Newsom Final Budget 2026: Why Medi-Cal Cuts Wait Until 2027?

As Gavin Newsom signs his last state budget before term limits push him out of Sacramento, Californians are left asking a simple question: who actually pays when the bills he postponed finally come due?

Gavin Newsom just signed his last budget as governor. He didn’t balance California’s books — he rescheduled the pain.

The $351.7 billion spending plan, finalized in June after weeks of closed-door negotiation with legislative leaders, avoids the deepest healthcare and social service cuts Newsom himself proposed just months earlier. The deal raises some taxes, sets aside $6.4 billion for the following fiscal year, and softens or delays billions of dollars in planned social service cuts, leaving the budget technically balanced for two consecutive years while state leaders say it reduces future deficits. The catch: the hardest choices land in 2027, on someone else’s watch. KVCR Public Media

What’s Actually in This Budget?

Start with the new taxes. Lawmakers agreed to a new tax on digital prewritten software and software-as-a-service products, projected to raise $450 million in 2026-27 and grow to $900 million by 2029-30. They also extended a cap on business tax credits that was set to expire this year, pushing the $5 million credit limit through 2029 and generating roughly $9 billion in revenue over that period, with a stricter cap of $5 million or 70% of a company’s tax liability taking effect in 2030. Business groups didn’t stay quiet. The California Taxpayers Association warned the software tax risks making innovation more expensive and pushing investment out of state — a warning Sacramento brushed past on its way to a deal. CACalMatters

Is This a Balanced Budget — Or a Deferred One?

Supporters call it balanced. The fine print says otherwise. Independent budget analysts and the governor’s own May revision leaned heavily on projected revenue tied to artificial intelligence growth to make the math work — a bet on a volatile sector, not a structural fix. That’s the core of the “kick the can” problem: a budget that depends on AI revenue projections to stay balanced isn’t fiscal discipline — it’s a wager with your tax dollars.

The real test isn’t this year’s ledger. It’s what happens in 2027, when the deferred cuts land on a governor who never proposed them.

Who Pays When the Medi-Cal Cuts Finally Hit?

This is where “delay” becomes a policy choice with real consequences. Starting in July 2027, the state will limit healthcare coverage for roughly 150,000 immigrants — including refugees, asylees, and human trafficking survivors — to emergency and pregnancy care only. Before that, the state will transition close to 2 million Medi-Cal enrollees, most of them undocumented immigrants, into a fee-for-service system by January 1, 2027, a move projected to save $470 million but that will strip recipients of case management, housing assistance, and medically tailored meals. KVCR Public MediaKVCR Public Media

Lawmakers also softened Newsom’s proposal to tighten Medi-Cal asset limits for seniors and people with disabilities. Instead of the stricter test Newsom wanted, the deal sets a $21,000 asset ceiling for individuals and $31,000 for couples starting July 2027 — down sharply from the current limits of $130,000 and $195,000. Newsom’s push to double the Medi-Cal premium for undocumented adults from $30 to $50 a month didn’t even get resolved. It was punted entirely to the next governor. KVCR Public Media

None of this shows up in this year’s bottom line. All of it shows up in 2027.

Why Is Newsom Spending More on Colleges While Delaying Cuts to the Vulnerable?

While healthcare and disability programs absorbed deferrals and new eligibility restrictions, higher education came out ahead. The UC and Cal State systems each received more than $500 million in new ongoing taxpayer support, money they can use to hire faculty and cover rising costs, even as the Legislature’s own budget analysts had recommended smaller increases given the state’s multibillion-dollar deficit projections. Since Newsom took office eight years ago, state support for the UC and Cal State systems has grown by 50%. CalMattersCalMatters

K-12 schools took a smaller, quieter hit. A last-minute budget change eliminated $5.5 million that paid for online research materials used by California’s 10,000 public schools — including Encyclopedia Britannica, the New York Times, and PBS video archives — a cut made without advance notice to schools or librarians. A state that can find half a billion dollars for university administration couldn’t find $5.5 million to keep research tools in public school classrooms. CalMatters

What Do Supporters of This Budget Actually Believe?

Defenders of the deal have a real argument, and it deserves a fair hearing. They point out the budget avoids abrupt cuts to healthcare and disability services this year, protects K-12 per-pupil funding, and builds reserves — combined reserves that have grown 30% since Newsom took office, including a Rainy Day Fund the state can draw on in a downturn. Democratic budget leaders argue the goal was never to punish anyone — it was to buy time and avoid deep cuts while federal healthcare funding uncertainty played out. As Senate Budget Chair John Laird put it, the plan was about stretching resources as far as possible in hopes of avoiding cuts altogether. CACalMatters

That’s a defensible short-term goal. But it doesn’t answer the accountability question: if the underlying deficit is real, delaying the reckoning to 2027 doesn’t shrink it — it just hands it to whoever wins the governor’s race in November 2026, along with a $470 million savings target and 150,000 immigrants losing coverage on their watch, not Newsom’s.

“A budget that’s balanced on paper today but dependent on AI revenue and deferred cuts tomorrow isn’t a fix. It’s a bet — and Californians are the ones covering the spread.”

What Happens If the AI Revenue Bet Doesn’t Pay Off?

$1.8 trillion. That’s how much the federal government alone has borrowed in the past 12 months, according to Congressional Budget Office estimates — a reminder that deficit math rarely resolves itself through optimistic revenue forecasts. California’s budget leans on a similar wager: that AI-driven tax revenue keeps climbing fast enough to cover commitments made today. If growth slows, or if the software tax pushes tech investment elsewhere as business groups warn, the 2027 gap doesn’t shrink. It widens — and the next governor inherits the shortfall along with the political blame. Committee for a Responsible Federal Budget

If this budget’s AI revenue bet doesn’t pay off, who’s actually accountable — the governor who signed it, or the one stuck cleaning it up?

Key Questions This Budget Raises

• Should a term-limited governor be allowed to defer politically painful cuts until after he leaves office?
• Is it fiscally responsible to balance a state budget using projected AI-driven tax revenue rather than confirmed, recurring income?
• Why did university systems gain new ongoing funding while a $5.5 million school library research program was cut without notice?

Has Sacramento Actually Solved Anything?

Strip away the press-release language, and this budget accomplishes one thing clearly: it gets Gavin Newsom out of Sacramento without his name attached to the state’s next round of healthcare cuts. Whether that’s smart politics or fiscal avoidance depends on where you’re sitting. For the roughly 150,000 immigrants losing coverage in 2027, for the seniors facing a new $21,000 asset test, and for the next governor inheriting a $470 million savings mandate they never asked for, the answer matters a great deal.

The real question isn’t whether California’s budget looks balanced today. It’s whether anyone in Sacramento will still be accountable for it in 2027 — or whether, by then, it will simply be someone else’s problem.

Still have questions about where your tax dollars are actually going? Stay informed — subscribe to The Town Hall News for daily accountability coverage. Think your neighbors need to see this? Share the article. Want your voice to count before the 2027 cuts take effect? Contact your state assemblymember and ask directly how they plan to handle the deferred Medi-Cal changes — find your representative at findyourrep.legislature.ca.gov.