Budget News
What We Are Reading…
2024-25 Budget Window: FY 2022/2023 – FY 2024/2025
10/30/2023
California Slashes State Tax Revenue Outlook Ahead of Bond Sales
Bloomberg: Maxwell Adler & Eliyahu Kamisher
https://www.bloomberg.com/news/articles/2023-10-30/california-slashes-state-tax-revenue-outlook-ahead-of-bond-sales
- As of Oct. 25, a total of only about $18B collected out of the $42B in collections expected for the entire month
- “The new assessment of tax revenues reveals that cash receipts for FY 2022-23 will likely be significantly below the $198B the state forecasted in May 2023 for its top three tax revenue sources – personal income taxes, corporate and sales taxes.”
Casts doubt on recovery of $24B by the new November 16th state income tax deadline
12/01/2023
Updated “Big Three” Revenue Outlook
LAO: Brian Uhler, Chas Alamo, Seth Kerstein
https://lao.ca.gov/LAOEconTax/article/Detail/777
- State’s economy entered downturn in 2022
- Home sales down by ½
- Number of CA companies that went public down more than 80% from 2021
- Unemployment increased from 3.8% to 4.8%
- Income tax from paychecks down 2% over last 12 months
- Sales tax flat even with inflation on prices of goods being taxed
- 22/23 revenue $26B below estimates
- Total income tax collections down 25% in 22/23: “[t]his decline is similar to those seen during the Great Recession & dot-com bust”
Updated revenue outlook anticipates collections to come in $58B below Budget Act projections across 22/23-24/25
12/07/2023
The 2024-25 Budget: California’s Fiscal Outlook
LAO: Gabriel Petek
https://lao.ca.gov/Publications/Report/4819
- State’s economy entered downturn in 2022
- Home sales down by ½
- Number of CA companies that went public down more than 80% from 2021
- Unemployment increased from 3.8% to 4.8%
- Income tax from paychecks down 2% over last 12 months
- Sales tax flat even with inflation on prices of goods being taxed
- 22/23 revenue $26B below estimates
- Total income tax collections down 25% in 22/23: “[t]his decline is similar to those seen during the Great Recession & dot-com bust”
- Decline in General Fund revenue reduces minimum required spending under Proposition
98 by $21B from 22/23-24/25
- 22/23: $9.6B
- 23/24: $7.0B
- 24/25: $4.4B
- “The magnitude of the downward revision in 22/23 is unprecedented for a fiscal year that is already over.”
- Proposition 98 reserve current balance: $8.1B
- Legislature will need to solve $68B budget problem
- Reserve current balance: $24B
- 24/25 COLA estimated to be 1.27%
12/12/2023
Budget Letter 23-27
DOF
https://dof.ca.gov/wp-content/uploads/sites/352/2023/12/BL-23-27-Current-Year-Expenditure-Freeze.pdf
- “The State of California anticipates significant General Fund budget deficits in fiscal years 2023-24 and 2024-25.”
- “Directs all entities under the Governor’s direct executive authority to take immediate action to reduce current-year General Fund expenditures.”
12/15/2023
Finance Bulletin: December 2023 Release
DOF
https://storymaps.arcgis.com/stories/a45b84c232184afea0c34b47365a6c70
- Combined October & November State General Fund cash revenue fell 39.9% short of 2023 Budget Act forecasts.
- Dismal personal income tax and corporate tax receipts in October & November significantly contributed to an overall 24.6% year-to-date shortfall in general fund revenues with only $74.748B materializing out of the $99.072B expected.
01/10/2024
Governor’s Budget Summary: 2024-25
Gavin Newsom, Governor – State of California
https://ebudget.ca.gov/2024-25/pdf/BudgetSummary/FullBudgetSummary.pdf
- Proposes total State budget of $291.49B with general fund expenditures of $208.718B
- Estimates $37.9B budget shortfall as a consequence of stock market declines that decreased revenues in 2022 and unprecedented delay in income tax collections
- Personal income and corporate tax receipts through November were $25.7B (22%) lower than projected in 2023 Budget Act
- Proposes closing $37.9B budget shortfall with a combination of approaches:
- Reserve Fund Withdrawals: $13.1B
- Reductions: $8.5B
- Revenue/Internal Borrowing: $5.7B
- Delays: $5.1B
- Fund Shifts: $3.4B
- Deferrals: $2.1B
- Proposes CCC Budget Adjustments
- 76% COLA on SCFF, select categorical programs, and Adult Education Program
- 5% enrollment growth
- One-time reserve fund withdrawals of approximately $235.9M in 2023-24 and $486.2M in 2024-25 to support SCFF
- $60M in one-time funds to support expansion in nursing
01/10/2024
Joint Analysis: Governor’s January Budget
California Community Colleges, ACBO, ACCCA, & Community College League of California
- Relative to 2023-24 Enacted Budget, Governor’s Proposed 2024-25 Budget decreases Total CCC Budget to $13.2B from $13.5B with State general fund support also declining to $8.2B from $8.7B
- Governor’s Budget proposal for California Community Colleges appropriations and categorical programs rely on withdrawal of one-time Proposition 98 Rainy Day funds
- Only select categorical programs receive 0.76% COLA in Governor’s proposal: EOPS; DSPS; Apprenticeship; CalWORKS; Mandates Block Grant; CARE; & Childcare tax bailout
01/13/2024
The 2024-25 Budget: Overview of the Governor’s Budget
LAO: Gabriel Petek
https://lao.ca.gov/reports/2024/4825/2024-25-Overview-Governors-Budget-011324.pdf
- In December, LAO estimated $68B budget problem. Governor’s Administration estimates
the state faces a budget problem of $38B in their budget proposal.
- LAO estimates Administration solved a larger budget problem of $58B yielding a net difference of about $10B between LAO and Administration budget deficit estimates.
- “The key difference here is related to our offices’ respective revenue forecasts – the Governor’s are about $15 billion higher.”
- LAO believes current evidence suggests the Administration will likely have to revise their revenue estimates downward and propose additional budget solutions in their May revise.
- “Compared with the estimates included in the June 2023 budget plan, the administration
estimates the constitutional minimum funding level for schools and community colleges
is down $14.3 billion over the 2022-23 through 2024-25 period.”
- “This downward revision consists of a $15.2 billion reduction in required General Fund spending, partially offset by a $903 million increase in local property tax revenue.”
- “Most of the reduction -- $9.1 billion – is attributable to 2022-23, with the remainder divided about evenly between 2023-24 and 2024-25.”
- “The budget proposes to reduce General Fund spending on school and community college
programs in 2022-23 by $8 billion.”
- The Governor’s Proposed Budget does not indicate how this $8 billion reduction will be accomplished.
01/18/2024
UC Berkeley IGS Poll
Mark DiCamillo
https://escholarship.org/uc/item/46g7q3hk
- 50% of the state’s registered voters describe CA budget deficit as extremely serious, while another 37% consider it somewhat serious.
- 51% support spending cuts to government services.
- 35% support tapping into state’s rainy-day fund.
- Borrowing from special funds and raising taxes are supported by only 17% and 13%, respectively.
01/22/2024
Recent Revenue Coming in Below Governor’s Budget Projections
LAO: Chas Alamo & Brian Uhler
https://lao.ca.gov/LAOEconTax/Article/Detail/795
- 2024-25 Governor’s Budget projects personal income tax revenue will grow 12% this year
- Income tax withholding is running only 2% higher
- January 15th estimated tax payments are approximately $3B short of Governor’s Budget Projections
- January daily income tax withholding is running about $800M below Governor’s Budget monthly projections
01/23/2024
Newsom’s $8 Billion Fix to Spare Cuts to Schools, Community Colleges May Face Tough Sell
EdSource: John Fensterwald
- Governor’s Budget proposes diverting $5.7B from Proposition 98 rainy day fund to address 2023-24 deficit as well as sustain a flat budget with a small COLA for 2024-25.
- Revenue shortfalls for 2022-23, discovered after the much-delayed tax deadline to November elapsed, have significantly reduced Proposition 98 funding for that fiscal year even though schools have already spent funding from that year.
- Newsom’s strategy for addressing the 2022-23 shortfall is a mystery with his budget summary referencing it in only one-sentence promising to address $8B of the shortfall through statutory changes.
- LAO & School Services report “it’s their understanding from Department of Finance that the payments from the general fund to cover the [2022-23] Proposition 98 overpayment would be made over five years, starting in 2025-26”.
- LAO’s principal fiscal and policy analyst for TK-12 education, Ken Kapphahn, is quoted as expressing concerns about the State’s use of future revenue to fund a current shortfall.
- Both Newsom’s administration & LAO are projecting general fund deficits averaging about $30B/year in the three years after 2024-25 even in absence of a recession. “Pushing the $8 billion solution for the 2022-23 Proposition 98 deficit, along with other general fund delays and deferrals into those years will compound difficult choices according to the LAO.”
- LAO recommends resolving 2022-23 deficit by withdrawing additional funds from Proposition 98 reserve fund and reducing unallocated one-time funding, such as those funds for community schools and electric school buses
01/23/2024
The 2024-25 Budget: Overview of the Governor’s Budget
LAO
https://lao.ca.gov/handouts/state_admin/2024/Assembly-Budget-Overview-012324.pdf
- LAO presentation to Assembly Committee on Budget
01/30/2024
The 2024-25 Budget: Higher Education Overview
LAO: Gabriel Petek
https://lao.ca.gov/reports/2024/4829/Higher-Ed-Budget-Overview-013024.pdf
- LAO is critical of Governor’s proposal to “increase CCC costs even though available Proposition 98 funding is not sufficient to cover even existing CCC costs.”
- LAO pans growing CCC apportionment shortfalls as a poor practice noting “[u]nder the Governor’s budget, this shortfall grows, reaching $486 million in 2024-25” and “5.1 percent of ongoing apportionment costs would be covered with one-time funds”.
- Governor’s plan “makes managing CCC budget in 2025-26 even more difficult, with higher spending, lower reserves, and more disruptive choices remaining.”
- “If the Governor had aligned the COLA for Proposition 98 programs with available Proposition 98 funding last year, the Proposition 98 budget in 2024-25 would be in balance without requiring reserve withdraws.”
- LAO recommends pulling back one-time funding from prior budgets and holding CCC funding flat for 2024-25.
01/31/2024
Income Tax Withholding Tracker
LAO: Chas Alamo
https://lao.ca.gov/LAOEconTax/Article/Detail/756
- January personal income tax withholding short of Governor’s Budget projections by $1B (11%)
02/09/2024
Updated “Big Three” Revenue Outlook
LAO: Brian Uhler; Chas Alamo; Seth Kerstein
https://lao.ca.gov/LAOEconTax/Article/Detail/777
- LAO state revenue about $24B below Governor’s Budget across fiscal years 2022-23 to 2024-25
- Revenue downgrade consistent with weak cash collections in December and January
- Corporate tax collections down by over 1/3 in December relative to year before; both income tax withholding and estimated payments have also been down recently
02/15/2024
The 2024-25 Budget: The Governor’s Proposition 98 Funding Maneuver
LAO: Gabriel Petek
https://lao.ca.gov/reports/2024/4840/Governors-Prop-98-Funding-Maneuver-021524.pdf
- General Fund payments to schools & colleges for 2022-23 exceed revised Proposition 98 minimum guarantee by approximately $8B
- Governor proposes no changes to the funds already distributed for 2022-23 on a cash basis; rather, he proposes to delay recognition of these payments over several fiscal years beginning in 2025-26
- The payments would be scored outside of the state’s Proposition 98 requirements; thus, adding to the State’s projected deficits in the impacted outyears
- This plan would create a binding obligation that magnifies an already problematic structural deficit (the state currently faces deficits of approximately $30B per year over the next few years) and would likely require more cuts to other programs in the future
- LAO strongly recommends the legislature reject the Governor’s proposal
02/16/2024
Finance Bulletin: December 2023 Release
DOF
https://dof.ca.gov/wp-content/uploads/sites/352/2024/02/Finance-Bulletin-February-2024.pdf
- CA unemployment rate rose to 5.1% in December 2023 & labor participation decreased to 62%
- Five sectors lost jobs: professional & business services; trade, transportation, & utilities; information; financial activities; and mining and logging.
- Preliminary General Fund cash receipts were 19.7% below 2024-25 Governor’s Budget forecast for January primarily driven by a $4B shortfall in personal income tax estimated payments and $1B shortfall in personal income tax withholding receipts
- Corporate and sales tax receipts are also trending below budget forecast estimates
02/20/2024
The 2024-25 Budget: Deficit Update
LAO
https://lao.ca.gov/Publications/Report/4850
- Recent revenue shortfalls increase LAO’s projection of Governor’s budget by an additional $15B
- LAO identifies $16B in recent one-time and temporary spending that could be reverted or reduced to help mitigate the additional budget deficit impact
02/21/2024
The 2024-25 Budget: California Community Colleges
LAO: Gabriel Petek
https://lao.ca.gov/reports/2024/4853/CCC-022124.pdf
- $9.1B drop in Proposition 98 Guarantee attributable to 2022-23
- Governor proposes reclassifying $8B of 2022-23 General Fund spending and moving recognition in equal increments spread across fiscal years 2025-26 through 2029-30
- Under the Governor’s budget proposal, the minimum guarantee is revised downward by $2.7B and baseline budget increases for 2023-24 are addressed through a $3B withdraw from the Proposition 98 Reserve
- LAO is critical of Governor’s 2024-25 budget plan for California Community Colleges noting “despite not having sufficient Proposition 98 funds to cover existing Proposition 98 program costs, the Governor’s budget contains some Proposition 98 program augmentations in 2024-25”
- Governor proposes making another withdrawal from the Proposition 98 Reserve to cover 2024-25 budget plans
- LAO criticizes Governor’s reliance solely on his 2022-23 budget maneuver and withdrawals from Proposition 98 reserves to address shortfalls
- LAO recommends: use of Proposition 98 reserve instead of funding maneuvers to address 2022-23 drop in minimum guarantee; identify more budget solutions to address current year drop in minimum guarantee, such as lowering California Community College spending and sweeping 2022-23 growth funds; hold core spending flat for 2024-25; and consider ways to achieve ongoing General Fund savings
- LAO recommends the legislature reject the Governor’s proposed one-time funding for nursing program expansion