May Revision of the 2025 – 2026 State Budget: With the Deficit Increasing, Newsom Proposes No State Employee Salary Increases for July 1, 2025

Governor Newsom released his May Revise of the 2025-2026 state budget proposal on May 14, 2025. The May Revise state budget proposes expenditures of $321.9 billion ($226.4 billion general fund).  Although the state budget for 2025-2026 as proposed in January was tenuously balanced, the revised state budget proposal now reflects a projected deficit of $11.9 billion for the upcoming fiscal year.

The actual deficit for the upcoming fiscal year is nearly $40 billion as lawmakers and the Governor had previously agreed to $27.3 billion in financial remedies for the upcoming budget year, including $16.1 billion in cuts and a $7.1 billion withdrawal from the state’s rainy day fund. The Governor noted the state is projected to lose out on $16 billion in revenue through June 2026 due to federal tariff policy impacts and the effect of economic uncertainty on the stock market. 

The Governor Proposes no Salary Increase for State Employees for the 2025-2026 Fiscal Year

The Governor proposes that state employee compensation be part of the budget solution and he is proposing no general salary increases for any state employees for the 2025-2026 fiscal year.  For those rank-and-file units with collective bargaining agreements containing raises, the Administration will return to the bargaining table seeking changes to the agreements and will otherwise seek a budget provision to suspend the salary increases.

Although the January proposed budget included an increase of $917.8 million for July 1, 2025 for planned salary increases and health care increases, the May Revision contemplates removing funding for all of the planned July 1, 2025 general salary increases, which would be scored as a savings of $766.7 million for salaries and wages. The May Revision maintains funding for all 2026 calendar year increases in health care premiums and enrollment for active employees.

Withholding the planned July 1, 2025 salary increases for excluded employees is not welcome news and ACSS will lobby the Administration and the Legislature on this issue. ACSS has requested to meet with CalHR regarding compensation for excluded employees and the impact of the Governor’s revised proposed state budget. The first meeting between ACSS and CalHR is scheduled for May 20, 2025. In the recent past, agreements like suspending the employee and employer contributions to pre-fund retiree health care have been reached to offset salary decisions.  ACSS will continue advocacy before CalHR and the Legislature for the best employee compensation package possible for ACSS members.  

The Legislature must pass a budget by June 15, 2025. As the state budget progresses, ACSS’ legislative advocates will continue working to protect the interests of excluded employees. ACSS will keep you apprised as the excluded pay plan for the fiscal year beginning July 1, 2025 continues to develop.

The May Revision summary can be found here: Budget Summary (ca.gov)