Election Day may have come and gone in California, but the issues extend far beyond the ballot box. As California moves into the second half of the legislative year, lawmakers are navigating a packed agenda that includes budget negotiations, high-profile elections, affordability challenges, insurance market instability and a potentially groundbreaking wealth tax proposal.

These and other issues were the focus of a recent CalCPA Capitol Beat, featuring CalCPA Vice President of Advocacy and Public Affairs Jason Fox, and Missy Johnson, director of government affairs at Nielsen Merksamer, who examined the political and policy developments shaping California’s future—and why business leaders, taxpayers and financial professionals should pay close attention.

Sacramento Enters a Critical Stretch

California’s legislative session has reached a pivotal point. With budget negotiations underway, lawmakers are rapidly approaching the final stages of the 2026 legislative calendar.

The state budget remains a top priority, as legislators must meet constitutional deadlines while balancing competing fiscal demands and policy priorities. Once the budget process concludes, lawmakers will break for a brief summer recess before returning for what Johnson described as a “mad dash to the finish” before the Legislature adjourns at the end of August.

For businesses and CPAs, this compressed timeline means that significant policy proposals can advance quickly in the coming months.

Governor’s Race Draws Significant Attention

The race to succeed Gavin Newsom as California’s governor remains one of the most closely watched contests. The campaign has generated substantial discussion around candidate visibility, voter recognition and shifting political dynamics. While polls offer an early snapshot, California’s large electorate and lengthy vote-counting process make definitive predictions difficult. Republican Steve Hilton and Democrat Xavier Becerra are on track to be the top two vote getters, edging out Democrat Tom Steyer, and move to the general election in November.

The outcome will be important politically and from a policy perspective. California governors play a major role in shaping legislative priorities, budget negotiations and regulatory policy.

For professionals across industries, understanding the priorities of the next administration will be critical as new economic and tax policies emerge.

Legislative Turnover Could Reshape Sacramento

Beyond statewide offices, California voters are also helping determine the future makeup of the Legislature.

Several long-serving lawmakers are leaving office due to term limits or pursuing other opportunities, creating numerous open seats in both the Senate and the Assembly.

Johnson highlighted several competitive legislative races that could influence the ideological makeup of the Capitol, particularly in districts where demographic and political changes have created new opportunities for both parties.

Affordability and Insurance Remain Front-Burner Issues

One of the strongest themes discussed during the program was affordability. While housing costs continue to dominate public conversation, Johnson pointed to another challenge increasingly affecting Californians: the state’s insurance market.

“I think being insurance commissioner is the hardest job in California right now,” she said.

The issue touches nearly every aspect of the economy. Rising homeowners’ insurance costs, difficulties obtaining coverage and growing concerns about wildfire risk are affecting consumers, businesses and housing development.

The issue also directly impacts family budgets through higher auto and property insurance premiums, making it a significant contributor to the broader affordability conversation.

Ballot Measure Battles

Perhaps no policy issue drew more discussion than the cluster of competing ballot measures around taxation. A proposed "billionaire's tax"—targeting roughly 220 ultra-high-net-worth Californians—has gathered enough signatures to potentially qualify for the November ballot but faces strong opposition from Gov. Newsom's office and well-funded opposition groups.

Two countermeasures have also qualified for the ballot. One would require state audits of programs before certain tax increases could take effect, while the other would protect personal property, pensions, and retirement savings from new taxes. Beyond their stated policy objectives, both measures contain provisions that would effectively nullify the wealth tax proposal if approved by voters. As a result, they are widely viewed as both policy measures and political tools designed to undermine the wealth tax. The fact that they are tied to concepts generally viewed favorably by voters adds another layer of complexity to the political landscape surrounding the initiative.

Add to the picture the growing voices of opposition to the wealth tax, including from other labor groups such as the California Teachers Association (CTA), which has qualified its own initiative to make existing high-income tax rates permanent, and may have concerns with sharing the ballot with the wealth tax.

Budget Season: Tech IPOs and a SaaS Tax Proposal

On the budget front, the news was better than expected. Tax revenues have come in significantly higher than projected, driven largely by California's booming tech and AI sectors.

"California's budget has benefited greatly from those AI companies," Johnson said, pointing to anticipated IPOs from AI firms including Anthropic, and OpenAI as potential additional windfalls.

Still, the Legislative Analyst's Office has cautioned that the state remains vulnerable to economic downturns. And tucked inside the budget negotiations is a proposal that could directly affect CalCPA members and their clients: a new sales tax on software-as-a-service (SaaS).

"If you're paying attention for clients," Fox warned, "it could be a change that happens via the budget and takes effect Jan. 1 of 2027."

Also being fought in budget negotiations: more flexibility of Pass-Through Entity Tax (PTET) credits set to expire, which CalCPA has been actively pushing to extend or make permanent through discussions with the Department of Finance and legislative budget leaders.

AI Regulation and the CPA Profession's Role

Artificial intelligence isn't just reshaping California's balance sheet—it's also driving new legislative activity with direct implications for CPAs. Illinois recently followed California's SB 53 by passing its own AI safeguards bill and went a step further by including third-party audit requirements. Fox sees this as an emerging opportunity—and responsibility—for the profession.

CalCPA has been engaging with legislators to ensure that any AI audit framework considered in the Legislature aligns with how CPAs already operate and provide assurance services, rather than creating conflicting frameworks or standards.

Profession Updates: New Licensing, CPE Modernization and Private Equity

On the professional standards front, Fox reminded members that new CPA licensing requirements under AB 1175 are on track for a Jan. 1, 2027, effective date, with simplified and more accessible education pathways.

The Board of Accountancy is also ramping up Continuing Professional Education (CPE) audits, dramatically conducting more in the past five months than in all of last year. Members were reminded that while the CBA’s own CPE tracker will be discontinued July 1, CalCPA's tracker will remain available.

Looking ahead, Fox flagged that California's current 40-hours-per-year CPE requirement may itself be up for re-examination, with an AICPA and NASBA task force studying the right mix of hours and topics.

What It Means for CPAs and Business Leaders

Election outcomes, budget decisions, tax proposals and affordability challenges all influence California’s economic environment and regulatory landscape. For CPAs, financial professionals and business leaders, these developments may affect clients, employers and long-term planning decisions.

With the legislative session entering its final months and November’s election approaching, stakeholders should expect policy debates to accelerate.

Looking to stay up to date on the political and legislative issues that matter? Be sure to sign up for our next CalCPA Capitol Beat: Oct. 6. We'll see you there!