2026 State Legislative Outlook

Looking Ahead to California’s 2026 Legislative Session

The State of California is now heading into the second year of a two-year legislative session, during which we will see significant changes in the State’s leadership. The Senate has a new leader in Pro Tempore Monique Limon, as well as newly appointed committee chairs in many of the most impactful committees, including the Budget Committee and Appropriations Committee. There is also a hotly contested race for Governor, as Governor Newsom enters the final year of his term, setting up a contentious election cycle in the 2026 midterm elections. These election year politics are likely to have direct impact on the issues that the Legislature will consider this year, as many incumbent legislators attempt to advance to new offices.

After a turbulent 2025 legislative session, marked by legislation in response to the LA wildfires, sweeping CEQA reforms, and constant battles with the federal government, the 2026 session looks to be starting on a similar footing. The State is still facing a significant budget deficit while promising to tackle critical issues such as housing, affordability, and public health. The Newsom Administration continues to position itself as the primary antagonist to the Trump Administration, through all available channels, including legal challenges, the development of state-level policy, and consistent engagement through social media.

Below are several key themes that will likely shape the policy that is considered during the 2026 legislative session.

State Budget: The Legislative Analyst’s Office released a report in November that projects an $18 billion budget deficit for FY2026-27, with structural deficits expected to grow in following years. The Legislature will have to decide on spending reductions and potential revenue increases while facing pressure to fully fund prior initiatives like Prop 1 (mental health services) and Prop 4 (parks bond). The LAO included the potential risk of a stock market downturn in their deficit model, due to their analysis of market conditions surrounding what they consider an overconfidence in AI stocks.

AI Regulation: Sacramento has also expressed the desire to continue working as a national model for AI legislation, balancing innovation with the need to ensure privacy protections and environmental concerns. California set the benchmark last year with the passage of SB 53 (Wiener) which requires developers to assess risks and establish channels for reporting AI-related safety issues. Although President Trump has issued several executive actions with the intent of establishing a federal AI standard, California will likely continue to regulate as concerns grow regarding privacy and data centers.

Housing and Affordability: The State continues to grapple with the affordability crisis, characterized by high housing costs and rising rent prices. During this session, we expect to see lawmakers release Proposition 1 funds, which fund behavioral health treatment and supportive housing for veterans and homeless individuals with behavioral health challenges. Additionally, housing advocates are expected to reintroduce a $10 billion affordable housing bond; an earlier version of the measure stalled last year. Even as CEQA reforms were passed last year to ease approvals for urban infill housing, we expect to see another round of contentious housing bills.

Elections and Political Landscape: The 2026 session will conclude during the midterm elections, which currently see a wide-open gubernatorial race to succeed the term-limited Governor Newsom. Democrats have struggled to coalesce behind a single candidate, as former House Rep. Katie Porter and current Rep. Eric Swalwell have emerged as the current frontrunners in a packed field. According to publicly available polls conducted in late 2025, both are polling around 12%. Concerningly for Democrats, Republican candidates Riverside Sheriff Chad Bianco and former David Cameron advisor Steve Hilton are also polling around 12%, opening the door for a Democratic doomsday scenario where both Republicans advance to the general election through the State’s top-two jungle primary. Additionally, with the passage of Prop 50 and the expansion of Democratically-favored Congressional districts, it is anticipated that some Congressional aspirants will run high-profile, contentious legislation to boost their political profile.