Gov. Gavin Newsom approved California’s state budget for the fiscal year 2026-27, which approves $355 billion in spending, despite the Legislative Analyst’s Office’s May projection of a $16.9 billion deficit. The budget protects UC funding but cuts healthcare coverage and funding for some student financial aid programs as Newsom aims to balance state finances.
The cuts reduce funding for the Middle Class Scholarship, aimed at low- to middle-income UC and CSU students. While it previously covered up to 35% of eligible students’ remaining cost of attendance after other aid, it will cover only 17.5% of the remaining cost of attendance for the 2026-27 school year under the new plan. This is expected to reduce the cost of the program from $1.1 billion to $531 million.
The budget designates a total of approximately $5.4 billion in funding, honoring Newsom’s 2022 compact with the UC and CSU systems to annually increase their funding by 5% over the span of five years.
“None of these are easy choices, but given the federal cuts and concerns about revenues for the California budget, they are the kinds of hard choices that legislators face,” said Henry E. Brady, a professor of political science and public policy, in an email. “The decision to protect higher education comes after decades of cuts and a feeling that the state’s UC’s and CSU’s are getting at the end of their ability to perform given the low-level of state support.”
According to Newsom’s press release following the May revision, the budget is projected to eliminate the state’s deficit for the next two budget years and prevent a structural deficit through July 2028. His office’s prediction differs, however, from the Legislative Analyst’s Office projection of a $16.9 billion operating deficit in May 2026.
State Department of Finance spokesperson H.D. Palmer noted that funding for the Cal Grant Program, a student financial aid program that also serves low- and middle-income students, will see an estimated increase of approximately $300 million compared to funding from the fiscal year 2025-26.
“The 7% increase from the state goes a long way toward fulfilling the compact and providing the funding necessary to educate and invest in our students,” said UC President James B. Milliken. “This is especially important given the sustained attacks against UC and funding cuts by the federal government over the past 18 months.”
The budget also delays Medi-Cal reductions for non-citizens in response to federal government decisions to reduce Health and Human Services programs or change eligibility requirements, according to Palmer. Reductions are still set to be enacted in fiscal year 2027-28.
Brady said healthcare and education allocations pose difficulties for legislators, who must deal with “powerful constituencies” and balance future-focused education goals with more immediate challenges such as illness.
“To the greatest extent possible, both the Governor and the Legislature have strived to maintain coverage for those Californians who are currently receiving these services,” Palmer wrote in an email.