CCFC State Budget Update: Legislature Approves Bills to Enact Final FY 2026-27 Budget Deal

On Friday, June 26, the Legislature and Governor announced they had come to an agreement on a final budget deal for FY 2026-27, and the Legislature voted on Monday, June 29 to approve budget bills and trailer bills reflecting the “Final Version” of the budget. These bills augment AB 109, the primary budget bill previously passed on June 15 by the Assembly and Senate as the “Legislature’s Version” to meet the state’s constitutional budget deadline. The final deal includes a balanced budget for FY 2026-27 and FY 2027-28, and it aims to reduce the structural budget deficit to less than $10 billion in the out years.

The Budget Act of 2026 provides $351.7 billion in total expenditures in 2026-27, including $251.5 billion General Fund, and contains record total reserves of $35.2 billion – higher than the Legislature’s Version. This includes $9.2 billion in the Proposition 98 Rainy Day Fund, which is slightly lower than prior versions. It also includes $6.4 billion in the Surplus Set-Aside Holding Account for use in 2027-28. This is a new tool intended to protect against “overcommitting projected resources until revenues are realized and expenditures are finalized,” per the Governor.

The Final Version adopts the Governor’s May Revision proposal for $5 billion in ongoing new revenues. This includes a limit on business tax credits, a sales tax on pre-written software products, and changes to the Managed Care Organization tax on health care plans. Additionally, the Final Version requires the Administration to present options to the Legislature for “holding big corporations accountable for their employees’ health care costs by April 1, 2027,” to be considered during the 2027-28 budget process.

The Final Version updates the Rainy Day Fund reserve through ACA 20, a constitutional amendment on the November 2026 ballot. This includes increasing deposits into the Rainy Day Fund during “boom” years, and exempting reserve deposits from the State Appropriations Limit (Gann Limit) while making withdrawals from reserves subject to the limit.

The Proposition 98 Minimum Guarantee is $124.9 billion, $125.5 billion, and $128 billion in 2024-25, 2025-26, and 2026-27, respectively. This is slightly less than what was approved in the Legislature’s Version for FY 2025-26 and 2026-27. It includes a settle-up payment of approximately $3.9 billion, with repayment planned at the 2027 May Revision if revenues allow through a discretionary deposit to the Public School System Stabilization Account, for appropriation to Proposition 98 programs in future legislation. The Final Version includes the Legislature’s proposal to adjust the Proposition 98 funding split between TK-12 and the California Community Colleges. The split will be 88.9% for TK-12 and 11.1% for CCC, providing an additional $217.7 million from the Proposition 98 General Fund to CCC in 2026-27, to adjust a structural deficit that was inadvertently created for community colleges when the 2025 budget shifted Transitional Kindergarten costs outside of the split.

Community College Capital Outlay

The Final Version adopts the Governor’s budget proposal to provide $736.9 million (one-time Proposition 2 bond funds) to support 10 new and 29 continuing community college facilities projects.

This includes:

• $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.

Click here for a list of the projects approved for funding.

Deferred Maintenance

The Final Version includes the Governor’s proposal to provide $120.7 million (Proposition 98 General Fund) for community college deferred maintenance needs.

Other Community College Provisions

The Final Version includes the following:

• COLA – $438.3 million (ongoing Proposition 98 General Fund) for a 4.31% cost-of-living adjustment for Student Centered Funding Formula apportionments. This “super COLA” goes beyond the statutory requirement of 2.87%. It also provides $30.6 million (ongoing Proposition 98 General Fund) to support a 2.87% COLA for select categorical programs, including adult education.
• Enrollment Growth – $250 million (ongoing Proposition 98 General Fund) to support 1.0% growth in 2025-26 and 1.5% enrollment growth in 2026-27, allowing districts to be funded at the higher of actual enrollment or the three-year average enrollment.
• Student Support Block Grant – $147.2 million (one-time Proposition 98) for additional Student Success Block Grant funding.
• Calbright College – $38.1 million (Proposition 98 General Fund) increase to base operations of Calbright College, with trailer bill to establish oversight and enrollment reporting.
• Cloud Data Platform – $41 million (Proposition 98 General Fund, of which $5 million is ongoing) for scaling of a common cloud data platform across the system.
• Credit for Prior Learning – $37 million (Proposition 98 General Fund) to support the initiative.
• Dual Enrollment – $100 million to TK-12 schools (Proposition 98 General Fund) to increase career pathways for high school students, including expanding dual enrollment at community colleges. The Final Version also provides $10 million to community colleges (one-time Prop 98) for dual enrollment technical assistance.

Additionally, the Final Version adopts the Governor’s May Revision proposal to require schools and community colleges to provide all employees with up to 14 weeks of paid pregnancy disability leave beginning in 2026-27.

Next Steps

On Monday night, the Governor took action to sign some of the budget and trailer bills that he received from the Legislature, including SB 111, the primary “Budget Bill Junior.” The Governor’s action is still pending on SB 135, the higher education budget trailer bill. It is possible that additional adjustments will be made to the budget when the Legislature returns in August from their summer recess, as they often do. For now, we can consider Monday’s actions representative of the final FY 2026-27 state budget.

Rebekah Kalleen
CCFC Executive Director