California's Budget Faces Challenges Amid Tech Rally and Federal Uncertainty

California's 2025-26 budget is projected to be roughly balanced, thanks to proactive legislative measures addressing anticipated fiscal challenges. Despite a surge in income tax revenues driven by high-income earners and a stock market rally, the state faces a small $2 billion deficit. However, future years may see significant operating deficits due to high spending growth outpacing revenue increases. The budget lacks capacity for new commitments, and the state may need to address future deficits through spending cuts or tax increases.