Department of Finance briefs Board of Equalization on governor's 2025–26 budget, flags wildfire funding and volatility risks

Erica Lee, deputy director at the California Department of Finance, told the Board of Equalization on Feb. 19 that the governor's proposed 2025–26 budget is balanced for the budget year and includes targeted funds for wildfire response.

Lee said the administration now projects about $16,500,000,000 more in revenues across the budget window compared with last year’s forecast and proposed total spending of about $322,000,000,000 ($229,000,000,000 of that in the general fund). “We have seen stronger than anticipated performance of the economy, stock market and cash receipts,” Lee said during the board meeting.

Why it matters: The presentation framed how near-term revenues and big disaster-response commitments interact with long-term fiscal risks. Department officials flagged the state’s heavy revenue volatility — driven by progressive personal income tax receipts and stock-market sensitivity — and warned that federal policy changes could significantly affect federal funds that California receives.

Toplines and wildfire response

- The governor’s budget maintains a planned $7.1 billion withdrawal from the Budget Stabilization Account (the rainy-day fund) that was included in the 2024 budget act and proposes a higher State Fund for Economic Uncertainties (SFEU) balance of about $4.5 billion.

- The budget paper presented to the board lists limited new investments but sustains major programmatic commitments such as universal transitional kindergarten and universal school meals.

- On wildfire response, Lee said the governor convened a special session and the administration has made available “over $2,500,000,000 to expedite support for emergency protective measures, evacuations, sheltering for survivors, removal of household hazardous waste, post-fire hazard assessments, traffic control and other necessary emergency activities.” The special-session package also includes $4,000,000 in one-time funding for the Department of Housing and Community Development to help affected local governments speed planning review and building inspection and $1,000,000 to help schools recover damaged facilities.

Policy items and risks

- The Department proposed changes to how the state deposits into its rainy-day fund under Proposition 2, including an idea to raise the mandatory deposit level from 10% to 20% of general fund revenues and to exempt those deposits from the state appropriations limit (Proposition 4). Lee said the proposal would help increase savings for use during downturns, subject to statutory constraints.

- Lee underscored multiple risks: continuing baseline expenditure growth (especially in health and human services programs such as Medi-Cal), revenue volatility tied to the progressive personal income tax base and stock-market swings, and uncertainty about federal policy that could reduce federal funds to the state. She also noted the IRS’s temporary change in tax deadlines for some counties would delay cash receipts used for revenue forecasts.

What the board asked and what’s next

Board members pressed staff on details including rainy‑day fund balances (Lee said state reserves total about $17 billion, with roughly $11 billion in the rainy‑day fund after recent drawdowns) and how wildfire response funding relates to potential county and city shortfalls in property tax revenues. Lee said some wildfire response funding will be FEMA‑reimbursable and that the administration is coordinating with the legislature over the spring to finalize the budget.

Lee’s full presentation appears in the board transcript; the Department of Finance representatives answered board questions about revenue forecasting, the interaction of Proposition 2 and Proposition 4, and special-session wildfire resources.

(Quote excerpted verbatim from Erica Lee, Department of Finance: “We have seen stronger than anticipated performance of the economy, stock market and cash receipts, leading to an upgraded revenue forecast… We are now projecting $16,500,000,000 higher revenues through the budget window…”)