What would the passage of H.R.1 (or similar federal budget changes) do to California’s federal funding mix and state budget risks?

1. How H.R. 1 reshapes federal‑to‑state funding for Medi‑Cal and safety nets

H.R. 1 reduces federal Medicaid support by narrowing eligibility for noncitizens, cutting federal matching on certain emergency and expansion‑related services, and restricting provider taxes that California uses to draw federal dollars—changes that the Legislative Analyst’s Office says will reduce federal funds and force the state to either cut coverage or backfill lost federal matches with General Fund dollars ^{[6] [4]}. Independent trackers estimate H.R. 1 slashes roughly $30 billion nationally from Medicaid and will make millions uninsured—effects mirrored in California through loss of coverage for some immigrants and reductions in funding for behavioral health and other services ^{[1] [7]}.

2. The immediate dollar hits California must consider

California budget documents and advocacy groups quantify concrete line‑item impacts: an additional $382.9 million to cover CalFresh administrative cost shifts to counties, an estimated $1.1 billion in 2026‑27 if the state must phase out its MCO tax early and backfill lost revenue, and multi‑year General Fund increases tied to narrower federal matches ^{[8] [2] [3]}. The Governor’s own budget and the LAO flag hundreds of millions in reduced federal matches and specific program cuts that reduce near‑term state spending needs but raise long‑term obligations if the state preserves services ^{[9] [2]}.

3. Programmatic consequences and who bears the costs

The practical tradeoffs include ending state‑funded comprehensive Medi‑Cal for some immigrant groups, restricting services like GLP‑1 coverage, and possibly blocking federal reimbursements to providers such as certain family‑planning clinics—moves that save the General Fund in the short run but shift care burdens to counties, hospitals, and community providers and risk worse public‑health outcomes ^{[9] [4] [10]}. Counties already expect increased administrative responsibilities and have warned of added county costs with little new funding ^{[3] [11]}.

4. How H.R. 1 amplifies California’s budget risks and volatility

The state’s revenue mix is highly sensitive to market swings and high‑income taxpayer behavior; LAO and the Governor’s budget emphasize that federal policy shocks like H.R. 1 worsen downside risk and could erode reserves and Proposition 98 school funding protections if revenues soften ^{[5] [9]}. Several official analyses stress timing uncertainty—the law’s effects could begin between 2025 and 2028 depending on federal guidance—complicating forecasting and increasing the chance of mid‑budget year shortfalls ^{[4] [6]}.

5. Policy responses, tradeoffs, and political lenses

State leaders are weighing strategies—restructuring MCO/hospital provider taxes, seeking waivers, expanding state‑funded programs like California Food Assistance for excluded immigrants, or tightening eligibility—to shield residents while preserving fiscal balance, but each has political and fiscal costs ^{[11] [8]}. H.R. 1 also channels offsets to tax cuts for higher‑income households and corporations, a political choice critics say favors wealthy taxpayers while shifting burdens to states and localities ^{[8] [11]}.

6. Limits of reporting and outstanding uncertainties

Analyses converge that H.R. 1 reduces federal support and raises California’s General Fund exposure, but the precise fiscal hit depends on administrative guidance timing, state policy choices about backfilling eligibility, and market‑driven revenue swings; available sources quantify many impacts but explicitly note that some costs will be deferred for May revisions or depend on federal waivers ^{[4] [3] [5]}.