) Cost-of-Living Adjustment (COLA) – An ongoing increase of $197.7 million (Proposition 98 General Fund) to increase the COLA from 2.41% to 4.31%, of which 1.4% is discretionary. This is up from the statutory COLA at May Revision of 2.87%, bringing the total proposed SCFF COLA adjustment in 2026-27 to $438.3 million.
• SCFF Growth Adjustment – Maintains the January proposals to fund 0.5% enrollment growth, with an increase of $2 million (Proposition 98 General Fund), and the addition of 1% ongoing growth in 2025-26.
• Categorical Programs COLA – An increase of $6.1 million (Proposition 98 General Fund) to reflect a change in the COLA from 2.41% to 2.87% for select categorical programs and the Adult Education Program.
• Paid Pregnancy Leave – Requires all community colleges, as well as TK-12 public schools, to provide all employees with up to 14 weeks of paid pregnancy disability leave beginning in 2026-27. Costs of this benefit are absorbable within the 1.4% discretionary SCFF COLA.
• Student Support Block Grant – A one-time increase of $607,000 Proposition 98 General Fund for a flexible block grant for community colleges, increasing the total amount proposed for 2026-27 from $100 million to $100.6 million.

Next Steps

Over the next few weeks, the State Senate and Assembly will continue to review the Governor’s budget proposals, working toward a constitutional deadline of June 15 to pass the budget for FY 2026-27. The Legislature and Governor will also develop trailer bills that contain policy changes to enact the budget.

Rebekah Kalleen
CCFC Executive Director