State Budget Condition Publications

The 2020-21 May Revision: LAO Analyses

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May 17, 2020 - As our office publishes responses to the Governor's 2020-21 May Revision, we will add them to this index page.

The 2020-21 Budget: Initial Comments on the Governor’s May Revision

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May 17, 2020 - On May 14, 2020, Governor Newsom presented a revised state budget proposal to the Legislature. In this post, we provide an overview of the overall budget condition under the May Revision estimates and proposals; the major actions the Governor took to close an estimated $54 billion budget gap; and give our initial comments on this budget package.

The 2020-21 Budget: California's Spring Fiscal Outlook

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May 8, 2020 - This report provides an update on the budget’s condition in light of the public health emergency and economic downturn associated with the coronavirus disease 2019. Our outlook presents two potential scenarios—a somewhat optimistic “U-shaped” recession and a somewhat pessimistic “L-shaped” recession—and assumes a baseline level of expenditures. Under these two scenarios, the state would have to address an $18 billion or $31 billion budget problem. The state’s newly emergent fiscal challenges are likely to extend well beyond the end of the public health crisis. Under both of our economic scenarios, budget deficits persist until at least 2023-24 with multiyear deficits summing to $64 billion in the U-shaped recession and $126 billion in the L-shaped recession.

Video: Press Availability Video Call

Federal COVID-19-Related Funding to California

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April 28, 2020 - This post summarizes recent federal legislative and other actions to allocate funding to California and other states in response to the coronavirus disease 2019 (COVID-19). Figures in this post summarize—as comprehensively as was feasible—the amount of funding that we expect to flow to governments and other public entities in California from the federal government. We also describe the major COVID-19-related federal funding that we expect to flow directly to private Californian entities, such as individuals and businesses.

State Funding Actions Related to COVID-19

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April 20, 2020 - This post summarizes recent legislative and administrative action to allocate state funds to respond to the coronavirus disease 2019 (COVID-19) public health emergency. These activities are ongoing. We plan to update this post periodically to reflect new information and actions.

Preliminary Assessment of the Economic Impact of COVID-19

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April 16, 2020 - Presented to: Senate Budget and Fiscal Review Committee

COVID-19 and California’s Evolving Fiscal Outlook

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March 18, 2020 - In this installment of Fiscal Perspectives, Legislative Analyst Gabriel Petek offers some initial observations on the recent volatility in financial markets, palpably sharp reduction in economic activity, and the state’s fiscal position at the outset of the COVID-19 outbreak.

The 2020-21 Budget: Proposition 2 Debt Payment Proposals

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March 10, 2020 - Over the next decade, the state will be required to allocate an additional $12 billion to $21 billion to accelerate the pay down of state retirement liabilities under the provisions of Proposition 2 (2014). This represents a key and unique opportunity for the state. The Governor offers one strategy to prioritize these funds over the next few years. Notably, the Governor focuses on the state’s share of the unfunded liability for teachers’ pensions. While we agree this focus makes sense, the amounts the Governor proposes dedicating to this purpose are not connected to the specific actuarial needs of the teachers’ pension system. In this report, we present a method the Legislature could use to tie these payments to the system’s actual needs, which would better target the funding.

Taking Stock of California’s Recession Readiness

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February 12, 2020 - In this installment of Fiscal Perspectives, Legislative Analyst Gabriel Petek discusses why, even with high budget reserve balances, it is prudent for the Legislature to continue assessing and strengthening the state’s fiscal capacity. The post also discusses how maintaining an operating surplus in the state’s multiyear budget plan can supplement reserves as an instrument of fiscal resilience. Petek makes the case that there is a particularly strong argument for doing so in the context of a mature economic expansion.

The 2020-21 Budget: Structuring the Budget

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February 10, 2020 - California has made significant progress in recent years to make its budget more resilient. Yet the process of achieving resilience can never be considered finished. This report lays out a framework for evaluating the budget’s structure using two key tools: reserves and operating surpluses. Using this framework, we evaluate the Governor’s proposed 2020-21 budget structure. We find that building more reserves or preserving a larger operating surplus would be prudent.

Overview of the Governor's Budget

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January 23, 2020 - Presented to the Senate Budget and Fiscal Review Committee

Overview of the Governor's Budget

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January 22, 2020 - Presented to the Assembly Budget Committee

The 2020-21 Budget: Overview of the Governor's Budget

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January 13, 2020 - This report presents our office’s initial assessment of the Governor’s budget. We estimate the Governor had a $6 billion surplus to allocate to discretionary purposes in 2020-21. The Governor allocates most of the surplus toward one-time purposes, including maintaining a positive year-end balance in the state’s discretionary reserve. Under the administration’s estimates, total reserves would reach $20.5 billion at the end of 2020-21—this represents a $1.7 billion increase from the 2019-20 enacted level. California continues to enjoy a healthy fiscal situation. Despite its positive near-term picture, the budget’s multiyear outlook is subject to considerable uncertainty. In addition to describing the condition of the budget under the Governor’s proposal, this report discusses tools the Legislature can use to mitigate against these heightened risks.

January 20, 2020: Upon further review, one item included in the original version of Appendix Figure 3 on discretionary on health spending should not have been included (specfically, use of the Medi-Cal drug rebate fund to offset General Fund costs). Removing this item—which reduces General Fund spending—from the list of discretionary choices made in the Governor’s budget increases our calculation of the surplus to $6 billion. The document is updated to reflect these changes.

Update 1/24/20: Adjusted Judicial Branch items in Appendix Figure 1 to reflect ongoing spending.

The 2020-21 Budget

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January 1, 2020 - An index of publications on the 2020-21 budget.

Tempered Expectations

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December 9, 2019 - Under the baseline scenario in our recently released report The 2020-21 Budget: California's Fiscal Outlook, we estimate California's General Fund is on track for a $7 billion surplus in 2020-21, with around $3 billion available for new, ongoing commitments. Additionally, we estimate the state's rainy day fund will grow to $18.3 by the end of 2020-21. Despite these large estimated surpluses and reserves, our central recommendation to the Legislature is to limit its new, ongoing spending commitments to approximately $1 billion or less in the 2020-21 budget. In this new installment of Fiscal Perspectives, Legislative Analyst Gabriel Petek provides additional context for understanding the importance of limiting new, ongoing spending in the coming budget, with a short discussion of the state's fiscal structure, the state's economic backdrop, and other potential risks and uncertainties.