The Brief

Gov. Gavin Newsom’s office on Friday forecast a “modest shortfall” of $2.9 billion for the upcoming fiscal year, down sharply from previous estimates in a nearly $349 billion budget proposal that relies heavily on continued windfalls from tech and AI stocks.

The governor’s 2026-27 budget proposal projects $9 billion more in revenue than anticipated, banking on the AI-driven economy to last. It’s significantly rosier than the grim outlook by the nonpartisan Legislative Analyst’s Office, which in November projected an $18 billion deficit.

“A downturn in the market is one of the top risks,” said state Department of Finance Director Joe Stephenshaw.

Newsom’s spending proposal is nearly $30 billion more than this year’s budget. It includes $248.3 billion in the general fund, the primary account for state operations, up by $18 billion.

The spike in spending is partly driven by the need to implement federal cuts to the Medi-Cal program and constitutional requirements to deposit portions of higher-than-expected revenue into education and state reserves.

The budget calls for the University of California to get $350 million more in 2026-27 and the California State University system to get $365 million more, largely to fulfill Newsom’s 2022 promise to increase the universities’ spending by 5% annually for five years.

Newsom’s budget doesn’t include any cuts to K-12 schools, and preserves some of his initiatives related to school meals, community schools, after-school and summer programs and transitional kindergarten. Per-pupil spending would jump slightly to $27,400. It also includes a $509 million increase in special education funding, and a 2.41% cost-of-living increase.

Newsom’s proposal is the opening salvo in months of budget negotiations that begin in earnest in June.

The projected deficit could balloon to $22 billion in fiscal year 2027-28, a problem the governor will address in an updated fiscal forecast in May, Stephenshaw said.

Other state departments will see less funding under Newsom’s spending plan, though Stephenshaw emphasized that there were no major cuts in the proposal. Newsom wants to spend $1.3 billion less on housing and homelessness next year, slashing the department’s budget by more than half. Stephenshaw said some one-time dollars for housing and homelessness have run out and the state is not proposing to renew them.

Newsom’s sunnier forecast could delay calls for long-term financial fixes such as new taxes.

Bolstering the rainy day fund

Nodding to “long-term structural challenge,” Newsom wants to deposit $3 billion into the state’s rainy day fund Budget Stabilization Account, as well as $8.6 billion into two other reserve accounts. He’s also proposed spending $11.8 billion over the next four years, including $3 billion this upcoming year, to pay down the state’s pension liabilities.

“There are encouraging signs in the California economy,” Newsom said in a written statement accompanying the budget. “Yet history teaches us that prosperity, if taken for granted, can vanish as quickly as it arrives. California’s responsibility is to act with steady hands and anticipate future instability.”

California's Director of Finance, Joe Stephenshaw, leads the budget proposal presentation for the 2026-27 fiscal year, at the Capitol Annex Swing Space in Sacramento, on Jan. 9, 2026. Photo by Fred Greaves for CalMatters Newsom did not attend Friday’s budget presentation, after he painted a rosy picture of California’s fiscal future during his State of the State address Thursday. Flashing top-line numbers, the Democratic governor touted billions of dollars more in revenue, proposed new investments in education and pledged more toward the state’s reserves and pension debt.

He avoided revealing the budget deficit and did not say whether closing the gap would require painful spending cuts to core services like child care, food assistance and Medi-Cal, the state’s health care coverage for low-income residents, especially as federal funding diminishes.

Newsom teased multiple new proposals, such as fully funding the state’s universal transitional kindergarten program and providing universal before and after-school programs at elementary schools.

The TK program will cost $1.9 billion annually, according to his budget proposal.

Newsom also proposed spending $1 billion to add high-needs community schools and redirecting $1 billion in Proposition 1 mental health funds annually for housing and homelessness.

County government officials were dismayed the budget doesn't include more robust funding to backfill federal cuts in Republicans' mega domestic policy bill passed last year.

"If the state doesn’t step up, communities across California will crumble,” said Graham Knaus, CEO of the California State Association of Counties, in a statement Friday.

Some Democratic lawmakers struck a cautious tone while largely blaming President Donald Trump for withholding funds from Californians in need.

“California will not be able to fill the holes that have been left by the federal government,” said newly elected Senate President Pro Tem Monique Limón, a Santa Barbara Democrat, on Thursday. “We have to go back and look (at) what is feasible.”

'How big is the bubble?'Senate Budget Committee Chair John Laird, a Santa Cruz DemocratSen. John Laird, a Santa Cruz Democrat and the new chair of the Senate Budget Committee, warned that the high revenue projection indicates a bubble. Laird, who was elected to the state Assembly in 2002 after the 2000 dot-com bubble burst, said he’s concerned the AI-driven boom may not last.

“I think everybody agrees that this level of revenue can’t be maintained, but how big is the bubble? That’s probably the question,” he told CalMatters before Friday's release.

The Legislature must start chipping away at the long-term structural deficit this year instead of punting the problem, he said.

“We’re gonna have to do a piece of it,” he said. “We can’t go into next year with a $30 or $37 billion shortfall, because the reserves amount doesn’t get anywhere near that.”

Less funding for housing, homelessness 

Newsom’s final budget proposal represents a significant pull back of state spending on affordable housing. Every year since 2020, the state has tacked on an additional $500 million in spending to pad the federally funded Low Income Housing Tax Credit, the country’s premier funding source for affordable housing construction. This year’s spending plan includes no such proposal.

Newsom’s budget also slashes what had been a $1 billion infusion in spending for cities and counties to fund housing and services for homeless Californians to $500 million, “contingent on enhanced accountability and performance requirements” for local governments.

That all adds up to a more than 56% cut in overall spending for housing and homelessness.

“Not much in the way of good housing news,” said Ray Pearl, executive director of the California Housing Consortium, in a text message, though he stressed this was the first step in a half-year-long process.

In prior years, Newsom’s preliminary budget proposals have jettisoned such spending programs, only for the Legislature to add them back. Stephenshaw hinted as much in his presentation: “We'll obviously have conversations with the Legislature on what the appropriate level will be as we work through this process.”

The Governor's Budget Summary packet during the budget proposal presentation for the 2026-27 fiscal year, at the Capitol Annex Swing Space in Sacramento, on Jan. 9, 2026. Photo by Fred Greaves for CalMatters The counties association is hoping those conversations will lead to an increase in homelessness funding before the budget becomes final.

“We know it works,” Knaus said during a media briefing. “We know it has led to a significant reduction in homelessness in communities across California. And without those resources, that success that we have had is going to go away.”

Newsom has tussled with counties over homelessness funding for years as political pressure to resolve the state’s homeless crisis continues to mount. Newsom has blamed counties for failing to deliver results despite his $24 billion investment. Only a portion of the funding goes to county agencies and there is no dedicated annual funding to fight homelessness.

Newsom’s plan also startled county behavioral health service providers, who rely on Prop. 1 dollars for services.

“While these one-time bricks and mortar investments are promising, the $1 billion in funding for ongoing housing subsidies under Proposition 1 comes at the expense of redirected mental health treatment and prevention programs,” said Michelle Doty Cabrera, executive director of the County Behavioral Health Directors Association.

Medi-Cal a major challenge

Newsom’s budget includes $2 billion more this year and an additional $2.4 billion more next year on Medi-Cal, the state’s most expensive program that offers health care coverage for low-income Californians, primarily to respond to federal funding cuts.

The governor slammed Trump for passing a federal budget that could kick 1.8 million Californians off their insurance and raise the premiums for another 2 million. The state would have to spend at least $1.3 billion more than previously expected next year just to implement the federal law, the LAO previously estimated.

Assemblymember Mia Bonta, an Oakland Democrat who chairs the Assembly Health Committee, said the state must “use the bully pulpit” to fight the federal government, find ways to lower costs or even revive indigent care, a form of last-resort care that has largely become obsolete due to Medi-Cal.

“Because the alternative is, people are going to be dying on the streets,” Bonta said.

Bonta said the Legislature should explore new funding sources. Some advocates are already pushing for a pair of proposed wealth tax ballot measures to fund health care and education, which Newsom opposes.

“We need to think about ways that we can increase our revenue sources … (with) openness around looking at our tax structure,” Bonta said, adding that there are ways “to make sure that everybody’s carrying their fair share.”

CalMatters' Ben Christopher, Ana B. Ibarra Marissa Kendall, Carolyn Jones, Jeanne Kuang, Maya Miller and Mikhail Zinshteyn contributed to this report.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

This story first appeared on The LA Local.

From the outside, the Gothic architecture of Masjid At-Thohir does not immediately announce itself as a neighborhood mosque.

The white facade, arched windows and steep roofline are now home to an Islamic community of Indonesians in Pico Union. 

For years, Indonesian Muslims in Southern California gathered at the Indonesian Consulate on Wilshire Boulevard for prayer. The congregation transformed a diplomatic space into a temporary spiritual refuge. The arrangement worked, but there was always a longing for home. 

“The idea is you want to have a space where you belong, be someone who is regular, and have a safe space. Those are things where you can grow as an individual,” said Honest Qashidi, 33, who serves as the resident Imam at Masjid At-Thohir. 

Women pray inside the mosque.

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For Indonesian Muslims living across Los Angeles, it has become a kind of third space somewhere between the private world of home and the demands of work and public life. 

That distinction matters in Los Angeles, where the Indonesian community is substantial but geographically dispersed. Unlike communities with a concentrated ethnic neighborhood, Indonesian Angelenos do not have a single “Indonesia Town” around which daily life revolves, Qashidi said. The mosque on Kenmore Avenue is that constant for the community.

“For the elders, it’s where they find their nostalgia. It’s a home away from home. But folks that grew up here, and trying to make sense of what it means to belong in a place; that is the aim of what I am trying to do in this space,” Qashidi said. 

A gift to a father and community

Built in 1920, the building once served as the place of worship for the Los Angeles Samoan Community Christian church.

When that congregation left the neighborhood, the church’s pastor negotiated a deal in 2017 to sell the building to the Indonesia Muslim Foundation, the nonprofit group that coordinates activities in Los Angeles for the Indonesian Muslim community.

The nonprofit purchased the building for approximately $1.8 million, according to Qashidi.

Today, the historic structure is home to what many Indonesian Muslims in Los Angeles had long been missing: a mosque of their own.

A devotee praying from the Quran in the almost empty hall after the main prayer is over.

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Qashidi said, “The pastor wanted this space, if it were to be passed down, it would still stay a space of worship.”

The sale and conversion of the building was made possible by Indonesian billionaire Garibaldi Thohir, former CEO of Alamtri Resources Indonesia, one of the world’s top coal exporters. Garibaldi studied at USC and his brother, Erick Thohir, was also educated in Southern California.

The doors at the mosque officially opened in March 2022 after several delays due to the COVID-19 pandemic. The mosque was named “At-Thohir” to honor their late father, Mochamad Thohir.

 “When we were studying in Los Angeles around 2015–2016, my father often visited,” Garibaldi said at the mosque’s opening, according to reporting from Indonesian media. “When he was going to Friday prayers, he often complained about the lack of a mosque nearby owned by the Indonesian community. That’s why we promised to make it happen.” 

‘I will make food every single Friday’

Calling At-Thohir simply a mosque misses the spectrum of events inside. Located not too far from Pico Boulevard, the mosque shares the neighborhood with other religious institutions like the Sae Han Korean Church and the Pico Union Shalom Ministries. 

Food is a big part of the social life, turning prayer gatherings into opportunities to linger over familiar flavors. Every Friday, after the prayer, lunch is served in the backyard. Home-cooked Indonesian food items like bakwan, satay, soto ayam, perkedel, tahu kuning, telur balado and tempeh. 

Lola Kamelia, left, Resy Ismail, Raninta Nailah and Lily Yulani serve lunch on a Friday after prayer.

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Lily Yulani, 53, one of the women who helps with food every week, joked about her teenage son’s pronunciation of perkedel, a simple mashed potato patty dish. 

“My son cannot pronounce P-E-R-K-E-D-E-L yet, so he calls it C-R-O-C-O-D-I-L-E,” Yulani giggled. 

Resy Ismail, 65, the woman in charge of serving and preparing food on Fridays, said that much of the food is donated, but she will not let that stop her from giving back to the community. 

“Whether there is a donation or not, I will make food every single Friday,” Ismail said. 

Ismail is a rantang chef and brings the food from her home in stacked, metal containers. She is proud to serve the community and initiated the meal system in the mosque and continues to coordinate with whoever wants to contribute to the weekly food distribution. Together, they bring different home-cooked items to put together a meal for the visitors at the mosque. 

Imam Qashidi said that in a multicultural setting food becomes a gateway to culture. Born and raised in Los Angeles, he attended high school in Jakarta, Indonesia, completed his undergraduate degree in Egypt and is currently pursuing a degree in Islamic Studies from Bayan Islamic Graduate School.

“When you are in America, and you grew up with whatever background you have, the starting point is just food,” Qashidi said. 

The lunch is served to the guests at the mosque.

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Third space

Apart from food being the most visible marker of community within the diaspora, there are regular Islamic studies classes on weekends taught by Qashidi. There are also workshops on calligraphy, immigration rights, digital literacy and Canva. 

Additionally, there are also dance and music classes that do not happen inside the mosque, but in the adjoining auditorium.

People can enroll in a traditional plate dance, or musical performances like Angklung and the Bedug, a large drum traditionally associated with communities in Indonesia.

Raninta Nailah, 13, a Pico Union resident and food distribution volunteer, tries to come to the mosque whenever she’s not in school. 

“It’s very close to my community and I feel safe,” Nailah said. “I come to Saturday school here for social studies and I feel good because I have been learning new stuff.”

Gov. Gavin Newsom vetoed a bill that would have required more polluting facilities built near homes and schools to undergo environmental review — a decision that keeps in place looser rules he championed to speed up development in California.

The bill authored by Sen. Catherine Blakespear, a Democrat from Encinitas, responded to fears raised by a chemical incident in Orange County that led to evacuation orders for 50,000 people.

It would have narrowed an exemption of the California Environmental Quality Act that covers a broad swath of advanced manufacturing sites. Only facilities handling the final stages of production would have kept the exemption.

In his veto letter on Friday, Newsom said Senate Bill 954 would have effectively repealed the advanced manufacturing exemption.

“Protecting communities and strengthening California’s advanced manufacturing economy are not mutually exclusive goals,” he said. “The exemption was designed to advance both and should be given a meaningful opportunity to work.”

Newsom added that if problems arise, the Legislature should address them through targeted changes “not by preemptively rolling back our progress.”

Blakespear in a statement said she’s disappointed by the veto and will raise the issue again next year.

She pointed to the near disaster GKN Aerospace in Garden Grove as an illustration of the danger.

“We should not have to wait for another emergency before recognizing that sweeping – and rushed – exemptions from environmental review need reasonable guardrails,” she said. “Protecting communities and workers is not an impediment to economic growth – it is part of responsible growth.”

Roots in last year's budget fight

The veto is a setback for legislators who advocated for fixing last year’s major overhaul of the state’s landmark environmental law, which Newsom had a heavy hand in shaping and pushed through by threatening to withhold budget funds if lawmakers refused to act.

Lawmakers went along with the overhaul, but expressed concerns about an unprecedented, broad exemption for polluting manufacturing sites from strip mines to clean energy projects.

Environmental advocates said the bill would have still allowed for manufacturing developments, with guardrails to protect communities.

“It's really unfortunate that we have to wait until something bad happens before we make an adjustment,” said Kim Delfino, a lobbyist for environmental justice groups. “A foundation of environmental law is the precautionary principle: that we try to protect instead of waiting for something bad to happen. This is flipping it on its head.”

Asha Sharma, deputy director at Sierra Club California, said California is losing “an important opportunity to protect communities that are once again being asked to bear the risks of industrial development without the safeguards and public participation they deserve.” .

Business and industry groups, including the Bay Area Council and the California Manufacturers & Technology Association, opposed the bill and praised Newsom’s veto, arguing it would stunt economic development.

“From autonomous vehicles and clean energy systems to revolutionary medical devices and digital technologies, advanced manufacturing is building the future and creating the good-paying, high-skilled jobs that California desperately needs,” said Libby Schaaf, chief executive of the Bay Area Council.  

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

A high-profile fight between California Attorney General Rob Bonta and Paramount Skydance resolved Monday with a settlement that clears a path for the company to continue with its planned acquisition of another century-old studio, Warner Bros. Discovery.

The deal comes after Paramount threatened to leave the state over an antitrust lawsuit led by Bonta and attorneys general from 11 other states that sought to block the $111 billion merger.

Paramount Chief Executive David Ellison reportedly told senior leaders of the company “clearly we’re not wanted here,” during a meeting in August. However, California has taken several steps since the 2000s to retain studios like Paramount.

The fight was the latest chapter in the battle for Hollywood, which has been a priority for California lawmakers and the last three governors.

Here are some ways the state has tried to keep its storied industry:

• Program 1.0: In 2009, in response to other states beginning to offer financial incentives for motion picture production, Gov. Arnold Schwarzenegger signed the state’s first California Film and Television Production Tax Credit. The program allocated $100 million per year to eligible film and TV production companies through 2017.

• Program 2.0: In 2014, lawmakers approved Assembly Bill 1839, which Gov. Jerry Brown signed into law, creating a new version of the Film and Television Production Tax Credit program and more than tripling the credits to $330 million annually through 2020.

• 2018 expansion: In 2018, Brown again authorized an extension of the program for another five years, through 2025. Following the COVID-19 pandemic that shut down productions, Gov. Gavin Newsom boosted the credit temporarily to $420 million annually.

• 2025 increase: Hollywood was struggling following the “quadruple-whammy” of the COVID-19 pandemic, a writers strike, deadly wildfires and growing production incentives from other states that lured movies out of California. In response, lawmakers increased the yearly credit in 2025 to $750 million per year until 2030. Newsom championed the boost, saying the industry was “on life support.”

• This year, when the film and television production tax credit clashed with an initiative to cap corporate tax breaks, lawmakers carved independent film producers out of the groups subject to a new cap.

• In July, Democratic Assembly Speaker Robert Rivas of Salinas created the “Select Committee on Growing and Retaining the Creative Economy in California” to, in part, keep film and television production in the state.

• On Saturday, Newsom signed Assembly Bill 2319 by Burbank Democrat Nick Schultz to create a new tax credit for post-production work, including editing and visual effects.

Assemblymember Rick Chavez Zbur, a Democrat representing Hollywood, said he was delighted a deal was reached to keep Paramount in California, but that the state needs to do more to retain the industry. Zbur is chair of the state’s new Assembly committee focused on keeping film production in California.

“Now that other states are realizing what important, family-sustaining jobs these are, they're competing very aggressively for these jobs,” he said.

Zbur said the committee will explore new state incentives during its first meeting, which he expects will take place in October in Los Angeles.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

Beginning Jan. 1, 2027, many Medi-Cal enrollees will face new work requirements and eligibility checks — the result of sweeping federal changes that could affect more than 1 million L.A. County residents, according to organizers of a new countywide outreach campaign.

If you are a Medi-Cal enrollee between ages 19 and 64, you may soon need to show you're working, volunteering, going to school or in a job training program for at least 80 hours a month or otherwise earning income to keep your public health insurance coverage.

Some enrollees will also have to prove they’re eligible every six months instead of once a year.

Parents of children 13 and younger, pregnant women, older adults and people with disabilities are largely exempt from the requirements.

What to do to prepare

• Keep your address and phone number current with your county Medi-Cal office.
  
• Watch your mail, and respond promptly to Medi-Cal notices in yellow or white envelopes.
  
• If you're unsure what a notice means, community health centers and trained volunteers can help in person and in multiple languages, county officials said.

How we got here

Nearly 4 million L.A. County residents, or 41% of the population, rely on Medi-Cal — California’s version of Medicaid, a joint federal and state insurance program providing free or low-cost coverage to low-income people.

President Donald Trump, joined by Republican lawmakers, signs the "One, Big Beautiful Bill Act," a massive spending and tax bill, at the South Lawn of the White House in Washington, D.C. on July 4, 2025.

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President Donald Trump signed the “One Big Beautiful Bill” — formally H.R. 1 — in July 2025, and it reduced federal Medicaid funding while adding a requirement that people who receive benefits work or show they are going to school, volunteering or seeking job training.

The new requirements and six-month renewal rules apply to adults 19-64 covered through Medi-Cal’s Affordable Care Act expansion, according to county officials.

In June, the federal Centers for Medicare & Medicaid Services issued the rule that implements the work requirement. CMS said in a news release that the framework is meant to promote economic stability and self-sufficiency.

“This rule helps Americans build skills and independence through work, education, job training, or community service, creating new opportunities for themselves and their families,” CMS Administrator Mehmet Oz said in a statement.

Later that month, states including California sued to challenge the changes. In July, a federal judge denied their request to pause the rules while the lawsuit continues.

Last week, L.A. Care Health Plan, which administers Medi-Cal benefits for many county residents and other partners, launched “Keep L.A. Covered,” a public campaign to train community leaders, including pastors, teachers and health workers, to warn Medi-Cal recipients about renewal notices. The first training is Oct. 27, hosted by Maternal Child Health Access.

County officials say people and organizations that want to get involved can sign up at www.keeplacovered.org.

Paperwork hurdles

Campaign leaders say people are more likely to lose coverage because a notice went to an old address or went unanswered than because they stopped qualifying for Medi-Cal.

"One missed notice, one missed deadline, one moment of confusion can mean them losing their coverage, and it's not because they're no longer eligible," Martha Santana-Chin, CEO of L.A. Care, said at a campaign launch last week. "It's simply because they haven't been able to navigate the paperwork that's ahead of them.”

The state of California is already mailing letters about the changes, Santana-Chin said.

If the state can't verify compliance, it must send a noncompliance notice and give the enrollee 30 days to prove compliance or an exemption. Otherwise, the application may be denied, or the person disenrolled.

Advocates say the risk is greatest for people without a stable mailing address. Statewide, most people experiencing homelessness are eligible for or already enrolled in Medi-Cal, according to the California Health Care Foundation.

The 2026 Los Angeles Homeless Services Authority homeless count estimated more than 73,000 people were experiencing homelessness in L.A. County. Many would qualify for medical exemptions that would allow them to receive Medi-Cal benefits without proof of work or other requirements, but claiming an exemption requires clinical documentation and regular contact with the healthcare system, the foundation said. Federal guidance doesn't let states exempt people from the requirements solely for being unhoused.

Some details of the 80-hour monthly work requirement remain unsettled. The federal government is still writing the details on what counts as qualifying work, volunteering or education, Santana-Chin said.

The Centers for Medicare and Medicaid Services projects the requirement will reduce Medicaid enrollment nationwide by more than 3 million people. The federal agency assumes about 15% of enrollees will lose coverage, about 9% because they don't meet the requirement and about 6% because of paperwork or other administrative barriers. The actual effect depends on how states carry out the rules, according to a recent report from the federal agency.

The Congressional Budget Office, which analyzed the law using different methods, estimated the requirement would leave 5.3 million more people uninsured in 2034.