SACRAMENTO — Governor Gavin Newsom on Friday signed a balanced 2025 state budget that defies the turbulence of national politics by investing in what he called the “foundation of affordability and opportunity”: housing. While headlines have focused on veterans’ tax cuts, universal pre-K, and free school meals, it is the state’s housing provisions—and the bold, controversial CEQA reforms tethered to them—that signal one of the most consequential policy shifts in modern California history.
“This budget agreement proves California won’t just hold the line—we’ll go even further,” Newsom declared. “It’s balanced, it maintains substantial reserves, and it’s focused on supporting Californians—slashing red tape and catapulting housing and infrastructure development.”
The $297 billion budget comes in the shadow of what state leaders call “economic sabotage” from the Trump administration, including tariff shocks and the threat of mass deportations that could gut California’s workforce. Yet in spite of a projected $45 billion shortfall, the budget expands core public investments while planting a political flag: California is betting its recovery—and its values—on housing.
At the heart of the plan is a major reworking of the California Environmental Quality Act (CEQA), long criticized for being weaponized against housing development. The budget’s CEQA trailer bill—either AB 131 or SB 131, pending Monday’s final vote—grants broad exemptions to infill housing projects across the state. For years, housing advocates have called CEQA a major obstacle to building, with the law increasingly used not to protect the environment but to block new homes.
“These reforms mark the most sweeping CEQA modernization in decades,” said Inyo County Supervisor Jeff Griffiths, president of the California State Association of Counties. “No longer will CEQA be leveraged to stall critical wildfire, water, and housing projects.”
In practice, the new CEQA exemptions will cover infill housing projects up to 85 feet tall—including market-rate and mixed-income housing—throughout much of California. Larger projects, 100 percent affordable projects, and buildings over 50 units in San Francisco will be subject to prevailing wage standards negotiated with labor unions.
The political stakes were high. For weeks, environmentalists, labor groups, and pro-housing advocates clashed behind closed doors, battling over labor standards and the reach of environmental review. In a moment emblematic of the tensions, one opponent likened the CEQA reform to Jim Crow laws—a comment that drew public rebuke and galvanized moderates. After heated negotiations, Assemblymember Buffy Wicks, a longtime housing reform advocate, introduced revised language in AB 609 that satisfied key labor demands while preserving the core exemption. Newsom inserted the reform into the budget, signaling its passage would be a condition of fiscal agreement.
“This is probably the biggest policy change in modern California history,” wrote urban planner Nolan Gray. “It’s hard to overstate how much easier it could soon be to build housing in California.”
For supporters like California YIMBY, the breakthrough was long overdue. “We are pleased to see that the latest budget language includes a clean CEQA exemption for market-rate and mixed-income infill housing,” the group said in a statement. “Thanks to Assemblymember Wicks, our partners in labor, and the YIMBY movement for moving us closer to this win-win-win on housing affordability, labor, and the environment.”
Indeed, while CEQA began in 1970 with noble environmental goals, the law’s scope has ballooned over the decades. Environmental impact reports that once spanned a few dozen pages now run into the thousands, often delaying or killing housing projects in urban areas. In many cases, lawsuits have come not from environmental advocates but from NIMBYs, competitors, or unions seeking leverage.
Urban planner and California YIMBY policy director Nolan Gray called the reform “probably the most significant housing policy reform in modern California history.”
Gray, who has written extensively about CEQA’s unintended consequences, explained that while the law was originally designed to protect the environment from major public works projects, it has since become a tool to obstruct exactly the kinds of dense, transit-friendly development the state needs.
“CEQA was designed for an era of sprawl and freeway construction,” Gray said. “But today, it’s being used to stop bike lanes, apartment buildings, and even climate-friendly urban development.”
What makes this year’s effort different, he noted, is that Governor Newsom made CEQA reform a condition of passing the state budget itself—effectively tying housing policy to the survival of the fiscal plan.
“When a governor really wants something, they put it in the budget,” Gray said. “If this didn’t pass, the whole budget didn’t pass. That’s how you get a reform that’s eluded us for 20 years.”
The resulting policy includes a tiered labor standard for large projects but leaves most infill housing below 85 feet exempt from CEQA. For Gray, that’s a victory not just for builders, but for affordability and climate policy too.
“It’s a smart compromise,” he said. “Most infill projects will finally be able to proceed without having to hire a team of lawyers and environmental consultants.”
Governor Newsom’s move to fast-track housing via CEQA reform signals a new calculus in Sacramento. After years of half measures and exemptions for stadiums or politically favored projects, the administration is making a statewide bet on infill housing—and backing it with fiscal leverage.
Speaker Robert Rivas echoed the urgency: “Trump is undermining our economy with reckless tariffs, harsh cuts, and ICE agents terrorizing our communities. In contrast, Democrats have delivered a budget that protects California. It cuts red tape to build more housing faster—because housing is the foundation of affordability and opportunity.”
The budget also allocates new funds to accelerate production. While specific dollar amounts for housing subsidies are expected in follow-up legislation, the administration has committed to “building more housing, ASAP.” Funding will target affordable housing construction, supportive housing for the unhoused, and infrastructure that enables housing growth—especially in urban areas constrained by outdated zoning and permitting rules.
Pro Tem Mike McGuire said the agreement “will create more housing at a scale not seen in years.” He added: “Thanks to this budget agreement, the state will help get more folks off the streets and into permanent shelter.”
Beyond housing, the budget protects key social programs from federal disruption. It maintains funding for in-home supportive services, expands CalRx to lower drug prices, and guarantees free school meals for all students. It also commits to expanded pre-K, after-school programs, and investments in literacy, signaling the administration’s effort to preserve a broad social contract.
Yet housing remains the lynchpin—and perhaps the most politically volatile. CEQA exemptions have long been a third rail, with environmentalists and labor wary of ceding power. But this time, the scale of California’s housing crisis—and the economic and political cost of inaction—tipped the balance.
With housing affordability now a top concern across party lines, Governor Newsom’s budget repositions the state’s housing policy from a patchwork of incentives to a structural reform agenda. If passed, AB 131/SB 131 will function as both a political signal and a practical overhaul, promising faster timelines and fewer barriers for developers.
Critics of CEQA reform warn of environmental shortcuts and loss of public input. But supporters argue the changes preserve meaningful oversight while removing the most weaponized delays.
“Most CEQA lawsuits aren’t about the environment anymore,” said one legislative aide familiar with the negotiations. “They’re about stopping change.”
And in California, change is now on the agenda.
The final vote on the CEQA trailer bill is scheduled for Monday. If it passes, the Governor will sign a package that not only reflects fiscal prudence in an uncertain economy—but could also mark the beginning of a new era in California housing.
“If it passes, the Governor will sign a package that not only reflects fiscal prudence in an uncertain economy—but could also mark the beginning of a new era in California housing.”
Good luck with that. Let me know when the crisis is over. By that I mean that it’s not possible that I wake up one morning to Newsom as President and Harris as Governor.
Honestly, I doubt that CEQA is impacting infill proposals very much. You know what IS impacting them? The cost of knocking down existing buildings and replacing them with taller ones.
In a state that’s no longer growing.
I don’t know who is planning to move into dense highrises (or where they’d come from), but it sure isn’t the folks who build them.
“It hasn’t happened yet, but California is bracing for a demographic and economic hit under President Donald Trump’s multi-pronged effort to limit the entry of people born abroad and deport those already in the U.S.”
(The following sentence is also key, since it shows that Newsom doesn’t want the state to stop growing. So it’s not a matter of housing those already in the state. Newsom and his legislative buddies are using “housing” as a red herring in regard to their actual goals.)
“The Newsom administration is worried about history repeating itself enough to cite Trump’s immigration policies as an economic risk in the state budget forecasts.”
“And all these people help California maintain its population and its status as the state with the most electoral college votes during presidential elections.”
https://calmatters.org/politics/2025/06/trumps-first-immigration-crackdown-shrank-californias-population-it-could-happen-again/