Economists with Cal State Fullerton say local and U.S. economies will see inflation rise as they absorb the ongoing supply shock from rising fuel costs caused by the Iran war, further cooling the already frigid homebuying market.

On Thursday, April 30, economists Anil Puri and Mira Farka revised their predictions for the year, writing in a semi-annual report that they expect inflation to climb into “the high-3s,” up from the previously anticipated 3.5% in the year’s first three months.

Puri told the Southern California News Group that he expects housing sales to slow in Orange County, especially if mortgage rates stay above 6%.

Also see: California homebuying falls below Great Recession lows

“Housing prices went up so much in the last few years, but they seem to have taken a little breather now,” Puri said. “Housing prices are under stress. We see only moderate improvement in housing in 2026.”

The theme throughout the 71-page report was a slowing economy that is dealing with higher fuel costs as a result of tighter crude oil supplies flowing through the Strait of Hormuz. About 20% of the world’s oil supplies pass through the shipping route.

The economists also wrote that growth in the U.S. is expected to slow to the “low-2s in the middle of the year” with the outlook for the fourth quarter and beyond appearing “brighter.” That prediction is already hitting the mark. The federal government’s Bureau of Economic Analysis said April 30 that GDP expanded at 2% rate in the first quarter.

“The U.S. economy is very well insulated and is coming out of the war with fewer bruises,” Farka told SCNG. “I know this is cold comfort with a lot of people hurting who are paying $7 or $8 gas prices, but there are a lot of cushions to lessen the impacts. U.S. consumers are still hanging strong.”

One such cushion are tax cuts from last year’s One Big Beautiful Bill Act, designed to boost consumer spending — money that now seems to be paying for those higher fuel costs, Farka said.

The annual inflation rate for 2025 was 2.7% versus 2.9% the year before. Inflation has edged higher from 2.4% in the first two months of 2026 to 3.3% in March — a month after the Feb. 28 war was launched by the U.S. and Israel against Iran. Growth in the economy was tepid last year, coming in at 2.1%, with a forecast by the economists made last fall of 2.4% for 2026.

The 2-month-old Iran war pushed the average price of gas in California to $6.060 a gallon on Friday, up 30% from $4.674 a gallon on the day after the war began, according to AAA Fuel Prices. In Orange County, the average price for regular gas reached $6.12 per gallon. Nationally, gas prices shot up 41% to $4.392 a gallon from $3.11 over the same period.

Local highlights

Business sentiment: The Woods Center index of Orange County business sentiment — based on a quarterly survey of Orange County executives — shows “modest improvement” in business sentiment in both national and regional economies heading into the 2026 second quarter. The Iran war was ongoing in the second half of March when the survey was administered.

According to the survey, 29.2% of executives expect industry activity to improve — more than double the 13% reported in the previous quarter.  At the same time, the share anticipating a downturn declined to 24.6%, down from 31%.

Inflation: Overall, more than two thirds of respondents expect inflation to remain below 3% by year-end. Specifically, 26.1% of respondents expect inflation to come in below 2.5%, while 40% anticipate a range of 2.5% to 3%. Another 20% place inflation between 3% and 3.5%. Only 7.7% expect a range of 3.5% to 4%, and just 6.2% foresee inflation exceeding 4%.

Iran war impact: Survey respondents were asked to assess the impact of the ongoing conflict with Iran on their businesses.  A majority — 55.4% — reported no direct effects. But the early signs of pressure are evident. Roughly one-quarter of respondents cited shifts in demand for their products, while a similar share pointed to rising transportation costs driven by higher fuel prices.

Additionally, 9.2% reported supply chain disruptions, and an equal share noted that elevated energy costs are beginning to weigh on operations.

The sunny skies and warmer weather in California are increasing the chance of seeing snakes, and this year, there’s been a big spike in the number of fatal rattlesnake bites in the state.

Rattlesnake deaths are so rare that in most years, there aren’t any in California. But so far this year, two people in southern California have been killed by rattlesnake bites, and a third victim was fatally bitten in Mendocino County.

Now, some snake experts are warning people about getting too close to these creatures.

Michael Starkey, executive director of the nonprofit group Save the Snakes, said the warmer weather is bringing rattlers, gopher snakes, and other native species out of their winter slumber, where they are coming in contact with people.

“Around the Sacramento area, we can find them along the American River Parkway, El Dorado Hills, anywhere where there’s big patches of open land,” Starkey said. “A snake like a gopher snake, you could find them in some parks in the city of Sacramento.”

Peter Henry has had some close encounters with rattlesnakes while walking along the bike trail in Rancho Cordova. He said they came out a lot earlier than in past years.

“Mid-February is the first time I saw one out on the trail this year,” Henry said.

Other people, like Gary Johnston, who frequent the American River Parkway say snakes are a common sight.

“I’ve actually had one lunge at me,” Johnston said. “It was in some flora, a bush that I couldn’t see. It was coiled up.”

What should you do if you come across a snake?

“Stopping and giving the snake space is the best thing you can do to make sure everyone is safe, you and the snake,” Starkey said.

Starkey said encounters are growing in places where new homes are being built on top of snake habitat areas. He said they’re an important part of the ecosystem, and he asks people to call a professional snake wrangler instead of killing them if they are found on people’s property.

“It’s just another reminder that we need to practice coexistence with wildlife, give snakes space and be aware when we enjoy nature,” Starkey said. “That’s their home too.”

If you have questions about snakes or want to see some in person, the 5th annual Sacramento Snake Festival is taking place this Saturday, beginning at 10 a.m. at Hagan Community Park in Rancho Cordova.

Introduction

California has several state budget reserves. These reserves help to maintain essential public services — like education, health care, and child care — when revenues fall short, such as during recessions. Reserves aren’t for everyday spending, but rather a financial safety net for the state.

This report describes California’s state budget reserves, explains how funds can be accessed and used, and discusses proposals to reshape these reserves that have been floated in recent years. For more information about California’s reserve accounts, see the Budget Center’s companion resources, including this video — California’s State Budget Reserves Explained — and this fact sheet — 5 Key Questions About California’s State Budget Reserves.

Budget Stabilization Account (BSA): California’s Largest Reserve

The BSA is California’s largest state budget reserve. Deposits into and withdrawals from this “rainy day fund” are based on complex rules that were added to the state Constitution by Proposition 2 of 2014. Key rules include the following:

An annual deposit is required. Prop. 2 requires that 1.5% of General Fund revenues be set aside every year. Until 2029-30 half of these revenues must be deposited into the BSA and the other half must be used to pay down certain state debts. Beginning in 2030-31, the entire amount must be deposited into the BSA, although state leaders will have the option of redirecting up to one-half of each year’s deposit to pay down debts.

In some years, the state must set aside additional General Fund revenues. This occurs in years when estimated General Fund revenues that come from personal income taxes on capital gains exceed 8% of total General Fund proceeds of taxes. The share of these “excess” capital gains revenues that is not owed to K-12 schools and community colleges under the state’s Prop. 98 funding guarantee must be used for BSA deposits and debt repayments, following the same requirements as the mandatory 1.5% deposit.  Since Prop. 2 was enacted, capital gains tax revenues have exceeded the 8% threshold in most years, but could fall below the threshold in years when there are downturns in the stock market.

State leaders may also make discretionary deposits. In addition to the mandatory annual deposits required by Prop. 2, policymakers have the option of saving additional, discretionary revenue in the BSA.

The required annual deposit may be reduced or suspended in the event of a “budget emergency. If the governor declares a budget emergency, the state may reduce or suspend the required BSA deposit with a majority vote of each house of the Legislature. Prop. 2 defines a budget emergency as a situation where:

• Conditions of disaster or extreme peril are present; or
• The state has insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living.

BSA funds may be withdrawn in the event of a budget emergency, but the entire balance cannot be removed at once. If the governor declares a budget emergency and the Legislature agrees with a majority vote of each house, funds may be taken out of the BSA. However, the entire balance cannot be removed immediately. Only the amount needed to address the budget emergency may be withdrawn, subject to the additional limitation that a withdrawal may not exceed 50% of the BSA balance in the first year of a budget emergency. In the second consecutive year of a budget emergency, all of the funds remaining in the BSA may be withdrawn.

Funds that are taken out of the BSA may go toward any purpose determined by the Legislature. For example, these dollars could be used for health care services, subsidized child care for working families, cash assistance for people with low incomes, K-12 schools, and any number of other public services and systems.

Funds in the BSA cannot exceed 10% of General Fund tax revenues. Prop. 2 caps the balance of the BSA. Once the balance — excluding any discretionary deposits — reaches 10% of General Fund tax revenues, any revenue that would otherwise have been required to go into the reserve must be instead spent on infrastructure, which includes housing. Prior to 2026, the BSA balance reached the cap twice — in 2022-23 and 2023-24 — but then dropped below the cap as state leaders withdrew funds in some years to address budget shortfalls.

Prop. 2 of 2014 also established the PSSSA, the state’s budget reserve for California’s K-12 schools and community colleges. Prop. 2 does not require an annual deposit into this reserve. Moreover, Prop. 2 restricts the circumstances under which transfers to the PSSSA can occur. For a PSSSA deposit to be required, all of the following conditions must be met:

• General Fund revenues that come from personal income taxes on capital gains are relatively strong;
• Growth in General Fund revenues leads to relatively strong growth in the state’s annual minimum funding guarantee for K-12 schools and community colleges; and
• The Legislature does not suspend the annual K-14 education minimum funding guarantee.

Even under these restricted circumstances, Prop. 2 limits the size of the deposit to the schools reserve when such a deposit is required.

Deposits to the PSSSA may be reduced or suspended in the event of a budget emergency under the same rules that govern reductions or suspensions of deposits to the BSA (see the prior section of this report). Similarly, funds may be withdrawn from the schools reserve if the governor declares a budget emergency and the Legislature agrees with a majority vote of each house.

In contrast to the rules governing the withdrawal of funds from the BSA, all of the PSSSA funds may be withdrawn in one year. Moreover, funds withdrawn from the PSSSA must be used to support K-12 schools and community colleges.

Safety Net Reserve: Funds to Protect the Medi-Cal and CalWORKs Programs

The Safety Net Reserve was created in 2018 to set aside funds to help cover the costs of two programs that often see increases in enrollment during recessions: Medi-Cal and California Work Opportunity and Responsibility to Kids (CalWORKs). Both of these programs serve Californians with low incomes — with Medi-Cal delivering health coverage, and CalWORKs providing modest cash assistance to families with children. During economic downturns, more people become unemployed and temporarily rely on these programs to cover their basic needs, increasing state costs.

The Safety Net Reserve is not a constitutional reserve, so there are no binding requirements governing deposits or withdrawals. This means that funds can be transferred into and withdrawn from the reserve at the discretion of the Legislature. In fact, state policymakers voluntarily deposited $900 million in the Safety Net Reserve before draining all of those funds in 2024 to help address a $55 billion state budget problem.

Moreover, while state law specifies that the funds are to be used only for Medi-Cal and CalWORKs costs during economic downturns, state policymakers could decide to modify this language and use the funds for other purposes. However, in establishing this reserve, policymakers clearly recognized the need to protect critical services for Californians with low incomes from budget cuts — cuts that would undermine Medi-Cal and CalWORKs at the very time that these programs are needed most.

Special Fund for Economic Uncertainties (SFEU): The Discretionary Reserve

The SFEU is the state’s discretionary General Fund budget reserve, meaning policymakers have a great deal of latitude in spending the funds in the reserve. The amount of money in the SFEU is equal to the difference between General Fund resources and General Fund spending in a given fiscal year.

The SFEU acts as a buffer against unanticipated revenue shortfalls or spending increases. Due to California’s constitutional balanced-budget requirement, which requires the state to enact a budget in which spending does not exceed available resources, the projected SFEU balance cannot be less than zero at the time the annual budget is adopted. However, if state revenues come in lower than projected and/or spending unexpectedly rises, the SFEU balance will decline, and may become negative as spending begins to exceed revenues.

The Legislature can appropriate funds from the SFEU at any time and for any purpose. Additionally, in the event of a disaster, the governor can allocate funds from the SFEU without the prior approval of the Legislature. Specifically, when the governor declares a state of emergency, the Department of Finance (DOF) can transfer funds from the SFEU into a subaccount called the Disaster Response-Emergency Operations Account (DREOA). These funds are allocated to state agencies for costs that are “immediate and necessary to deal with an ongoing or emerging crisis.”

Projected Surplus Temporary Holding Account: A Place to Set Aside Anticipated Surplus Revenues

State leaders created the Projected Surplus Temporary Holding Account in 2024. This account gives policymakers a place to temporarily set aside anticipated surplus revenues, “ensuring that funds are only spent once they are realized.”

State leaders have broad authority to determine whether or how to use this holding account. The only requirement is that revenues that go into the account cannot remain there for longer than one year. If state revenues materialize as projected, the revenues in the account may be spent for any purpose or transferred back to the General Fund for future use.

This holding account is a “pilot budgeting project” that expires at the end of 2030, although state leaders could approve an extension as well as potentially modify the rules.

What’s Next for California’s State Budget Reserves?

The rules that govern California’s budget reserves can be amended by voters or state policymakers. Changing the reserve rules established by Prop. 2 (2014) would require voters to approve a constitutional amendment. Other reserve rules can be changed by state policymakers without the need for voter approval.

In recent years, state policymakers and others have advanced proposals to revise California’s reserve policies, although none have moved beyond the conceptual stage. Common proposals for changing state reserve policies include the following: