“The county financial picture is stable, and discretionary revenue is slightly better than expected,” county Chief Executive Officer Jeff Van Wagenen said during the board meeting Tuesday. “But the cost of county services is growing faster than revenue sources.”

The $38 million shortfall highlighted in the midyear budget report’ stemmed from mounting cost obligations that the following county agencies were unable to meet from the Department of Public Social Services, District Attorney’s Office, Office of the Registrar of Voters, Riverside University Health System and Sheriff’s Department.

In a 5-0 vote, the board rectified the composite imbalance. About two- thirds of the deficit will be reduced by drawing down General Fund reserves. The remainder of the hole will be plugged with the agencies’ reserve accounts, according to documents posted to the board’s agenda.

“We’ll need to approach the upcoming budget cycle with discipline,” Van Wagenen said, pointing to decreases in federal funding for some programs, like Medi-Cal, and the anticipated decline in interest earnings on bonds while financial pressures persist. “Our general fund budget is still not structurally balanced. The reality is, things cost more, and there’s less money to pay for those things.”

On Monday, all county agencies submitted their budget requests for the 2026-27 fiscal year, and the CEO acknowledged higher outlays will be sought.

The midyear report indicated revenue streams had grown in a few places, principally property taxes, which increased nearly $19 million above the amount first projected at the outset of the fiscal year. That will translate to a 3% rise in discretionary income — $1.35 billion instead of $1.31 billion — by the end of 2025-26 on June 30, officials said.

The county’s composite reserves should reach just shy of $700 million at the end of 2025-26, compared to $655 million at the beginning. Van Wagenen attributed the positive shift to the fact that agencies returned a little more money to General Fund coffers than had been predicted at the end of the previous fiscal year.

The board had formally approved the 2025-26 budget, totaling $9.98 billion, on June 24. The supervisors further approved a tentative hiring freeze for most agencies to put the brakes on deficit spending.

Payrolls continue to consume half of outlays. The county employs nearly 26,000 people on a regular or rotating temporary basis

More than two-thirds of the county budget is composed of programmed spending, including federal and state earmarks for specific uses, along with grants and related external source revenue. The board has little control over those dollars.

Hearings on the 2026-27 fiscal year recommendations for all county agencies are scheduled for the second week of June, followed by tentative adoption of the new budget on June 23.

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In a 5-0 vote without comment Monday, the board cleared the Executive Office to implement the “cleanup” allocations connected to expenses that weren’t on the books when the 2024-25 fiscal year officially concluded on June 30.

The irregular Monday meeting was scheduled because of an unexpected cancellation of the Sept. 16 meeting, which stemmed from supervisors’ absences and the lack of a quorum for votes. Meetings are generally always held on Tuesdays.

“While most adjustments are resolved during the year, certain year-end adjustments, often resulting from unanticipated costs in the final fiscal month, require board approval to ensure that all budgetary units remain balanced,” the Executive Office said. “(We) request board approval to increase appropriations where necessary to address these final adjustments.”

The board formally approved the 2025-26 budget, totaling $9.98 billion, on June 24.

Generally every September, the EO identifies a series of budgetary holes that require draws on the General Fund or reserve accounts to fill.

The agencies currently requiring delayed appropriations include the Office of the Public Defender, the Emergency Management Department, the Department of Code Enforcement, the Fire Department and multiple others. Three-quarters of the $78 million in required infusions will be from the General Fund, while the remainder will be from contingency accounts, as well as the individual agencies’ own appropriations for the current fiscal year, according to officials.

The board approved a tentative hiring freeze in 2025-26 for most agencies to limit outgo in the face of an anticipated deficit.

“The freeze … will require (some departments) to shrink by attrition,” county CEO Jeff Van Wagenen said. “Revenue is not decreasing across the system, but we are seeing it flatten and go down in certain areas.”

The last payroll pause to rein in spending occurred in 2016-17, and he said that saved $40 million to $50 million.

The current deficit stems from “inflationary pressures, growing labor costs, unpredictable state and federal funding and necessary investments in aging infrastructure (that) strain our financial capacity,” according to the 500-plus-page budget book.

The Executive Office predicts a year-end reserve pool of $655 million. It had been projected at $728 million, but the total will have to be pared down to fix the gap.

Payrolls continue to consume half of outlays. The county employs 25,632 people on a regular or rotating temporary basis.

More than two-thirds of the county budget is composed of programmed spending, including federal and state earmarks for specific uses, along with grants and related external source revenue. The board has little control over those dollars.

Direct property taxes remains the county’s largest source of discretionary income. It rose to $574 million in 2024-25, compared to $542.6 million in 2023-24, according to figures. The projection is for a $54 million, or 10%, jump in 2025-26.

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