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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

https://www.cccco.edu/-/media/CCCCO-Website/docs/report/2024_Joint-Analysis-Governors-Budget.pdf?la=en&hash=869B806DA3DBEE3BD6662BD8CF8D1D2518A25525

  • 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

https://edsource.org/2024/newsoms-8-billion-fix-to-spare-cuts-to-schools-community-colleges-may-face-tough-sell/704432

  • 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%)