May 15, 2016 - In the May Revision, the Governor proposes ending 2016-17 with $8.5 billion in total state General Fund reserves. This level of reserves is about $1.7 billion lower than the level proposed by the Governor in January, which largely reflects a downward revision in revenue estimates since then, as well as increased required spending on K-14 education. Nevertheless, estimated tax revenues continue to exceed proposed spending in 2016-17, which would facilitate total reserves ending 2016-17 at $4 billion above the level assumed in the state's 2015-16 budget plan. Since January, the state has made budgetary commitments that represent substantial new ongoing costs for the state. These include: (1) an increase in the statewide minimum wage, (2) augmentations for health and human service programs, and (3) increased costs associated with new collective bargaining agreements. These commitments, along with the lower estimates of revenues and reserves, mean there is now less capacity than there was in January for additional budgetary commitments. Given these developments, and at this point in a mature economic expansion, we think it would be prudent to pursue a target for total reserves that is at least as large as the $8.5 billion amount in the Governor’s revised budget.
February 19, 2016 - In this publication, we summarize the administration’s estimate for constitutionally required reserve deposits in this year’s budget process. We then analyze the administration’s strategy for building additional reserves. While we concur with the Governor’s overall approach of building a robust level of total reserves, we find that his proposal to deposit optional amounts into the state’s rainy day fund would limit legislative control.
May 13, 2017 - On May 11, 2017 the Governor presented his 2017-18 May Revision budget proposal to the Legislature. We are releasing our assessment of the May Revision in various online products. This post describes the major features of the Governor’s May Revision and our office’s initial comments on it. Other posts in this series discuss our office’s independent assessments of the state’s economy, revenues, and spending proposals in the May Revision.
February 23, 2017 - Proposition 2 (2014) requires the state to make: (1) minimum annual payments toward certain eligible debts and (2) deposits into the state’s rainy day fund. This publication outlines alternatives to the Governor’s proposals that could free up General Fund resources. It also addresses whether the Legislature can access funds from state’s rainy day reserve under the measure’s budget emergency provisions.
May 17, 2019 - This report presents our office’s independent assessment of the condition of the state General Fund budget through 2022-23 assuming the economy continues to grow and all of the Governor’s May Revision spending proposals are adopted.
January 13, 2022 - On January 10, 2022, Governor Newsom presented his proposed state budget to the Legislature. In this report, we provide a brief summary of the proposed budget based on our initial review. In the coming weeks, we will analyze the plan in more detail and release several additional budget analyses.
Update (1/21/22): Includes a corrected estimate of Governor’s Budget proposals that are excludable under the State Appropriations Limit (SAL).
January 11, 2016 - This publication is our office’s initial response to the 2016-17 Governor’s Budget proposal. Estimates of state personal income taxes and required school funding are up significantly. In allocating discretionary resources in the 2016-17 budget, the Governor prioritizes growing state budget reserves. Specifically, he increases total reserves to more than $10 billion and also allocates a sizable portion of discretionary resources to one-time infrastructure spending. We encourage the Legislature, as it crafts this year’s budget in line with its own priorities, to begin with a robust target for reserves for the end of 2016-17 and to concentrate spending on one-time purposes. This would still leave some funds available for targeted ongoing commitments—particularly if the Legislature extends the managed care organization (MCO) tax. Such a measured approach would better position the state for any near-term economic downturn.
January 14, 2019 - This report presents our office’s initial assessment of the Governor’s Budget. The budget’s position continues to be positive. With $20.6 billion in discretionary resources available, the Governor’s budget proposal reflects a budget situation that is even better than the one our office estimated in the November Fiscal Outlook. The Governor’s Budget allocates nearly half of these discretionary resources to repaying state liabilities. Then, the Governor allocates $5.1 billion to one-time programmatic spending, $3 billion to reserves, and $2.7 billion to ongoing spending. Although the Governor’s allocation to discretionary reserves represents a smaller share of resources than recent budgets, the Governor’s decision to use a significant share of resources to pay down state debts is prudent. The Governor’s ongoing spending proposal is roughly in line with our November estimate of the ongoing capacity of the budget under an economic growth scenario. This was just one scenario, however. Recent financial market volatility indicates revenues could be somewhat lower than either we or the administration estimated.
January 13, 2017 - This publication is our office’s initial response to the Governor's 2017-18 budget proposal. The administration's estimates anticipate slow growth in the personal income tax (PIT), the state’s dominant revenue source. The Governor’s estimate of PIT growth in 2017-18 is probably too low. As a result, by the May Revision, the state could have more General Fund revenue than the Governor now projects, but much of that revenue would be required to go to schools and Proposition 2 reserves and debt payments. Facing uncertainties we have long discussed about the economy and new uncertainties about changes to federal policy, the Legislature may want to set a target for total state reserves at—or preferably above—the level the Governor now proposes.
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.
March 30, 2016 - Senate Budget Subcommittee No. 4 on State Administration and General Government
November 16, 2016 - On November 16th our office released its annual Fiscal Outlook. The outlook provides our assessment of California’s budget condition through 2020-21. This post provides more details on the outlook’s estimates of constitutionally required debt payments and reserve deposits under Proposition 2.