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California budget season starts off with a bang

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Rich Pedroncelli
/
AP Photo
Assemblymember Phil Ting speaks on the Assembly floor at the California State Capitol in Sacramento on June 27, 2022.

A journey of a thousand miles begins with a single step — like the one Assembly Democrats took Wednesday, when they unveiled their budget priorities for the upcoming fiscal year.

The move marks a start to months-long negotiations between Gov. Gavin Newsom and state lawmakers over how money should be divided between key programs — an exercise that can prove contentious even in the best of times, and could pose especially tough political questions this go-around as the state stares down an estimated $25 billion budget deficit after enjoying years of unprecedented surpluses.

Although the Assembly Democrats’ blueprint emphasizes that California is better positioned to weather an economic downturn than it has been in the past — with $120 billion in available cash across all funds, including $37 billion budgeted in general fund and rainy day fund reserves — it also adopts some of the cautionary recommendations outlined last month by the Legislature’s nonpartisan fiscal advisor. They include:

  • Potentially shifting billions of dollars in expenditures to later years, and re-evaluating the timing of one-time spending.
  • Considering low-cost borrowing from special funds if California keeps collecting lower-than-expected tax revenue.
  • Evaluating the impact of inflation on certain state expenditures. Because the Legislative Analyst’s Office estimate of a $25 billion budget deficit didn’t account for soaring inflation rates, actual state costs are likely to be higher than estimated.

“We have spent a decade preparing for revenue shortfalls, and with the robust General Fund reserves and Rainy Day Fund, California is prepared to weather future economic downturns while still prioritizing the gains that we have made in K-12 and early childhood education, our higher education institutions, homelessness support and health care,” Democratic Assemblymember Phil Ting of San Francisco, who leads his chamber’s powerful budget committee, said in a statement.

The next major step in the budget marathon: Newsom releasing his blueprint for the fiscal year beginning July 1, which he’s slated to do on or before Jan. 10. He will then unveil a revised proposal in May after negotiations with lawmakers and updated revenue estimates. They must reach a spending deal by June 15, though that deadline is squishier than it seems: During the last budget cycle, lawmakers passed what amounted to a placeholder budget to keep receiving their paychecks while they worked out final details with Newsom.

Another noteworthy budget priority highlighted by Assembly Democrats: Asking voters in 2024 to weigh in on a ballot measure to “craft a modernized Gann Limit … to encourage building reserves and reducing debts.”

The Gann Limit is an obscure provision in the California Constitution that prevents the state from spending more per person than it did in 1978, once adjusted for inflation, and requires it to send the excess money back to schools and taxpayers.

As the economy continues to grow, the Gann Limit will pose an increasingly large problem for state government, according to a March report from the Legislative Analyst’s Office — leaving the Legislature with just two choices: Reduce taxes to reduce revenue growth, or ask voters to change the limit.

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.