As the current fiscal year enters its final month, unanticipated revenue shortfalls in Riverside County government require roughly $60 million in reserve funds to be allocated to maintain a balanced budget, according to a report that the Board of Supervisors was scheduled to review Tuesday.
“The county continues to face a variety of structural and operational fiscal pressures,” county CEO Jeff Van Wagenen wrote in a memo to board about his office’s third-quarter budget report due for consideration Tuesday. “Rising labor costs, uncertainty surrounding state and federal funding, increasing demand for core services and ongoing infrastructure investment needs are placing additional strain on available resources.”
The 94-page third-quarter report indicated a variety of expenses must be met before the end of the fiscal year, or a number of county departments would operate with spending deficits. The Executive Office recommended the Board of Supervisors approve drawing down the reserve pool by about $60 million to cover the spending excesses.
Those include higher costs connected with overspent defense contracts, expenses from last November’s special election, which left the Office of the Registrar of Voters in a deficit, higher-than-anticipated payroll obligations for the District Attorney’s Office and Department of Animal Services and underfunded projects overseen by the Department of Facilities Management.
“As fiscal pressures continue to emerge, maintaining fiscal discipline will be critical to sustaining core services and aligning available resources with county priorities,” Van Wagenen wrote. “Moving forward, the county will need to continue emphasizing balanced decision-making, operational efficiency, and long-term financial sustainability.”
The Executive Office requested the board “clean up” the imbalances before the start of hearings on the proposed 2026-27 budget, which were scheduled to begin Monday.
The third-quarter report indicated revenue streams had broadened in a few areas, mainly property taxes, which have increased $19.8 million above the amount projected at the outset of the fiscal year. That will translate to a 3% rise in discretionary income — $1.36 billion versus $1.31 billion — by the end of the current fiscal year, according to the report.
“Composite reserves” should reach $650 million at the end of the current fiscal year, officials reported. Expected to peak at nearly $700 million, but in order to cover ongoing budget shortfalls, that number no longer seemed likely. The reserve pool total had been projected in June 2025 to reach a maximum of $655 million in the current fiscal year, so the latest estimate is for the most part accurate.
County supervisors approved the $9.98 billion budget on June 24, 2025 and approved a tentative hiring freeze for most agencies to try to halt deficit spending.
Payrolls continue to require half of county spending — over 26,000 people work in more than 40 agencies on a regular or rotating temporary basis.
The Executive Office also noted sagging revenue for public safety programs.
“Although discretionary revenue continues to show steady growth, certain revenue categories are performing below meeting expectations,” Van Wagenen reported. “Prop 172 Public Safety Sales Tax revenue is now projected to fall short of the adopted budget by $4.4 million. While the shortfall reflects broader economic uncertainty and may impact public safety funding levels if current trends continue, moderate revenue growth is anticipated in FY 2026/27.”
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.
“The General Fund’s discretionary financial position is projected with revenue of $1.366 billion and a net county cost of $1.393 billion, resulting in an operational deficit of $28 million,” according to the CEO’s memo. “As of Third Quarter, General Fund discretionary revenue continues to demonstrate moderate but stable growth and is projected to increase by $46 million, or 3% above the adopted budget.”
Officials attributed the increase primarily to a $19.8 million increase in property tax money, a $22 million increase from interest earnings, a projected $4.6 million increase in sales tax and other “use taxes” and $2.3 million in motor vehicle license fees.
“The largest uncertainty in the forecast is the extent to which the labor market will create new job opportunities and in what sectors,” according to the third-quarter report. “Any labor market expansion will likely be limited to Healthcare, Government, and Leisure and Hospitality. A modest increase in jobs is forecast in 2026. However, Riverside County will eclipse job growth in the U.S. and California. Broad based participation within the labor market will again be absent, as it was in 2025.”
Health care is expected to contribute about 50% of all new jobs in the county this year, with local government providing the next most opportunities for jobs, according to the report.
The entire third-quarter report is available on the county’s website via tinyurl.com/25dhzdhr.
