California projects $11.9 billion shortfall; May revise proposes Medi‑Cal enrollment freeze and new premiums

The governor submitted California’s May revision Thursday, saying the state faces an $11.9 billion shortfall in the budget year and a projected two‑year revenue downturn of about $16 billion tied to federal actions.

“We estimate the impacts … we’re gonna see an impact about a $16,000,000,000 downturn,” the governor said as he introduced the May revision to the Legislature and press.

The revision sets a $321.9 billion total budget, including $226.4 billion in general fund spending and $15.7 billion in total reserves. Officials said the decline stems largely from lower capital gains, reduced wage and corporate profit projections and broader economic uncertainty linked to federal policy and tariffs.

Why it matters: Medi‑Cal (California’s Medicaid program) is the largest single driver of growth in the state budget. The governor’s package includes a series of proposals meant to reduce projected Medi‑Cal general fund growth without withdrawing coverage from people already enrolled.

Key proposals in the May revision include a temporary freeze on enrollment for certain undocumented adults (the administration estimates those changes cumulatively reduce projected costs by roughly $3.3 billion in the budget year plus one), a monthly premium requirement phased in on Jan. 1, 2027 that the administration estimates would bring in about $2.1 billion in the out year, and tighter utilization controls and prior‑authorization steps that the administration estimates at several hundred million dollars. The governor also proposed a cap on In‑Home Supportive Services overtime at 50 hours to limit costs, and several internal fund loans and one‑time fund shifts to maintain program investments.

Department of Finance director Joe Steffenshaw told reporters the state’s revenue picture shifted rapidly after April. “Through April, we were approximately $7,900,000,000 above the governor’s budget forecast,” Steffenshaw said, but much of that gain has been erased by more recent national economic changes. He said about $3 billion of the April overperformance reflects a timing shift from Los Angeles County filings that will be reported in October.

The administration emphasized it is not removing services for people already enrolled, calling the measures “right‑sizing” to preserve core benefits while addressing multiyear cost pressures. The governor said the plan seeks to avoid “kicking people off” but to “level set on what we can do and what we can’t do” given the multiyear outlook.

The May revise also proposes extending the Greenhouse Gas Reduction Fund (cap‑and‑trade) program to 2045 and using a portion of those proceeds to continue CAL FIRE investments. Other adjustments include a combination of fund shifts, partial sweeps and reallocation of one‑time monies to preserve priority programs and build reserves.

What’s next: The budget is a proposal. The governor sent it to the Legislature for consideration over the next several weeks. The administration said many items — including the Medi‑Cal changes and the GGRF‑related shifts — will require legislative enactment or further discussion with lawmakers.

Discussion vs. decision: Officials described these items as administration proposals included in the May revise; no permanent statutory changes were enacted at the presentation. The administration described some measures as loans or fund shifts rather than permanent sweeps.

Details and figures: total budget $321.9 billion; general fund $226.4 billion; projected shortfall $11.9 billion (about 5.8% of general fund); two‑year revenue downturn estimated at $16 billion; $10 billion of the downturn attributed to lower projected capital‑gains receipts; $3.3 billion savings tied to the enrollment freeze in the budget year plus one; $2.1 billion estimated from proposed premiums in the out year.

Ending: The governor said he expects negotiations with the Legislature to follow and asked lawmakers to consider the multiyear fiscal picture while the state monitors federal developments.