Gov. Newsom lied to us about the surplus. He claimed it was $75 billion. The Legislative Analyst’s Office says it is $38 billion—and used reserve funds to get to that number. Wonder if the media is going to report the truth?
“We Estimate the State Has a $38 Billion Surplus to Allocate. We estimate the state has $38 billion in discretionary state funds to allocate in the 2021‑22 budget process, an estimate that is different than the Governor’s figure—$76 billion. The differences in our estimates stem from our differing definitions. The Governor’s estimate includes constitutionally required spending on schools and community colleges, reserves, and debt payments. We do not consider these spending amounts part of the surplus because they must be allocated to specified purposes.”
Be careful of the increased one time spending that commits us to spending in the future. Thought you should know that Newsom was caught lying again.
Key Takeaways
Legislative Analyst Office, 5/17/21
We Estimate the State Has a $38 Billion Surplus to Allocate. We estimate the state has $38 billion in discretionary state funds to allocate in the 2021‑22 budget process, an estimate that is different than the Governor’s figure—$76 billion. The differences in our estimates stem from our differing definitions. The Governor’s estimate includes constitutionally required spending on schools and community colleges, reserves, and debt payments. We do not consider these spending amounts part of the surplus because they must be allocated to specified purposes.
In Contrast to the Governor, Recommend Legislature Restore Budget Resilience. Despite a historic surge in revenues, the Governor continues to rely on budget tools from last year. Specifically, he uses $12 billion in reserve withdrawals and borrowing to increase spending. The state will need these tools to respond to future challenges, when federal assistance might not be as significant. We urge the Legislature not to take a step back from its track record of prudent budget management.
State Appropriations Limit (SAL) Is Important Issue in May Revision. The Governor’s May Revision estimates the state will collect $16 billion in revenues in excess of the SAL this year. However, the ultimate amount of a potential excess will depend on decisions by the Legislature. Ultimately while the SAL will be an important consideration in this year’s budget process, the Legislature has substantial discretion in how to meet the constitutional requirements.
Trade-Off Between Addressing Many Issues and Making More Significant Inroads on a Smaller Subset. The May Revision includes roughly 400 new proposals. While the surplus is large enough to make significant inroads in addressing a few key policy priorities, it is unlikely sufficient to do so across the number of issues contemplated in the May Revision. If the Legislature preferred to make surer substantial progress in a few key areas, it could allocate the surplus in a more targeted manner that reflect its top priorities.
Consider Withholding Some Decisions. The surplus, in combination with the federal fiscal recovery funds, represents resources equal to about half of pre-pandemic General Fund budgets. Departments’ capacity to allocate this funding in a timely and effective manner likely will be significantly constrained. More importantly, the Legislature’s time to deliberate over choices made in this budget is extremely limited. We recommend the Legislature delay some of those decisions and offer options for doing so.
Introduction
On May 14, 2021, Governor Newsom presented a revised state budget proposal to the Legislature. (This annual proposed revised budget is called the “May Revision.”) In this post, we provide a summary of the Governor’s revised budget, focusing on the overall condition and structure of the state General Fund—the budget’s main operating account. In the coming days, we will analyze the plan in more detail and provide additional comments in hearing testimony and online.
We begin with an overview of the condition of the General Fund under the administration’s estimates and proposals. We then describe the major spending-related decisions made by the Governor in allocating budget resources. Due to the additional complexity in this year’s budget, this discussion is not limited to the General Fund surplus, but also covers flexible federal funding to the state and the State Appropriations Limit (SAL). Next, we describe the structure of the General Fund under the Governor’s May Revision. We conclude with our initial comments on this budget package. (We also include links to Appendix tables at the end of this post and the top left of this page. These appendix tables itemize select proposals by policy area based on our understanding at this time.)
The information presented in this post is based on our best understanding of administration proposals as of Saturday, May 15, 2021. In many areas of the budget, our understanding of the administration’s proposals will continue to evolve as we receive more information. We only plan to update this post for very significant changes (that is, those greater than $500 million).
General Fund Condition
Excluding Policy Choices, Revenues Higher by $51 Billion Compared to Governor’s Budget. Reflecting very strong cash collections in recent months, the May Revision adjusts 2020‑21 revenues (and transfers) up by $26.8 billion to $182 billion. This represents a 27 percent increase over 2019‑20, the largest single year increase in over four decades. Much of these revenue gains carry over into the budget year, with 2021‑21 revenues being adjusted up $24.4 billion to $179 billion. For additional discussion on revenues, see our related post The 2021‑22 Budget: May Revenue Outlook.
Constitutionally Required Spending Higher by $16 Billion. The constitution requires the state to spend minimum annual amounts on schools and community colleges (under Proposition 98) and budget reserves and debt payments (under Proposition 2). Mainly as a result of higher revenues, relative to January, constitutionally required spending is higher by nearly $16 billion across the budget window.
Other Major Adjustments Reduce Costs by $3 Billion. In addition to revenues and constitutional requirements, other budgetary costs are, on net, lower by $3 billion compared to January. This relatively small number obscures many billions of dollars in budgetary changes. For example, relative to the Governor’s budget, the Legislature enacted about $6.4 billion in spending increases and revenue reductions through early action. Partially offsetting this increase, baseline costs associated with the state’s major safety net programs are lower by $3.7 billion.
Total Reserves Would Reach Nearly $20 Billion Under Governor’s May Revision. Under the administration’s estimates and proposals, total reserves would reach $19.8 billion in 2021‑22. (This total differs somewhat from the administration’s estimate of total reserves because we exclude the dedicated reserve for schools and community colleges, which we do not consider part of General Fund reserves.) Figure 1 shows the General Fund condition, including total reserves, under the Governor’s May Revision.
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