Santa Clara County faces $200M losses in new state budget

Outrageous. Catastrophic. A massive leadership failure.

These are the words Santa Clara County leaders used this week to describe Gov. Gavin Newsom’s decisions in response to his May 14 state budget revision. Instead of helping California’s second largest public hospital system withstand billions of dollars in funding cuts under President Donald Trump’s H.R. 1 spending bill, county leaders said Newsom is tacking on an additional $231 million in losses to public hospitals this upcoming fiscal year — increasing to $322 million the following year.

“Unless these changes are reversed, public hospitals across California will be hit with a double‑blow that puts lifesaving care at risk for patients who have nowhere else to turn,” County Executive James Williams told San José Spotlight.

Newsom’s budget proposal also deals a blow to Santa Clara County’s pioneering mental health crisis response program known as Trusted Response Urgent Support Team (TRUST), which sends trained staff to mental health calls instead of police. The May revision proposes making mobile crisis response an optional benefit under Medi-Cal, which would reduce Medi-Cal reimbursements for the program as a separate TRUST funding source expires in November.

“This cannot be California’s response to the federal government … I’m very concerned that if this is the direction the state is going — layered on top of H.R. 1 impacts — we will not be able to sustain critical services as a county organization,”  Williams said at Tuesday’s Board of Supervisors meeting. “I wish I had better news to bring, but it’s a massive leadership failure at the state level.”

It comes after county leaders already made $200 million in cuts — and got voters to approve a sales tax increase to bring in $337 million in extra revenue every year — to help bridge a $787 million shortfall in the upcoming budget cycle.

“We of course have not accounted for this (new) impact in the recommended budget,” Williams said at the meeting. “We don’t have a way to account for that impact in the budget that the board will be considering in June. Our work between now and then is going to be to urge the Legislature to reject the proposal and to urge the Legislature to actually address the very concrete and specific things that we put forward.”

State officials reject the notion they’re hanging Santa Clara County out to dry.

“The decision that was made that’s caused this fiscal hardship — for the state as well as for counties — is the approval of H.R. 1 last year by Congress and its signature by President Trump, which paid for ongoing tax cuts for the wealthiest Americans by making substantial reductions in federal aid for health and human services programs,” H.D. Palmer, Newsom’s finance spokesperson, told San José Spotlight. “The state has stepped in (through the May budget revision) to provide additional assistance to counties as they’re forced to deal with these additional burdens imposed by Congress.”

Palmer points to a funding increase of $262 million in the 2026-27 fiscal year — and $33 million in each of the 2027-28 and 2028-29 fiscal years — to support counties’ implementation of Medi-Cal eligibility changes pursuant to H.R. 1. The funding will help provide additional staffing and support for counties processing applications, renewals, call centers and the new H.R. 1 work requirements.

Palmer said Newsom’s proposal to extend the state’s existing digital software sales tax will generate $560 million in additional revenue to local governments in the upcoming fiscal year, and grow to more than $1.1 billion annually in the following year.

“We reject the suggestion that the state has created fiscal hardship on counties — in fact, it’s the opposite,” Palmer said. “These new measures actually provide additional assistance for counties to deal with these new fiscal pressures that were created not in Sacramento, but by Washington.”

At the same time, Newsom’s proposal would move people with “unsatisfactory immigration status” from Medi-Cal managed care to “fee-for-service financing.” County officials said that would cost their hospital system $65 million in the upcoming fiscal year alone. This is in addition to the $166 million in lost revenue related to Newsom’s enrollment freeze for undocumented adults, shifts in monthly premiums and other changes enacted last year that county leaders sought to reverse this year.

The May budget revision comes after months of advocacy and state lobbying by a coalition of counties led by District 4 Supervisor Susan Ellenberg.

“I am so mad I can hardly stay sitting in my chair,” Ellenberg said at the Tuesday meeting, right before leaving the county building to get to Sacramento before dark for more advocacy. “The piling on of harm to children to families and by extension to communities is going to be really catastrophic.”

County officials estimate that Newsom’s May revision could reduce Medi-Cal funding to cover only 25% of TRUST’s annual budget, compared to 36% today. Officials are looking for ways to keep the program alive after state mental health funding for the program expires in November. County reports going back to 2024 consistently show more calls going to TRUST than the county’s other crisis support programs that involve police to varying degrees.

“Our community has worked too hard to build TRUST to now risk taking a step backwards,” Corina Cardenas, a TRUST advocate and organizer with Silicon Valley De-Bug, told San José Spotlight. “The numbers clearly show these services are being heavily utilized and filling a critical need in our community. Reducing funding could significantly impact the community and, with an ICE facility being built near Gilroy, our community is not going to want to call the police during a mental health crisis.”

Contact Brandon Pho at [email protected] or @brandonphooo on X.