Governor’s May Revise Reflects Negative Fiscal Outlook, With Reversions and No New Funding

Article Contributor: Jacqueline Woo, Senior Associate, Research & Policy

The Legislature is entering the midpoint of the year, and the focus turns to the budget, which must be adopted by June 15^th. Governor Newsom’s May Revise, which adjusted the Governor’s January budget proposal, was released on May 14 and reflected a more negative fiscal outlook due to increased economic uncertainty and potential federal policy changes.  The revised budget proposes nearly $12B in budget actions to address an estimated $7.5B deficit and build up the state’s discretionary reserves by $4.5B. Unfortunately, housing and homelessness programs were hurt by the state’s fiscal challenges.

To address the budget deficit, the May Revise contained reversions of unexpended affordable housing program funding and proposes no new or ongoing state funds to address homelessness, instead indicating a focus on reorganization and streamlining. The May Revise proposes funding the creation of a new California Housing and Homelessness Agency (CHHA). Our article on the Governor’s reorganization of state agencies for housing and homelessness provides more details on this process. The Governor additionally indicated that two of the most impactful streamlining bills will be included in the budget trailer bill and voiced support for a statewide bond measure.

The May Revise continued last year’s trend of reducing spending on housing and homelessness. The Governor proposed reverting $3.17M in unexpended funding that was previously appropriated for the Infill Infrastructure Grant Catalytic Program, the Commercial Property Pilot Program, and the 2021 Infill Infrastructure Grant Program. The May Revise does propose $200M in Proposition 35 funds, which fund Medi-Cal services, for Flexible Housing Pool rental assistance and housing supports to help individuals who are experiencing or at risk of homelessness – unfortunately, such funding is insufficient to meet the need particularly in light of federal cuts proposed by the Trump administration.

The May Revise’s biggest proposal for housing and homelessness relates to the creation of the new CHHA, providing:

• $4.2M in the first year (2025-26)
• $6.4M the following year
• And $6.2M per year going forward

During his address, the Governor stated “…California isn’t backing down from its goals of tackling climate change, building more housing, and strengthening communities. At the heart of this plan is a push to create more housing, especially near public transit, to reduce long commutes and pollution.”  The Governor expressed his desire to expedite housing construction by ensuring that all government agencies involved adhere to existing deadlines.

The Governor personally applauded Assembly Member Wicks and Senator Wiener for their legislative advocacy. He shared that his administration is working with the Legislature to pass laws that will boost infill housing—building homes in areas that already have roads, water, and transit access. The Governor indicated that details from SB 607 (Wiener, D-San Francisco) and AB 609 (Wicks, D-Oakland), part of the legislature’s Fast Track Housing Package, will be included in the budget trailer bill. Both bills aim to close loopholes exploited by NIMBY cities and community organizations that delay housing development projects.

The Governor additionally indicated openness to exploring a statewide bond measure—essentially a funding plan that would need voter approval—to support significant investments in housing and infrastructure that could benefit communities for years to come. This support aligns with two bills currently in the legislature, AB 736 (Wicks, D-Oakland) and SB 417 (Cabaldon, D-Napa), collectively known as the Affordable Housing Bond Act of 2026. These measures propose placing a $10 billion general obligation bond on the June 2026 California ballot. AB 736 passed out of the Assembly appropriations committee with strong support at the end of May and will head to the Assembly floor. As for SB 417, the Senate has indicated that it will address all bond-related bills later in the legislative session.