Assembly Budget Committee opens budget season as administration presents balanced 2025‑26 proposal amid out‑year deficits and wildfire uncertainty

The California State Assembly Budget Committee opened its 2025 budget season on Jan. 10 with an overview from the Department of Finance and the Legislative Analyst's Office of the governor's proposed 2025–26 budget and extensive member questions about reserves, wildfire response and priority spending.

Erica Lee of the Department of Finance told the committee the governor's proposal is "balanced without the need for further solutions" for the coming year while recognizing significant risks. Lee said the budget would include $322.3 billion in total spending and $228.9 billion from the General Fund and would preserve a planned $7.1 billion withdrawal from the Budget Stabilization Account while leaving roughly $17 billion in remaining reserves, including a $4.5 billion Special Fund for Economic Uncertainties.

The Legislative Analyst's Office (LAO) also briefed the committee and expressed caution. LAO analyst Gabe Padek said the administration and LAO currently view the budget as roughly balanced for the upcoming year but both offices project large deficits in later years — the administration's estimate in the range of $13 billion to $19 billion per year and the LAO's projection larger, growing toward $20 billion to $30 billion by the end of the multiyear window. "We both see quite large deficits," Padek said.

Why it matters: committee members and both fiscal offices emphasized that near‑term balances depend on volatile revenue sources, notably capital gains tied to the stock market, and on federal funding that may be uncertain going forward. Members repeatedly referenced the recent and still‑unfolding Southern California firestorms — described in committee remarks as destroying about 12,000 structures and displacing "tens of thousands" — and asked how disaster response and potential federal reimbursements will affect the state's fiscal plan.

Key elements of the governor's proposal presented to the committee include: - A total‑spending baseline of about $322.3 billion with $228.9 billion in General Fund commitments. - Continued use of the two‑year framework adopted in last year's budget, including the planned $7.1 billion withdrawal from the Budget Stabilization Account (BSA) in 2025–26. - A proposed increase in the Special Fund for Economic Uncertainties target to $4.5 billion and administration proposals to change Proposition 2 rules to raise the mandatory deposit ceiling from 10% to 20% and to exempt BSA deposits from the state appropriations limit. - Discretionary adjustments that create roughly $2.2 billion of budget capacity (including a $1.6 billion proposed delay of a portion of Proposition 98 funding), and about $570 million in new discretionary spending proposals that LAO estimates would settle to roughly $300 million on an ongoing basis. Notable proposals cited include $60 million for CalCompetes grants and expansions of several tax expenditures, including the film tax credit and exclusions for some military retirement income.

LAO urged prudence and an active oversight program: Padek told the committee the LAO supports building reserves and using this spring to conduct oversight and program review to prepare for the larger deficits projected in future years. He also warned that many of the one‑time solutions used recently have been expended and that future choices may require reductions in ongoing programs.

Members' concerns and follow‑ups: committee members asked detailed questions about topics including housing and homelessness funding (many members said the governor's proposal does not meet their expectations), the proposed reorganization of the Business, Consumer Services and Housing Agency and the Little Hoover Commission review timeline, the budgetary impact of Proposition 36 and the interplay with Proposition 47 savings, Medi‑Cal and recent changes affecting hospital payments and a health‑care worker minimum wage, the state's wildfire emergency funding and federal reimbursement prospects, and volatility in revenue tied to the stock market.

Department of Finance staff said some wildfire response funding has been appropriated in special session actions (the chair noted more than $2.5 billion appropriated for immediate response and recovery), that CalFire catastrophic wildfire (eFund) budget assumptions are being maintained (finance counsel referenced roughly $600 million budgeted for anticipated catastrophic wildfire costs), and that the administration will pursue federal reimbursement where eligible. Members pressed for more granular data in subcommittee hearings; both DOF and LAO said they will provide more detailed analyses through the spring and the May Revision process.

Votes at a glance: the committee adopted its proposed committee rules before the presentations. The motion to adopt the rules was made by Assemblymember Flora and seconded by Assemblymember Fong; the clerk recorded the vote as 25 Ayes, 0 Noes and the motion carried.

What comes next: members emphasized more than 60 subcommittee hearings the committee has already scheduled to examine specific program areas in depth, and both fiscal offices urged the legislature to use the spring for program review and oversight to prepare for the multiyear deficits LAO and the administration project. The committee will revisit details at subcommittee hearings and through the May Revision process.

The public comment period included housing and climate advocacy groups urging the legislature not to use Proposition 4 bond funds to backfill General Fund obligations and public‑health and county officials pressing for continued support for local public‑health systems and disaster recovery programs.

The hearing record, line‑by‑line questions and DOF and LAO handouts will inform the May Revision and the subcommittee work that committee members said will shape final budget priorities this spring.