California proposes balanced 2025-26 budget, seeks change to Proposition 2 to boost rainy-day savings

The Department of Finance presented the governor's proposed 2025-26 budget on the administration's behalf, saying the plan is balanced and includes a modest $363 million discretionary surplus.

The budget document shows $322.3 billion in total spending, $228.9 billion from the General Fund, and total reserves of just under $17 billion — including about $10.9 billion in the budget stabilization account (the state "rainy day fund"), $1.5 billion in the schools' reserve and $4.5 billion in the Special Fund for Economic Uncertainty. Department of Finance officials told reporters the plan builds on a two‑year framework that helped stabilize the state's finances after recent revenue volatility.

The department reiterated an administration proposal to reform Proposition 2 (approved by voters in 2014). The proposed changes would raise the cap on the share of General Fund revenues deposited into the Budget Stabilization Account from 10% to 20% and would exclude those deposits from the state's appropriations limit. "This will enable us to save a lot more during the upswings and provide more stable management of our funds going forward to protect the programs and services that Californians rely upon," the Department of Finance director said.

The director emphasized revenue volatility driven by capital gains and stock-market performance and noted the state remains aligned with the Legislative Analyst's Office revenue outlook. The department said it accounted for policy actions in the 2024 budget agreement when projecting the 2025‑26 surplus and that the May revision will revisit out‑year pressures.

The presentation also described a planned reduction of vacant positions as part of efficiency efforts adopted after the 2024 budget agreement. The department said it has revised an earlier estimate of about 10,000 vacant positions downward to 6,500 after exempting life‑ and safety‑critical posts.

The administration described the proposals as a starting point for negotiations with the Legislature; any change to Proposition 2 would require returning to voters via a ballot measure. The Department of Finance said it looks forward to working with legislative leaders through the spring budget process.

The budget director closed by acknowledging recent wildfire emergencies and the administration's intent to work with the Legislature on the final plan.