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flag California’s 2026-27 budget projects a $2.9B shortfall, boosts education and pensions, cuts housing funds, and faces future deficit risks.

flag California Governor Gavin Newsom’s 2026-27 budget proposal projects a $2.9 billion shortfall, a major improvement from earlier forecasts, fueled by strong tech and AI-driven revenue growth. flag The $349 billion plan increases general fund spending by $18 billion, boosts education funding—including $350 million for UC, $365 million for CSU, and $509 million for special education—and allocates $3 billion to the rainy day fund and $11.8 billion over four years to reduce pension debt. flag Despite these investments, housing and homelessness funding is cut by $1.3 billion as one-time funds expire, and lawmakers warn of rising deficits, with a potential $22 billion shortfall projected for 2027-28. flag The budget, which avoids major cuts to core services, sets the stage for months of legislative negotiations amid concerns over economic volatility and long-term fiscal sustainability.

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