Overview

On June 16, 2015, the Governor, the Senate President pro Tempore, and the Speaker of the Assembly announced a budget agreement. The Legislature passed the budget bill and related legislation on Friday, June 19. The budget agreement relies on the administration’s May 2015 estimates of (1) General Fund revenues, (2) the Proposition 98 minimum guarantee for schools and community colleges, and (3) budget reserve and debt payment requirements under Proposition 2. School and community college funding is the centerpiece of the agreement, as administration estimates of the Proposition 98 minimum guarantee have increased substantially over June 2014 levels. With savings resulting from (1) rejection of various administration proposals, (2) an error in the administration’s Medi-Cal estimates, (3) legislative changes made to the Middle-Class Scholarship Program, and (4) other legislative actions, the agreement makes modest augmentations outside of Proposition 98 above May Revision levels. Below, we summarize the General Fund condition under the budget agreement.

General Fund Condition

2015‑16 to End With $4.6 Billion in Estimated Total Reserves. The budget agreement assumes $115 billion in revenues, a 3.3 percent increase over 2014‑15. (This total is net of the $1.9 billion deposit in the Proposition 2 Budget Stabilization Account [BSA].) The state’s “big three” General Fund taxes—the personal income tax, sales and use tax, and corporation tax—are estimated to increase at a slightly higher rate (4 percent). General Fund revenue growth was much higher in 2014‑15, increasing at a very healthy 7.7 percent rate. General Fund spending is largely flat across 2014‑15 and 2015‑16, increasing at only 0.8 percent. Growth in ongoing programmatic spending, however, is masked by various one-time actions, including one-time spending in 2014‑15 on debt payments and mandate backlog claims, and the end of the “triple flip” mechanism used to finance the state’s prior deficit financing bonds. The budget ends 2015‑16 with $4.6 billion in estimated total reserves, including $1.1 billion in the Special Fund for Economic Uncertainties—the state’s traditional budget reserve—and $3.5 billion in the BSA.