05/15/2026

Keeping California Informed!

CASA Advocacy and Legislative Update

Governor Gavin Newsom’s May Budget Revision is presented to be a fiscally constrained and largely defensive budget strategy, responding to a projected multibillion-dollar shortfall driven by rising Medi-Cal costs, reduced revenue projections, federal fiscal uncertainty, and economic volatility tied to capital gains and trade disruptions. Rather than launching new programmatic expansions, the Administration seems to have prioritized preserving core state programs while implementing targeted cost containment measures—particularly within Medi-Cal.

The 2026–27 May Revision to the Governor’s Budget proposes spending of $349.4 billion in total state funds, consisting of approximately $246.6 billion from the General Fund, $95.6 billion from special funds, and $7.3 billion from bond funds.

Key themes across this May Revision include:

• Significant Medi-Cal cost controls and eligibility changes to address unprecedented expenditure growth
• Continued implementation of Proposition 35 provider payment increases as a counterbalance to broader cuts
• Preservation of most TK–12 and higher education commitments despite reduced revenue projections
• Limited new discretionary spending for transportation and climate-related programs
• No major expansion of incarcerated communications funding or agency-paid calling models
• Emphasis on workforce development and career education infrastructure over new standalone initiatives

HEALTH CARE / MEDI-CAL

Medi-Cal Cost Pressures

Medi-Cal represents one of the largest areas of budget pressure in the May Revision, with projected General Fund expenditures rising to approximately $44.6 billion in 2025–26. The Administration attributes the increase to:

• Higher managed care costs
• Rising pharmacy expenditures
• Caseload growth across covered populations
• Lower Managed Care Organization (MCO) tax revenues available to offset costs
• Continued costs associated with full-scope Medi-Cal expansion regardless of immigration status

Proposed Cost Containment Measures

The May Revision includes significant cost containment measures focused largely on state-only Medi-Cal populations:

• Enrollment freeze for undocumented adults age 19 and older, effective no sooner than January 1, 2026
• Proposed $100 monthly premiums for certain adult populations, beginning January 1, 2027
• Elimination of select long-term care and adult dental benefits for certain state-only populations
• Elimination of enhanced clinic reimbursement structures for Federally Qualified Health Centers (FQHCs) and Rural Health Clinics serving state-only populations
• Reinstatement of Medi-Cal asset tests
• Additional pharmacy utilization controls and rebate aggregation strategies

Provider Reimbursement Increases (Proposition 35)

Despite the proposed cuts, the May Revision continues implementation of Proposition 35-related MCO tax expenditures, including approximately $1.6 billion across 2025–26 and 2026–27 for increased managed care payments. Funding increases are targeted toward:

• Primary care and specialty care services
• Ground emergency medical transportation
• Community and hospital outpatient procedures

Specifically, the May Revision includes $575 million in 2026–27, $2.3 billion each in 2027–28 and 2028–29, and $1.7 billion in 2029–30 from this new tax to support the Medi-Cal program and maintain targeted rate increases for primary, maternal, and non-specialty mental health care implemented on January 1, 2024. The May Revision proposes to seek renewal of an MCO Tax effective January 1, 2027.

Federal Medicaid Risk

The Administration repeatedly references uncertainty surrounding potential federal Medicaid reductions and broader federal fiscal instability as a major driver of the revised budget outlook. This federal risk remains an overarching variable that could further constrain the state’s fiscal position in subsequent budget years.

EDUCATION

General Education Funding

The May Revision makes the following adjustments to education funding:

• Proposition 98 guarantee is slightly lower than the January estimates
• Most TK–12 commitments are maintained
• Universal transitional kindergarten implementation continues
• Proposed CSU and UC cuts reduced from 8% to 3%

Career Pathways and Workforce Development

The May Revision maintains a broader emphasis on workforce development and community college funding, including continued support for the Student-Centered Funding Formula (SCFF) and ongoing investments in workforce and student success. Funding adjustments are tied to reduced cost-of-living allowance (COLA) assumptions.

No major new dedicated appropriation or structural expansion was identified for the California Education Interagency Council (CEIC). While workforce and career education themes remain embedded throughout community college discussions, there is no large, standalone Career Pathways Initiative funding proposal highlighted in the May Revision summary materials. The Administration’s education posture is focused primarily on maintaining existing commitments, limiting reductions, and preserving workforce pipeline infrastructure amid fiscal constraints.

2026 LEGISLATIVE CALENDAR – KEY REMAINING DEADLINES

The following deadlines govern the remaining legislative process for 2026.

Senate budget proposals. Trailer bill negotiations on contested items—particularly Medi-Cal eligibility changes—are likely to extend beyond June 15 until the end of the session.

KEY RESOURCES & OFFICIAL DOCUMENTS

The following official sources provide additional detail on the Governor’s May Revision:

• 2026–27 May Revision Full Budget Summary (PDF)
• Health and Human Services Budget Summary (PDF)
• Legislative Analyst’s Office — California's Fiscal Outlook
• Assembly Budget Committee — May Revision Highlights