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California’s 2025–26 Budget Covers Almost $20 Billion Gap Through Accounting Maneuvers

Reserve diversions alongside budget deferrals conceal the true size of California’s fiscal shortfall.

Overview

  • The enacted 2025–26 general fund budget shows revenues of $208.6 billion against $228.4 billion in spending, revealing a gap just under $20 billion.
  • Officials count a $7.1 billion shift from the state’s emergency reserve as revenue, reducing the visible gap to $12 billion.
  • Remaining shortfall is covered by on- and off-budget loans from special funds and by deferring expenses into future fiscal years.
  • California has run a structural deficit of $10 billion to $20 billion annually since 2022 due to over-optimistic revenue forecasts and spending expansions.
  • Fiscal analysts warn that continued reliance on reserves and accounting tactics could bring a reckoning if revenues do not grow or spending cuts fail to materialize.