The 2025-26 California Spending Plan

Housing, Homelessness, and Local Government

Budget Contains Various Fiscal and Policy Changes. The 2025-26 budget package contains a number of major actions in the area of agency reorganization, homelessness, housing, and other actions, as described below.

Agency Reorganization

Throughout 2025-26 budget deliberations, the administration pursued a reorganization of the Business, Consumer Services, and Housing (BCSH) Agency through a statutorily defined executive branch reorganization process. In July 2025, the Legislature completed its review of the administration’s plan and provided funding for the reorganization, as described below.

Funding to Reorganize BCSH. The 2025-26 budget provides an augmentation of $4.0 million General Fund—generally increasing to $6.2 million General Fund by 2026-27 and ongoing—as part of a reorganization of BCSH. Under the reorganization, which will go into full effect on July 1, 2026, BCSH will split into two agencies: the California Housing and Homelessness Agency (CHHA) and the Business and Consumer Services Agency. Figure 1 below shows which entities will become part of CHHA. The funding provided in 2025-26 will be used to begin standing up the new agencies and initiate the transition.

Budget for Housing and Homelessness Reorganization. In addition to creating CHHA, the reorganization includes two other notable changes pertaining to housing and homelessness. First, beginning in 2026-27, it establishes the California Interagency Council on Homelessness (Cal ICH) as a separate entity under CHHA. (Currently, Cal ICH is funded within the BCSH agency’s budget.) Second, the reorganization creates the Housing Development and Finance Committee (HDFC), which will be charged with centralizing administration of various affordable housing programs currently spread across departments within BCSH. Figure 2 below shows that, beginning in 2026-27, a total of $14.9 million (all funds) and 65 positions will transfer from BCSH (as well as the California Department of Housing and Community Development [HCD]) to CHHA, Cal ICH, and HDFC. In addition, the budget package adds $6.2 million General Fund and 12 new positions (divided between CHHA and HDFC) beginning in 2026-27 as part of the reorganization.

For more details on this action, including the creation of the Business and Consumer Services Agency, please see our post, The 2025‑26 California Spending Plan: Other Provisions.

Homelessness-Related Spending Actions

More Funding for Encampment Resolution Funding (ERF) Grants. The 2025-26 Budget Act appropriates $100 million one-time General Fund for Round 5 of the ERF initiative—consistent with an agreement between the Legislature and Governor as part of June 2024 negotiations over the final 2024-25 Budget Act. With this appropriation, General Fund support for this initiative since 2021-22 totals nearly $1 billion. The purpose of ERF is to help local communities address homeless encampments by funding housing and other services to the people living there. In addition, Chapter 22 of 2025 (AB 130, Committee on Budget) changes grantees’ expenditure deadline from two fiscal years after the appropriation of funds to two fiscal years after the awarding of funds.

Plans for Additional Funding for Homeless Housing, Assistance, and Prevention (HHAP) Program. Chapter 24 of 2025 (SB 131, Committee on Budget and Fiscal Review) provides $500 million one-time General Fund for HHAP in the 2026-27 fiscal year. This planned funding will represent Round 7 of the initiative, which provides flexible monies to local governments and continuums of care for homelessness-related services. With this funding, General Fund support for HHAP since 2019-20 will total about $5 billion. The 2026-27 allocation is contingent on the enactment of future legislation aimed at enhancing accountability requirements for grantees, such as having a local encampment policy consistent with state guidelines and showing progress on housing-related performance metrics. Chapter 650 of 2025 (SB 158, Committee on Budget and Fiscal Review) establishes a goal for HCD to allocate initial funds to eligible grantees beginning in September 2026. The budget package authorizes the Department of Finance (DOF) to provide $8 million of the planned $500 million to HCD in 2025-26 to “prepare to administer” Round 7.

Housing-Related Budget Actions

Additional Funding for California Dream for All Program. The budget appropriates $300 million one-time General Fund for the California Dream for All program. The program, which is administered by the California Housing Finance Agency, provides downpayment assistance to eligible first-time, first-generation homebuyers. Under the California Dream for All model, borrowers do not make any payments on their downpayment loan until the home is sold or paid off. At that time, they will owe the original loan amount plus a certain percentage of the increase in home value. Borrowers’ repayments, in turn, will be used to provide loans to additional homebuyers in the program. The 2025-26 augmentation will be the third round of funding for this program (with $500 million authorized in 2022-23 and $20 million in 2023-24).

Funding for Affordable Housing. The budget provides $120 million one-time General Fund for the Multifamily Housing Program (MHP), HCD’s flagship affordable housing program. Of this amount, 10 percent is set aside for California tribes. MHP provides low-interest (0.42 percent) loans to developers for the construction and rehabilitation of rental housing for lower-income households. Over the past several years, MHP has been funded a combination of one-time General Fund appropriations and general obligation bonds.

Another Round of Low-Income Housing Tax Credits. The budget authorizes $500 million for the state Low-Income Housing Tax Credit (LIHTC) program. (This amount is in addition to about $130 million in statutorily required state tax credits for the program in 2025-26.) 2025-26 is the seventh consecutive year the Legislature has authorized a $500 million tax credit. LIHTC, which is administered by the State Treasurer’s Tax Credit Allocation Committee, is used by developers to help finance the construction of affordable rental housing. The approved tax credits do not entail any budgetary costs in 2025-26 because the credits will be claimed on future tax returns.

Reverts a Total of $38 Million in Unspent Housing Funds. The budget reverts these funds, which were originally appropriated in a prior fiscal year but had not yet been spent on projects, as a General Fund solution. The reverted funds come from three sources: (1) the Infill Infrastructure Grant (IIG) Program, (2) IIG Catalytic Program, and (3) Commercial Property Pilot Program. Savings were scored to 2024-25.

California Environmental Quality Act (CEQA)

Trailer bill legislation as part of the 2025-26 budget package significantly amended CEQA-related policy in an effort to accelerate housing production and other development projects, as described below.

Budget Package Addresses State’s Long-Standing CEQA Policy. The budget package included a number of notable policy changes aimed at speeding up and streamlining CEQA, which was originally enacted by the Legislature in 1970. As a result of CEQA, unless a project falls under a statutory or certain other type of exemption, public agencies (such as cities and counties) generally must conduct a detailed study of the potential environmental effects of new housing construction (and many other types of development) prior to approving it. These studies, known as negative declarations and environmental impact reports, can provide valuable information to decision-makers and the public and help to avoid unnecessary environmental impacts (pertaining to traffic, air and water quality, and other matters). Yet, required CEQA studies generally are time consuming and costly and the CEQA process can be used to stop or limit housing and other development. In addition, CEQA’s complicated procedural requirements give development opponents significant opportunities to continue challenging housing projects after local governments have approved them.

Amends CEQA Requirements Pertaining to Various Housing and Other Development. The changes, which are contained in three budget trailer bills, include: (1) narrowing the scope of existing required environmental reviews for housing projects that meet all but one criterion for an exemption from the CEQA process and (2) eliminating the requirement for CEQA review entirely when local governments rezone (change land-use restrictions for) neighborhoods to meet their state-mandated housing goals, subject to certain restrictions. In addition, trailer bill legislation creates new exemptions from CEQA requirements for various categories of projects, including specified “infill” housing developments (such as certain projects on vacant land within an urban area), farmworker housing, rural health clinics, day care centers, food banks, broadband deployment in a right-of-way, and advanced manufacturing facilities (with each exemption type subject to various requirements and limitations).

Authorizes New Statewide Vehicles Miles Traveled (VMT) Mitigation “Bank.” In addition, the budget package creates a new option for developers, at the discretion of the local public agency, to meet their transportation-related CEQA requirements for projects. Specifically, trailer bill language allows projects to mitigate their VMT impact (which is the additional miles driven by vehicles as a result of the project) by paying a fee. Fee revenue is to be deposited into a fund administered by HCD and used to fund VMT-reducing projects such as affordable housing near transit stops. The Governor’s Office of Land Use and Climate Innovation is required by July 2026 to issue initial guidance for this new program, including providing details such as the methodologies for determining the amount of the fee and estimating the anticipated reduction in VMT resulting from payment of the fee.

Other Policy Changes Related to Housing

The budget package included other notable housing-related policy changes, including:

• Coastal Commission. Chapter 22 shortened the Coastal Commission’s housing permit review times under the Permit Streamlining Act, generally from 180 to 90 days. Chapter 22 also amended the Coastal Act to prohibit appeals of local permits for multifamily housing (four or more units) in the coastal zone on the basis of the project being located in a sensitive coastal resource area or not being the principally permitted use.

• Building Standards. Chapter 22 imposes a six-year suspension (through mid-2031) of new residential-building standards by both the state and local governments, with specified exceptions for standards pertaining to health and safety and certain other exceptions.

• Reinvestment of Equity in Affordable Housing Projects. The budget package allows affordable housing developers funded by HCD to access and reinvest equity in their affordable housing projects in order to finance further investments in other affordable housing projects, subject to specified limitations.

• Homeless Shelters. The budget package requires a local government to perform annual inspections on every homeless shelter in its jurisdiction to ensure that the shelter is compliant with existing health and safety standards relating to housing. Trailer bill legislation also requires a homeless shelter to prominently display information about occupants’ rights and the process to report a complaint about a substandard shelter.

Civil Rights Department

Funding for Another Year of Statewide Reporting Hotline. The budget provides $2.4 million one-time General Fund for the Civil Right Department’s California vs. Hate initiative. California vs. Hate is a non-emergency hotline and online portal that allows state residents to report hate crimes and hate incidents. The funding will enable the department to administer the initiative for another year (through June 2026). Provisional language exempts the department from having to go through the state’s contracting process to obtain a vendor to run the initiative, but includes language stating legislative intent that any future funding for the program use a competitive-bid process.

Extends Two Other One-Time Initiatives. The budget provides $1.4 million General Fund for the department’s Investigation, Enforcement, and Conciliation Enhancement program, which seeks to reduce wait times between intake of complaints and investigative appointments and to increase the number of successful settlements by investigators. In addition, the budget provides $883,000 General Fund for the Community Reconciliation Unit, which provides community-based conflict resolution and training services. The funding extends both initiatives through June 2026.

Other Local Government Actions

Provides Partial Backfill to Three Counties Related to Vehicle License Fee Shortfall. The 2025-26 Budget Act provides a total General Fund backfill of $79 million to three counties (San Mateo, Mono, and Alpine). This backfill is related to a shortfall in a complex funding mechanism the state adopted in 2004 to compensate local governments for reductions in their vehicle license fee revenue. The state budget has historically covered the full amount of the shortfall. (Backfill funding is provided two years in arrears.) Due to the state’s fiscal condition, however, the amount provided covers two-thirds of these counties’ respective shortfalls. (The actual shortfall reported by San Mateo, Mono, and Alpine for 2023-24 totaled $118 million.)

Budget Package Authorizes General Fund Backfill of Local Property Tax Losses from Los Angeles Wildfires. Chapter 2 of 2025 (AB 100, Gabriel) authorizes DOF to provide a General Fund backfill to local governments within Los Angeles County for property tax revenue losses in 2024-25 and 2025-26 resulting from the January 2025 wildfires. A forthcoming section of our office’s post, The 2025‑26 California Spending Plan: Other Provisions, will provide an update on this action as well as other wildfire-related actions included in the 2025-26 budget package.

Suspends Four Newly Identified Mandates. All four mandates concern municipal stormwater permits issued by regional water quality control boards for the period beginning in 2009 or 2010 through December 2017. The Commission on State Mandates had determined that several requirements in these permits (which local governments already carried out) were state-reimbursable mandates for that time frame. By retroactively suspending these mandates, the state saves about $4 million one time in 2025-26. (Since the budget action is only for 2025-26, to keep the requirements suspended for the historic period and avoid any future state obligation to pay for these past claims, subsequent budget acts also would have to include language continuing the suspension of these mandates.)