State budget revisions save Santa Clara County from deeper cuts

Santa Clara County officials are exhaling as the state spending plan for fiscal year 2026-27 pares back steep cuts initially proposed by Gov. Gavin Newsom.

The state budget signed Monday includes $900 million for homeless services, nearly double what Newsom had initially suggested. The budget also keeps funding intact for in-home care and mobile mental health crisis teams, increases funding for food banks to $100 million, provides loans and grants to public hospitals and delays some Medi-Cal cuts for immigrants.

“I’m relieved the Legislature successfully negotiated a stronger budget than the governor initially proposed,” District 4 Santa Clara County Supervisor Susan Ellenberg told San José Spotlight.

When Newsom released his proposed budget in May, county leaders said it would tack on an additional $231 million in losses to public hospitals this fiscal year — increasing to $322 million the following year. The county’s hospital system accounts for a third of the county’s annual budget, at $4.7 billion, and is California’s second largest public healthcare system.

However, the budget passed by state lawmakers reduces those original losses and includes $250 million in one-time grants to support public hospitals statewide.

“Credit for that goes to the legislators who said, ‘We recognize the role of public hospitals and we’re going to try and mitigate the effects of (President Donald Trump’s) cuts on public hospitals,'” Bob Brownstein, strategic advisor for advocacy group Working Partnerships USA, told San José Spotlight. “This was a must win decision for Santa Clara County in order to be able to maintain the structure of the delivery of healthcare.”

However, the state budget did not allocate money toward indigent care, which is free or discounted care given to uninsured low-income individuals. California’s welfare laws require counties to provide basic services to low-income people when they are not eligible for other programs.

Brownstein said as funding cuts to Medi-Cal cause people to lose health insurance, there will be a growing number of people in the indigent care category.

“There are going to be more and more people who are going to show up at hospitals and clinics, not on Medi-Cal, but in need of medical services, not having the ability to pay for it,” he said. “The state’s role in funding it has to be recognized.”

County Executive James Williams said while he is grateful for the state providing one-time funding for things like hospitals, it’s still not a long-term solution.

“The state budget places a Band-Aid on our immediate needs with the allocation of mostly one-time funds, and long‑term funding is still desperately needed to preserve access to healthcare and protect the public hospital systems that millions of Californians rely on for critical care,” Williams told San José Spotlight. “We will stay vigilant and fully engaged with our state advocacy as the impacts of H.R. 1 continue to intensify, because delaying meaningful solutions will only increase system strain and put lifesaving services that we all depend on at risk.”

Funds for housing

On the housing front, the state will allocate $500 million in low-income housing tax credits to build more affordable homes. That’s in addition to the $900 million the state is giving the Homeless Housing, Assistance and Prevention (HHAP) program, which covers services such as homelessness prevention, temporary and permanent housing and outreach. San Jose has largely used HHAP dollars toward funding shelter operation costs.

Although funds for mobile crisis teams will be preserved, Ellenberg is disappointed that more funding isn’t going toward behavioral health.

“The need here in Santa Clara County has only grown, yet the funding simply hasn’t kept pace,” Ellenberg said. “We do see bright spots — especially the support flowing to school wellness centers and the expansion of school‑based Medi‑Cal billing, which will make a real difference for our youth — but the broader behavioral health landscape remains very concerning.”

Challenges in behavioral health

The county Behavioral Health Services Department faced a massive $100 million deficit due to federal cuts triggered by  Trump’s spending bill H.R. 1, which led the county to close three treatment clinics.

In addition, there’s been a major shift in mental health treatment. The state is mandating how money can be spent, with more emphasis placed on acute care rather than preventive services.

County leaders are reevaluating how to fund behavioral health services after ramping up preventive services by implementing more residential treatment facilities, adding a behavior health navigator program, launching a mental health mobile crisis program and other proactive efforts.

As the county anticipates a $500 million shortfall next fiscal year and a $805 million deficit in fiscal year 2028-29 due to H.R.1, the county will increasingly need to rely on state support to fill the gap. That includes sustainable investments in behavioral health, hospitals, homelessness prevention, Medi-Cal administration and in-home care, Ellenberg said.

“Looking ahead, counties should not be expected to absorb structural deficits created by the federal or state governments,” Ellenberg said. “We’ve stabilized what we can at the local level. A stronger foundation must come from the state doing its part to fund the programs and services it mandates so we can continue delivering the care and support on which our residents count (on).”

Contact Joyce Chu at [email protected] or @joyce_speaks on X.