Updated July 30th, 2025
The 2025-26 California budget went into effect on July 1. Below, Children Now’s policy experts break down what the new funding package means for kids, and where challenges remain. From education and child welfare to health care and early childhood, our team outlines key wins, ongoing risks, and what Children’s Movement members should watch for next. With the federal budget also now finalized, additional state-level negotiations and adjustments could still take place in the months ahead.
Budget Summary by Policy Area
California’s final state budget includes a modest revenue boost while confronting deep, ongoing deficits. In May, revenues came in about $1 billion higher than expected, offering some relief for the General Fund, public schools, and community colleges. Still, the Governor focused on limiting future spending, scaling back many of the Legislature’s proposed increases and restoring only select administrative funding. As a result, General Fund spending for 2025-26 was reduced from $232 billion to $228.4 billion.
Despite this short-term boost, the state faces projected deficits of $17 to $24 billion in future years. To close this year’s gap without major service cuts, the budget draws $7.1 billion from the Rainy Day Fund and $6.5 billion from other reserves. Looking ahead, expected changes in federal funding could significantly affect state and local budgets, public schools, universities, businesses, and households. Lawmakers may respond with additional legislation later this year, during a potential fall special session, or when the Legislature returns in January 2026.
Specifically, the budget:
- Includes $114.6 billion in Proposition 98 funding for TK-12 schools and community colleges. It maintains educational programs implemented in 2024-25, including a 2.3% cost-of-living adjustment (COLA) for core programs, and funds several equity-focused initiatives.
- Adds $2.1 billion for Transitional Kindergarten (TK) in Proposition 98 funds to accommodate enrollment growth, lowers classroom ratios to 10:1 — a more developmentally appropriate standard for young children — and requires TK teachers to complete 24 units of child development coursework beginning this fall.
- Restores $379 million for the Learning Recovery Emergency Block Grant and provides $200 million for professional development in literacy, along with $215 million for literacy coaches and reading specialists. An additional $1.7 billion in one-time funding will support teacher development, professional learning, and services for English learners.
- Provides $300 million to support $10,000 annual stipends for student teachers completing credential requirements, and $526 million to increase expanded learning rates for districts where 55% or more of students are in high need.
- Rejects the May Revision’s proposed 3% cuts to base funding for the UC ($129.7 million) and CSU ($143.9 million) systems. It also provides a 2% deferred base increase to UC and CSU in 2026-27, with the remainder to follow in 2028-29. Community colleges will receive an additional $217.4 million. Lastly, the Middle-Class Scholarship program was redesigned to better target financial need, with $77 million in one-time funding in 2024-25 to support increased participation.
- Underfunds the 2024-25 Proposition 98 minimum guarantee by $1.9 billion without suspending the constitutional requirement, raising legal concerns and long-term risks. It also borrows another $1.9 billion from the 2026-27 education budget to cover current costs, creating uncertainty and risking future cuts, particularly for schools serving high-need students.
The final state budget maintains the Legislature’s proposals for child welfare services. In response to pushback and advocacy from providers, caregivers, current and former foster youth, and a successful Children’s Movement campaign, lawmakers scaled back significant cuts initially proposed in the Governor’s May Revision to two key programs:
- Ongoing reductions to the Family Urgent Response System (FURS) — a vital program that provides around-the-clock crisis support through a statewide helpline and mobile response teams — were lowered from $13 million to $9 million. FURS serves roughly 5,000 children and youth with lived experience in foster care each year, offering trauma-informed care and stabilization during urgent situations.
- The Emergency Child Care Bridge Program, which helps young children transition from foster care into permanent homes, also faced major proposed cuts. The Legislature reduced the Governor’s proposed $42.7 million ongoing cut to $30 million. However, this decrease may still disrupt efforts to ensure early childhood stability and support long-term family connections.
In addition, the final budget also:
- Modifies the Governor’s May Revision proposal for the Foster Care Tiered Rate Structure. Rather than linking implementation to an automatic trigger, the final agreement makes it subject to a future budget appropriation. The new rate structure remains scheduled to take effect on July 1, 2027.
- Restores $81 million in one-time funding for 2025-26 for the Bringing Families Home Program, which supports families involved in the child welfare system who are experiencing homelessness or housing instability.
- Provides $31.5 million ($23 million General Fund) in one-time bridge funding over a two-year period to help foster family agencies continue services and operations for children and youth in foster care.
The final state budget brings mixed outcomes for children’s health. While it includes a few important one-time investments, it also outlines cuts that could affect access to care for vulnerable populations. Given continued uncertainty around future state revenues and possible changes at the federal level, further budget negotiations may still be ahead.
- On the investment side, the budget allocates $17.5 million to the 988 State Suicide and Behavioral Health Crisis Services Fund and $31.45 million to the California Vaccine Management System (myCAvax), which supports public health infrastructure and access to vaccines for children and families across the state.
- At the same time, the budget includes several Medi-Cal reductions: new coverage restrictions for undocumented individuals, including transition-age youth ages 19 to 25 and parents; elimination of Proposition 56 supplemental payments for dental, family planning, and women’s health providers; and reduced annual funding for the Behavioral Health Services Commission under the Mental Health Services Act.
When it comes to early childhood programs and services, the state budget:
- Reaffirms the State’s $7 billion investment in subsidized child care, including $4.5 billion from the General Fund. This funding preserves current provider reimbursement rates across all child care programs by backfilling expiring federal funds. It also upholds last year’s commitment to 146,000 new child care slots.
- Pauses the statutory cost-of-living adjustment (COLA) for 2025-26 to address provider pay but requires it to commence in July 2026.
- Continues the Cost of Care Plus rates, allocating $70 million in ongoing state funds and $19.3 million in Proposition 98 funds.
- Includes $114.8 million in one-time funding for child care payment administration costs pursuant to collective bargaining, including out-of-contract Cost of Care Plus rate supplements and union dues collection.
- Allocates an additional $128.2 million for local assistance to child care contractors, enabling the Departments of Social Services and Education to begin funding child care and preschool programs based on enrollment starting in July 2026. Existing policies will remain in place until that time.
- Includes $25.5 million in one-time federal and General Fund resources to support local and state administration for the implementation of the Alternative Methodology by the Departments of Social Services and Education, pending legislative notification.
- Authorizes the Department of Education to expand preschool services for three-year-olds by increasing contracts with local and community-based providers.
- Includes broader CalWORKS reforms aimed at simplifying access and better supporting families utilizing the Home Visiting Program. While the program itself remains unchanged, access and support reforms include:
- Expanding approved welfare-to-work activities, making Job Club optional, easing sanction resolution, and streamlining county reporting.
- Implementing a 90-day sanction deferral to promote early engagement, more flexible appointment scheduling, improved access to child care and transportation, and the repeal of county Work Participation Rate penalties. All savings will be reinvested into CalWORKs to support participating families.
