SACRAMENTO, Calif. — California cities may be forced to close homeless shelters next year if the Legislature approves Gov. Gavin Newsom’s proposed budget.

The $349 billion budget, which Newsom released Friday, would omit a large homelessness grant that cities and counties have relied on each year to address the severe crisis since Newsom took office in 2019.

“Assuming (Homeless Housing, Assistance, and Prevention Program) money isn’t in this year’s budget, 2027 is when we’re going to start to see real problems with communities starting to start ramping down their projects in anticipation of loss of funding, said Alex Visotzky of the National Alliance to End Homelessness. “We need to see HHAP funded at $1 billion a year if we’re going to see continued progress on homelessness.”

During a news conference to unveil the budget, Finance Director Joe Stephenshaw said the omission of the funds were not a “cut.”

“(It’s not) due to cuts,” Stephenshaw said in response to a question from a reporter. “Those are due to one-time funding sources that are not on the books for this year ... (There are still) significant investments at the state level in combating homelessness.”

Stephenshaw pointed out that $500 million contained in the seventh round of the grant has not yet started going out to the communities, but that it will soon.

If the budget included a new round of HHAP, communities would receive it after Newsom was out of office. The governor is termed out at the end of this year, and is widely believed to be a top contender in the 2028 presidential race.

Will Sacramento shelters close?

The state has awarded Sacramento about $172 million in HHAP funding in total, according to California Department of Housing and Community Development data. The city and county, like many across the state, have used the money largely to open shelters, where people can live safely while awaiting permanent housing.

The loss of the funding could be especially problematic for the city of Sacramento, which is facing a $90 million deficit by 2030.

The city has been allocated $104 million in HHAP funds since the program started in 2019, according to the state data It used the money in part to open large shelters along X Street, Meadowview, Auburn Boulevard, and most recently along Roseville Road.

The city “declined to speculate” on the loss of an eighth round of HHAP, or what it would mean for Sacramento shelters, said Julie Hall, a city spokesperson.

Sacramento County has used its $48 million HHAP allocation also in part to open large shelters, including those along Stockton Boulevard and Florin Road. It also has plans to open a large shelter along Watt Avenue in North Highlands, using mostly federal Covid grant funds.

If the state ends HHAP, the county hopes to find other sources of revenue to fund the shelters and other homeless programs, either from the general fund or elsewhere, said Kim Nava, a county spokesperson.

“The county’s HHAP allocations have been reduced year over year starting with (the fifth round), and the county has been working to stretch dollars as much as possible over the grant periods and has not yet had to close a program,” Nava said. “With the potential complete loss of (the eighth round), the county has not yet identified the potential funding needs to present to the Board (of Supervisors) for consideration of other funding. County staff will continue to pursue other grant funds as available to limit the impact of this loss as much as possible.”

Unlike the city, the county is not projecting a budget deficit in the coming years.

Across the state, even with the HHAP money, shelters have been expensive to open and beds have not kept pace with the growth in homeless populations. Sacramento city and county together earmarked about $120 million in taxpayer money — from a mix of local, state and federal sources — for building and staffing eight homeless shelters with a total of about 950 beds from July 2020 through 2025, a Sacramento Bee analysis found. That’s about $126,315 per bed.

On any given night, there are about 4,000 people on the wait list for a Sacramento shelter bed. The persistence of camps across the city, and in cities throughout the state, has led Newsom to criticize local leaders for not spending the HHAP dollars more quickly and efficiently.

“No more excuses — it’s time to bring people off the streets, out of encampments, into housing, into treatment,” Newsom said during his State of the State speech Thursday. “Counties need to do their job!”

Sacramento’s surrounding counties have also been receiving HHAP funds. Placer County was allocated $9.3 million; Yolo County was allocated $10.3 million, El Dorado County was allocated $4 million, and Yuba County was allocated $11.7 million.

Placer County uses the money not for shelters, but primarily for housing subsidies for homeless adults and youth, said Katie Combs Prichard, a county spokesperson

“Cuts could jeopardize housing for hundreds of Placer residents,” Combs Prichard said. “Given our homeless count is around 700, with current and anticipated funding allocation amounts, we would estimate this could impact our homeless count by roughly 30%, which could have additional ripple effects.”

Newsom claims homelessness decline

Newsom during his final State of the State address Thursday claimed the state’s homeless population decreased last year.

“Early data, just compiled, shows that the number of unsheltered homeless people in California dropped 9% in 2025,” Newsom said, Thursday during the address. “We have not seen a drop like this in nearly two decades in California. Los Angeles, down 10.3%; Riverside, down 19%; Contra Costa County, down 34.8 .. Our investments are paying off.”

If true, that would be big news, and boost the governor’s potential presidential run, showing progress on an issue that has dogged his administration.

Newsom’s office calculated the 9% decrease using the 30 communities that submitted an unsheltered homeless census estimate last year to the U.S. Department of Housing and Urban Development, according to his office.

While those numbers included several large areas, such as Los Angeles, San Jose and Fresno, several other major communities — including Sacramento, San Francisco and Alameda County — did not submit new estimates last year.

When those communities add their numbers into the mix later this year, Newsom’s claim may not turn out to be true.

Homeless activists say one reason that the counts may be dropping is not because people are getting housed, but because people are deeper in hiding to avoid detection in the wake of the U.S. Supreme Court’s 2024 Grants Pass decision. That decision essentially removed protections for encampments to exist on public land if there were no shelter beds available, and has been followed by increased clearings of encampments in California.

“Grants Pass opened the door for municipalities to go all out on criminalizing their homeless communities,” said Niki Jones, executive director of the Sacramento Regional Coalition to End Homelessness, adding she does not believe the state has seen an actual decrease in homelessness.

Since the decision, criminal citations and jail time for homeless-related offenses has rapidly increased in Sacramento.

If Newsom’s claim of a decrease in homelessness is true, Graham Knaus, CEO of the California State Association of Counties said, it’s a great reason to continue funding HHAP in the state budget.

“The governor rightly praises counties and cities for reducing homelessness,” Knaus said in a news release Thursday. “So why on earth would the state abdicate its responsibility and allow homelessness to soar again?”

That organization will likely be lobbying lawmakers to include HHAP in the final budget.

Newsom will revise his budget in May and legislators will pass a final version in June.

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(The Bee’s Lia Russell contributed to this story.)

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