The Impact Of Governor Newsom's Proposed Budget On Water Projects

On January 9, 2026, Governor Newsom announced his 2026-2027 $348.9 billion budget proposal. Contrary to his 2025 proposal, this proposal includes a deficit. However, this proposal's deficit is only $2.3 billion, substantially less than in 2023 and 2024, and the press release calls this projected deficit both "modest" and "solved". The budget proposal's deficit projection stands in contrast with the Legislative Analyst's Office November 19, 2025 report, which predicted an $18 billion shortfall.

The budget site includes a full combined summary, summaries of individual sections, and a provides additional detail by agency.

The Governor's proposal is meant to "reflect[] both confidence and caution" while also adapting to what the press release describes as "[President] Trump's volatility outside our control". The budget includes refilling the state's reserves and its "Rainy Day Fund" by funding them with $23 billion.

While much of the proposal is focused on education funding, the press release does highlight "Protecting Californians in a hotter, drier world" as a key role for the budget. That category highlights investments in safe drinking water as a key part of meeting that goal.

Budget Impacts on Water Agencies and Broader Proposals

Highlights include:

• Roughly $9.75 billion in funding for the Natural Resources Agency, down from an estimated total of an estimated roughly $13.75 billion in spending from the 2025-2026 budget cycle.
  • Of that, roughly $992 million is for the Department of Water Resources, down from roughly $2.68 billion from the last cycle.
• Roughly $4.83 billion in funding for the Environmental Protection Agency, down from roughly $5.32 billion.
  • Of that, roughly $1.16 billion is for the State Water Resources Control Board, down from roughly $1.59 billion.
• Roughly $6.50 billion in funding for drought and water resilience, making it the second largest budget in the roughly $39.1 billion Climate and Opportunity Budget.
• Proposition 4, The Safe Drinking Water, Wildfire Prevention, Drought Preparedness, and Clean Air Bond Act of 2024 (also called the Climate Bond)
  • Roughly $2.1 billion, down from roughly $3.29 billion from the last budget.
  • The largest expenditure is (still) in safe drinking water, drought, flood, and water resilience, which includes a proposed budget of roughly $792 million, down from roughly $1.2 billion.
    • Significant or new investments include $232 million for flood control; $173 million for drinking water (including wastewater projects under certain conditions); and $68.8 million for new water conveyance projects and/or repairs to existing projects.
  • Roughly $4.61 billion remaining after the 2026-2027 cycle.

Budget Impacts on Specific Programs

Highlights include:

• $2.6 million and 12 positions "to expand essential water quality permitting and enforcement work" due to the U.S. Supreme Court's Decision in Sackett v. Environmental Protection Agency, 598 U.S. 651 (2023).
  • Sackett narrowed federal jurisdiction over "waters of the United States" (also called WOTUS). For more information on the decision, please see a summary of the decision, a practical look at the impacts of the decision, and/or an update on the federal government's approach to developing a rule to replace the one invalidated in Sackett.
• Roughly $1.98 billion in funding in the natural resources area of critical state infrastructure.
  • The full budget proposal is for roughly $58.73 billion, $51.26 billion of which is focused on transportation.
  • This includes roughly $133 million for the Department of Water Resources in 2026-2027, although no money is proposed in this category in subsequent years.
• $199 million for biodiversity and nature-based solutions.
• $107 million for coastal resilience.
• $110.2 million for cleanup of contaminated sites (including funding in 2027-2028).

Next Steps

This proposed budget from Governor Newsom is the first stage in the budgeting process and represents a starting point for negotiations with the Legislature, which will hold hearings and provide feedback. The Governor will next submit a revision in May 2026. The Legislature is required to pass a balanced budget by June 15 to take effect starting on July 1, 2026, which is the start of the next fiscal year.

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