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Department of Finance presents balanced 2025–26 budget, highlights wildfire response and rainy-day changes
Summary
Erica Lee of the Department of Finance told the Board the governor's proposed 2025'26 budget is balanced without new cuts, boosts reserves and proposes changes to Proposition 2; the presentation included $2.5 billion in special-session wildfire response for recent Los Angeles-area fires.
Erica Lee, deputy director at the California Department of Finance, presented the governor's proposed 2025'26 budget to the Board of Equalization on Feb. 19, saying the plan is balanced without the borrowing, cuts or deferrals that were required in prior years.
The presentation matters because the governor's budget frames state spending priorities for the year ahead, and Lee emphasized both higher-than-expected revenues and continuing risks tied to federal policy and revenue volatility.
Lee said the state projects about $16.5 billion in additional revenue compared with the 2024 budget act and proposed total spending of roughly $322 billion in total funds, including $229 billion from the General Fund. The proposal maintains a planned $7.1 billion withdrawal from the Budget Stabilization Account (the state's rainy-day fund) and leaves total reserves of about $17 billion. The proposal also increases the state's State Fund for Economic Uncertainties (SFEU) to about $4.5 billion.
Lee described several wildfire-related items: the governor's special session had initially set aside $50 million for litigation and legal aid work; after the Los Angeles fires the session was expanded to include roughly $2.5 billion for emergency response and recovery, including emergency protective measures, sheltering, hazardous-waste removal and related activities. Lee added that the budget includes one-time funding to accelerate building inspection and planning review in affected areas and $1 million for school technical assistance.
On savings and fiscal rules, Lee outlined a proposal to modify Proposition 2's mandatory rainy-day deposit rules by raising the required deposit level from 10% of General Fund revenues to 20% and by exempting rainy-day deposits from the state appropriations limit created by Proposition 4. She said the change would let the state store more in good years to smooth volatility in poor years.
Lee warned of risks that could alter the outlook: stock-market volatility, renewed inflation, and potential federal policy changes that would reduce federal funding to the state. She also noted a tax-filing delay tied to the Internal Revenue Service's October 15 filing allowance for some affected counties, which complicates near-term revenue timing though not necessarily total dollars.
Board members asked questions about wildfire recovery, local government backfill and the rainy-day fund. Member Vasquez asked whether funding could backfill city and county losses of property tax revenue and support school districts taking in displaced students; Lee said prior programs and emergency accounts may be available but that targeted backfill would require legislative action. Vice Chair Lieber framed the budget work as a test of the state's commitment to protecting vulnerable populations and applauded the presentation for its detail.
The Department of Finance presentation is informational; no board vote followed the briefing. Lee said the administration and legislature will continue to refine the plan through the May Revision and invited questions from board members.
