State budget deal slashes homelessness funding, threatening thousands of shelter beds and housing units

By Caroline Grinder, legislative advocate (community services)

The Legislature’s budget proposal this year falls noticeably short on one of the state’s biggest challenges: homelessness. And city leaders throughout the state are sounding the alarm.

“Cities of all sizes are investing their own dollars to support our unhoused residents and connect them with the services they deserve, but without a strong investment from the state, their efforts are unsustainable,” said Cal Cities President and Rancho Cucamonga Mayor Pro Tem Lynne B. Kennedy.

Cal Cities and its allies have long urged state leaders to invest a minimum of $1 billion in ongoing funding for the Homeless Housing, Assistance, and Prevention (HHAP) grant program. But the legislative budget deal doesn’t just provide another one-time allocation. Lawmakers want to cut the program’s funding — the primary source of homelessness funding for many communities — by half.  

That’s if legislators follow through on their promises. The deal includes nonbinding intent language that would direct $500 million to the HHAP program for Fiscal Year 2026-27. This means no new funding for homelessness this year — and no guarantee of funding.

Why it matters  

The implications of these cuts are potentially devastating, with California’s largest cities projecting the loss of 3,250 shelter beds, reduced outreach services for over 12,500 individuals, and stalled development for over 2,250 housing units as a direct consequence.

HHAP investments have shown promising results. The number of homeless Californians increased by just over 3% in 2024 — a much lower rate than the nation overall and lower than 40 other states. Continued investments have helped slow the growth of California’s homelessness crisis. And while there is still a long way to go with more than 180,000 people still experiencing homelessness in the state, now is not the time to yank funding.

The budget deal also reduces a 2025-26 appropriation to the Encampment Resolution Fund by $100 million. This comes as Gov. Gavin Newsom calls on local governments to do more to address encampments on public property, even releasing a model encampment ordinance for cities and warning that state funding could be withheld if cities refuse to act.

A press release sent by Cal Cities on Wednesday outlines the ways cities throughout the state are addressing homelessness — with and without HHAP funding. “All people have value. Regardless of income, our residents should be able to afford groceries, pay their light bills, and above all else, have a place to call home,” said Eureka Mayor Kim Bergel. “California cities of all sizes are committed to reducing homelessness and providing services, but our efforts alone are not enough.”

What’s next?

Lawmakers sent the budget to the Governor’s desk on Friday. He has until June 27 to sign, veto, or “blue pencil” (line-item veto) the bill. But this year’s budget negotiations are not over. There will inevitably be “budget bill juniors” (budget bills to amend previous budget acts) and budget trailer bills that reflect their agreements. Cal Cities is working closely with legislative leaders, the Governor’s Office, and coalition partners to advocate for full restoration of HHAP funding and push for a long-term funding commitment.