Local governments across California that rely on funding from the state to help pay for homelessness, housing, and health services may be forced to make tough choices after the release of Governor Gavin Newsom’s state budget proposal on Friday.
The governor’s office released a $348.9 billion total spending plan with a $2.9 billion structural deficit that prioritizes investments in the state’s education system as well as a slight increase in funding for Medi-Cal to account for rising costs and changes to federal funding.
The state is also budgeting $500 million towards its Homeless Housing, Assistance and Prevention Grant program (HAPP), which cities and counties use to pay for homeless shelters and other local services.
The program started in 2019 and since 2021, the state had budgeted $1 billion for that program. The state promised to allocate half a billion dollars to HAPP last year, after not putting any new money into the program for 2025-2026’s annual budget.
Graham Knaus, CEO of California Association of Counties, or CSAC, told CapRadio the January state budget does not adequately meet the moment.
“If the state does not step up, counties will certainly crumble,” Knaus said following the presentation.
Advocates for local governments across California, including those in Sacramento, say the governor’s plan does not do enough to sustain homelessness initiatives or properly respond to Trump administration threats to cut federal funding.
Homelessness
Sacramento’s county and city officials have expressed disappointment about the budget and funding for the years ahead.
Emily Halcon, director of Homelessness Services for Sacramento County, said the governor’s budget projections jeopardize work being done on the ground level.
“The state funds are critical,” Halcon said. “ We are just as committed as the state is and remain committed. This is the number one budget priority issue, and has been for the Board of Supervisors over the past couple years.”
Halcon told CapRadio the reduction in state funding will make it more difficult to sustain programs and provide enough resources to ensure those who need to stay at a shelter are able to.
“ Every year we commit HAPP dollars for the ongoing operations of these shelter beds,” Halcon said, referring to the state homelessness funding program. “If we have a reduction or a loss in HAPP, we’ll simply have to find different funds either locally or from other grant sources.”
Officials with the city of Sacramento worry less state funding could unravel Sacramento Mayor Kevin McCarty’s tiny home initiative and similar efforts.
City Councilmember Roger Dickinson said any reduction of funding will jeopardize the future of these programs.
“Even if you have funding to create a microcommunity, is there going to be the kind of funding necessary to sustain it over time so that you can pay for the operations of that community?” Dickinson said in an interview with CapRadio.
The governor’s plan calls for implementing “accountability measures” surrounding the latest round of HAPP funding, though it is unclear what those may entail.
Jason Ryan is legislative analyst with the League of California Cities, a group dedicated to advocating for cities on the state stage. Ryan told CapRadio the logic behind this is flawed.
“We hear from the governor and the legislature about ‘accountability, accountability, accountability’,” Ryan said. “Our cities are all about accountability, but you can’t pull the funding and then try to hold us accountable for the funds.”
When it comes to local nonprofits doing homeless advocacy work in Sacramento, not all are dependent on state funding.
Sacramento Loaves & Fishes told CapRadio in a statement that it does not use state funding for its operations.
City of Refuge Sacramento, another homelessness nonprofit, does not benefit from state funding either.
First Steps Communities, a homeless nonprofit that runs shelters within the county, told CapRadio that about half of its contract funding comes through the state.
Joseph Pacheco, the organization’s executive director, said the budget released last week might not affect the non-profit right away.
“We’re still operating with some state funding from years past, so it has several years before the money runs out,” he said. “The immediate impact might be minimal, but long term if there’s big budget reductions, when budgets crunch then something has to give.”
Healthcare
Another major concern facing municipalities is how to handle current and future cuts to safety net services, namely the state’s low-income health care assistance insurance program Medi-Cal.
Knaus, with CSAC, the county advocacy group, said the budget does not properly address the impacts that H.R. 1 – the Trump Administration’s Big, Beautiful, Bill – will have on counties.
H.R. 1 includes over a trillion dollars of cuts to various social service programs over the course of a decade.
Knaus says millions could lose care over new Medi-cal eligibility requirements for immigrants and soaring costs of healthcare premiums for those who receive insurance through the state’s health care marketplace, CoveredCA.
“If they’re no longer receiving healthcare, but they do have an emergency, it is on the county to figure out how to navigate that,” Knaus said. “We have absolutely no fund source to do that.”
The governor’s current budget increases spending for Medi-Cal by $2.4 billion. But some health officials feel it is not enough to support Californians that are losing health insurance because of new eligibility rules and rising costs.
In the next year, Sacramento County expects 73,000 people to fall off of care, said Timothy Lutz, the county’s director of health services. He added that 6,500 of those could end up needing county services.
“ This is gonna be very expensive. We’re talking about tens of millions of dollars that counties are going to need to find from their coffers to be able to support this,” Lutz warned.
A decade ago, Lutz said the county operated 11 clinics. Due to the expansion of affordable care on the state and federal level, the county now only operates three.
He hopes the state adjusts its budget to help unique populations that are set to fall out of Medi-Cal coverage, such as refugees and asylees that are in the United States legally.
“ Sacramento is the second highest in the state for counties receiving refugees, next to only Los Angeles,” he said. ”There’s a lot of federal policy changes on immigration status, and it’s gonna have impacts throughout our communities.”
The governor’s January budget proposal kicks off months of negotiations between the governor and state lawmakers. The governor will present his revised budget in May and a final budget must be approved in June.