With California facing a $321.1 billion budget deficit, California Governor Gavin Newsom announced a tentative agreement with the state legislature Tuesday that includes cuts to Medicaid access for undocumented residents, increased grants for homelessness and housing programs, and the reversal of funding cuts to the University of California and California State University systems.

Although both the Governor and lawmakers made significant budget cuts earlier this year, the state still faces a $12 billion deficit. While officials discussed reducing funding for healthcare, public services, federally funded programs, and various initiatives, the latest agreement reflects increased revenue in certain areas.

The University of California and California State University systems avoided cuts, but the state will defer payments until next year. Meanwhile, Sonoma State University secured a $45 million turnaround grant to support its academic and athletic programs.

As part of the agreement, the state will begin removing undocumented residents from Medi-Cal, California’s health program for low-income individuals, starting in January 2026. Additionally, beginning in July 2027, the state will eliminate dental coverage and introduce a $30 monthly charge for undocumented individuals ages 19 to 57.

Lawmakers also fought to keep $620 million in grants and loans for affordable housing construction, preserved $500 million for local homeless services, and added a one-time $100 million fund to help counties respond to Proposition 36. Voters passed Proposition 36 in 2024, and it imposes stricter penalties for repeat offenders of drug and theft crimes.

Legislators reviewed the tentative agreement in hearings on June 25 and plan to hold a final vote by June 27. Governor Newsom plans to sign the budget before the new fiscal year begins on July 1.