How will Newsom’s budget cuts affect California’s environmental goals?

Gavin Newsom proposes 2026 budget cuts

Gavin Newsom (Governor of California) proposes lower environmental spending for 2026-2027. The proposed 2026 to 2027 state budget reduces combined funding for the natural resources, environmental protection, and agriculture portfolios.

This is from about 25.1 billion dollars in 2025 to 2026 to about 18.9 billion dollars in 2026 to 2027, based on LAO summaries of the governor’s proposal.

The California Natural Resources Agency alone would fall from $ 18.4 billion to $ 12.8 billion. The Legislative Analyst’s Office released the analysis as part of its review of the Governor’s proposed spending plan.

Environmental spending drops to 4.2 billion

Combined environmental agency funding would decrease by about 4.2 billion dollars in one fiscal year. The Legislative Analyst’s Office reports that total proposed spending for three major agencies falls from 23.1 billion dollars in 2025 to 2026 to 18.9 billion dollars in 2026 to 2027.

The most significant change is within the California Natural Resources Agency portfolio. That agency’s proposed funding drops by 5.6 billion dollars, from 18.4 billion dollars to 12.8 billion dollars.

Surplus climate funds are expiring

The funding decline is primarily tied to the end of temporary surplus funds. According to the Legislative Analyst’s Office, major climate and resources appropriations were made in 2021 to 2022 and 2022 to 2023 when California experienced large general fund surpluses.

Those surpluses followed the COVID-19 pandemic and were driven by substantial stock market gains and capital gains tax receipts from high-income taxpayers. California’s progressive tax structure amplified those revenues.

Base budgets remain broadly stable

Ongoing environmental base budgets are not being cut under the proposal. LAO analysts say the drop largely reflects the wind-down of one-time funding from surplus years, rather than a broad cut to ongoing base budgets.

The Legislative Analyst’s Office analysis states that the apparent year-to-year decline reflects expiring surplus allocations. Core funding levels for departments are generally returning to pre-surplus baselines.

Climate programs were the primary beneficiaries

Environmental and resource programs received some of the most significant surplus allocations after COVID-19. According to analysts, Environmental and natural resources programs received major one time allocations during the surplus years, which temporarily pushed annual totals higher than typical levels.

During 2021 to 2022 and 2022 to 2023, the state directed billions in surplus dollars toward climate and resource initiatives. That funding significantly increased annual totals for departments under the natural resources and environmental portfolios.

CAL FIRE and water agencies affected

Departments within the natural resources portfolio would see funding shift as the surplus expires. The Natural Resources expenditures summary includes CAL FIRE, the Department of Water Resources, the California Energy Commission, and the Department of Parks and Recreation.

The Department of Fish and Wildlife and other environmental related agencies are also part of this portfolio. These agencies experienced higher spending levels during surplus years.

Revenue outlook shapes projections

Budget projections rely on a relatively optimistic revenue forecast. The Legislative Analyst’s Office analysis states that the numbers are grounded in a revenue path that is almost $30 billion higher than the office’s own estimate across the 2024 to 2025 and 2026 to 2027 budget windows.

The report assumes state revenues will remain on their current trend. It does not factor in a potential stock market downturn.

Stock market risk remains elevated

Analysts warn that a stock market downturn could change the fiscal picture. The Legislative Analyst’s Office states that projections do not incorporate the risk of a decline in financial markets.

California relies heavily on capital gains driven income tax receipts from high income earners. Those revenues surged during strong market years following COVID 19.

If markets weaken, general fund revenues could fall below projected levels. That scenario could further constrain environmental and climate program funding beyond the current 2026 to 2027 proposal.

Greenhouse Gas Reduction Fund gains focus

Lawmakers may rely more on special funds to manage budget pressure. With limited room in the general fund and expiring climate surpluses, analysts suggest the Legislature could lean on cap and invest revenues.

Those revenues flow into the Greenhouse Gas Reduction Fund. According to the Legislative Analyst’s Office, this fund is considered flexible and can legally support a range of purposes.

Cap and invest revenues are flexible

Cap and invest revenues can function similarly to tax revenue in the budget process. Helen Kerstein, a principal fiscal and policy analyst at the Legislative Analyst’s Office, said the Greenhouse Gas Reduction Fund is considered quite flexible.

LAO notes that, from a legal perspective, GGRF revenues are treated like tax revenues, meaning the Legislature can appropriate them for a wide range of purposes. That flexibility makes the fund a potential tool for budget balancing.

General fund space is limited

The general fund has little room for new spending in 2026 to 2027. The Legislative Analyst’s Office notes that limited term climate surpluses are essentially expiring.

Without those one time allocations, overall environmental funding returns to baseline levels. The Legislature must now weigh priorities within tighter general fund constraints.

Analysts indicate that budget solutions may require reallocating existing revenue sources. That includes greater use of special funds, such as cap-and-invest proceeds, to stabilize environmental program financing.

Funding returns to baseline levels

Environmental department budgets are moving back to typical funding levels. According to the Legislative Analyst’s Office, recent years reflected unusually high spending due to temporary surpluses.

Resources and environmental programs were among the largest recipients of those temporary dollars. Elevated totals during 2021 to 2022 and 2022 to 2023 created a spike that is now fading.

The 2026 to 2027 proposal reflects this normalization. The drop in total spending appears sharp year over year, but analysts describe it as a structural reset rather than a new reduction trend.

To see how these funding shifts connect to broader oversight concerns, dive into how the State audits show California has left key warnings unresolved, with high costs for more context on the financial impact.

What the 2026 budget means

The proposed 2026 to 2027 plan signals a shift from surplus driven expansion to baseline funding. Combined agency spending would decline from 23.1 billion dollars to 18.9 billion dollars, according to the Legislative Analyst’s Office.

The largest single portfolio reduction occurs within the natural resources agencies, falling from 18.4 billion dollars to 12.8 billion dollars. Most of that change reflects expiring one time allocations.

For more on how the broader budget plan is shaping state priorities, check out why the California budget includes a funding request for Newsom’s official portrait for additional context on where dollars are being directed.

What do you think about how Newsom’s budget cuts will affect California’s environmental goals? Share your thoughts and drop a comment.

This slideshow was made with AI assistance and human editing.

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