March 7, 2018 - Reserves are of critical importance to the health of the state's budget. These funds help cushion the impact of a budget problem that emerges during a recession. In this report, our office provides an overview of revenue losses that have occurred in past recessions to consider the magnitude of a budget problem that could emerge in the future. Then, we describe the Governor's reserve proposal for 2018-19 and compare this level to past reserves and other states. Next, to aid the Legislature as it evaluates the Governor’s proposal, we present a framework that the Legislature can use to plan for a recession and determine a target level of reserves. Finally, we conclude with our office’s comments on the Governor’s proposed level of reserves in light of this framework and present some alternatives for legislative consideration.
April 5, 2020 - As the public health crisis related to COVID-19 has unfolded, the possibility of the state facing a budget problem seems increasingly likely. One key tool to address a budget problem is budget reserves. This post assesses the current reserve situation of the state and school districts—whose funding largely depends on the state.
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.
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.
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.
November 16, 2022 - Our annual Fiscal Outlook publication gives our office’s independent assessment of the California state budget condition for the upcoming fiscal year and over the longer term. In this report, we anticipate the state will have a $24 billion budget problem to solve in the upcoming fiscal year and operating deficits declining from $17 billion to $8 billion over the multiyear period. The goal of this report is to help the Legislature begin crafting the 2023‑24 budget. Our analysis relies on specific assumptions about the future of the state economy, its revenues, and its expenditures. Consequently, our estimates are not definitive, but rather reflect our best guidance to the Legislature based on our professional assessments as of November 2022.
Update (11/22/22): The original version of this report identified a $25 billion—instead of a $24 billion—budget problem, which reflected an error in the way we accounted for student housing grant program funding.
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.
December 7, 2023 - Each year, our office publishes the Fiscal Outlook in anticipation of the upcoming budget season. The goal of this report is to give the Legislature our independent estimates and analysis of the state’s budget condition as lawmakers begin planning the 2024-25 budget.
January 13, 2023 - On January 10, 2023, 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.
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.
April 26, 2021 - This post provides an overview of the Governor’s proposals related to Proposition 2 (2014). We provide background on how the measure works, and then summarize and comment on the Governor’s Proposition 2 reserve and debt payment proposals.
May 15, 2023 - On May 12, 2023, Governor Newsom presented a revised state budget proposal to the Legislature. (This annual proposed revised budget is called the “May Revision.”) In this brief, we provide a summary of and comments on the Governor’s revised budget, focusing on the overall condition and structure of the state General Fund—the budget’s main operating account.
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.
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.
November 14, 2018 - This post discusses the various types of deposits the Legislature has made into the Budget Stabilization Account (BSA) that now compose its balance. We also present our projections of the estimated balance in the BSA under our recently published report, The 2019-20 Budget: California’s Fiscal Outlook.
In addition to this report, you can find the main California's Fiscal Outlook report along with a collection of other fiscal outlook material on our fiscal outlook budget page.
January 13, 2014 - On January 9, the Governor presented a budget package with a proposed $2.3 billion reserve at the end of 2014-15. The Governor's budget seeks to address some of California's biggest budget issues. The Governor's emphasis on debt repayment is prudent, and his proposal for a new rainy-day fund requirement underscores the importance of regular state contributions to a larger budget reserve. Overall, the Governor's budget plan would place the state on an even stronger fiscal footing.