By Shane LaVigne, LaVigne Strategies

Budget Outlook

Governor Gavin Newsom kicked off the budget season on January 9 with the release of his proposed 2026–27 State Budget, striking a noticeably upbeat tone about California’s fiscal condition. While independent analysts continue to raise concerns about longer-term deficits, the administration is framing the current outlook as stable and manageable.

The proposal outlines a roughly $348 billion spending plan across all funds and assumes a relatively small $2.9 billion budget gap. The Governor argues this shortfall is modest, particularly when viewed against recent revenue performance. Compared to assumptions made just a year ago, General Fund revenues are now projected to be approximately $42 billion higher, largely due to strong personal income tax collections fueled by stock market growth and higher wages in the technology sector.

Unlike previous budget cycles marked by rapid spending growth, this proposal avoids launching major new programs. Instead, the administration emphasizes fiscal restraint, pointing to a balanced budget that relies on spending deferrals, limited reductions, and internal fund shifts rather than sweeping cuts. The Governor also highlights the state’s reserve position, which is expected to total about $23 billion in 2026–27, including roughly $14.4 billion set aside in the Rainy-Day Fund.

That optimism is not universally shared. The Legislative Analyst’s Office continues to caution that California faces significant structural challenges in future years. Whether the Legislature aligns more closely with the Governor’s outlook or the LAO’s warnings will become clearer as budget negotiations unfold and updated revenue figures are released in the May Revision.

For now, the budget debate centers on a fundamental question: whether lawmakers will address the state’s fiscal pressures in the coming year or defer tougher decisions into the future.

Labor and Economic Development

As part of the Governor’s proposed budget, the administration also rolled out a Labor and Economic Development package aimed at reorganizing state oversight rather than cutting programs. Consistent with the broader budget approach, the proposal focuses on consolidation, efficiency, and backlog reduction while largely preserving existing services.

A central feature of the plan is the re-creation of the Business and Consumer Services Agency, effective July 1, 2026. The agency would assume responsibility for licensing and regulating more than four million professionals and businesses statewide, bringing several enforcement-focused departments and boards under a single umbrella. According to the administration, the goal is to improve coordination, standardize enforcement practices, and strengthen accountability across regulated industries. The new agency would oversee the Departments of Alcoholic Beverage Control, Cannabis Control, Consumer Affairs, Financial Protection and Innovation, and Real Estate, along with the Alcoholic Beverage Control Appeals Board, the California Horse Racing Board, and the Cannabis Control Appeals Panel.

The budget also advances several changes in the cannabis and hemp regulatory space, pairing structural consolidation with new enforcement investments. Beginning in 2026–27, funding is proposed to fold hemp regulation into the state’s cannabis framework, as required by AB 8. Additional resources would expand enforcement and legal capacity and support the launch of a Cannabis System Integration Project, which aims to merge two existing regulatory systems into a single platform. The administration argues this will improve data sharing, reduce duplication, and make compliance and oversight more efficient for both regulators and licensees.

Separate from regulatory operations, the budget estimates that approximately $403.9 million will be available from the Cannabis Tax Fund to support youth education and prevention programs, early intervention and treatment services, environmental protection efforts, and public safety-related activities.

Outside of cannabis, the proposal includes increased funding for the Department of Industrial Relations to address case backlogs in the Subsequent Injuries Benefits Trust Fund, as well as a five-year extension of the CalCompetes Tax Credit at its current annual level of $180 million through the 2032–33 fiscal year.

Taken together, these proposals reflect the administration’s preference for reorganization and targeted investments over broad program reductions, particularly in areas tied to licensing, enforcement, and regulatory oversight.

Legislative Session

As the Governor’s budget proposal begins moving through the Legislature, California is also entering the opening phase of the 2026 legislative session. Over the coming weeks, lawmakers will begin introducing thousands of bills, setting the policy agenda that will shape committee hearings, negotiations, and budget decisions throughout the year. Bill introductions typically accelerate early in the session, with key deadlines in late winter forcing measures to take shape quickly.

For CSLEA, this early period is especially important. Initial bill language often signals where policy risks and opportunities may emerge—particularly in areas affecting public safety, labor, enforcement authority, and regulatory oversight. As proposals are introduced and referred to committees, CSLEA will be actively monitoring developments, engaging with policymakers, and working to ensure that the interests of our members are clearly understood from the outset.

The coming months will set the tone for the entire legislative year. CSLEA remains fully engaged as the session gets underway and will continue to provide updates as budget negotiations and policy debates unfold.