April 25, 2024

Throughout 2024, CSAC has consistently reported to counties the development of the 2024-25 budget, CSAC’s budget advocacy, and efforts to address the budget shortfall.

Last week, on Monday, April 15^th, Governor Newsom signed AB 106 (Gabriel) which amends the 2022 Budget Act and the 2023 Budget Act, resulting in a cumulative net savings across three fiscal years of approximately $17.3 billion. The bill includes $3.6 billion in mostly one-time funding reductions, $5.2 billion in revenue and borrowing, $5.2 billion in delays of expenditures to future fiscal years, and shifts $3.4 billion in expenditures from the general fund to special state funds. other state funds. The bill also authorizes the Department of Finance to suspend any one-time spending authorized in the Budget Acts of 2021, 2022, or 2023.

After the passage of the bill, the Department of Finance provided a notification required by passage of AB 106, detailing the budget adjustments agreed to in the early budget action. This action effectively served as the formal action to freeze the $17.3 billion in spending identified in the early action agreement, allowing the adjustments to be reflected in the May budget revision.

The adjustments include:

• $1.3 billion in reduced CalPERS retirement contribution reductions;
• $1.5 billion deferred by pushing state payroll dates from June 2025 to July 2025;
• $763 million in savings from eliminating vacant state positions; and
• $1.3 billion in loans from a variety of sources, including $500 million from an AIDS Drug Assistance Program rebate fund, $200 million from an underground storage tank fund managed by the State Water Resources Control Board, $125 million from a labor and workforce development fund, and $100 million from the unfair competition law fund.

Projections on future budget problems vary, but we note that the Governor’s office has projected annual budget problems of approximately $37 billion in 2025-26, $30 billion in 2026-27, and $28 billion in 2027-28.

On the same day, the Department of Finance notified the Legislature that it was freezing spending by state departments if the funding is appropriated from the general fund, is not part of the Prop 98 guarantee or a state capital outlay project, and if the value of unallocated or unencumbered funds exceeds $1 million. This notification was in response to another provision established by AB 106.

In the coming days, the Joint Legislative Budget Committee will publish a response to the letters.

In addition to tracking budget actions, CSAC is monitoring revenue projections, which will also dictate the extent of the budget problem and the budget solutions needed to address it. Yesterday, the Franchise Tax Board reported that personal income tax revenue is likely to fall several hundred million dollars below the forecast for April 2024. We caution that these data are continuously updated and being reported by the Franchise Tax Board on an ongoing basis. Consequently, much about the extent of the budget problem is yet to be known.

To underscore the unique budget problems faced by our state, the Governor’s office announced that California remains the 5^th largest economy in the world just one day after signing AB 106 to reduce the significant budget shortfall.   

The Governor will publish the annual mid-year budget adjustment (the May Revision) sometime on or just before Tuesday, May 14. Consistent with previous years, CSAC will publish a May Revision Budget Action Bulletin shortly thereafter that analyzes that state budget and notes significant issues for counties. Past publications of the Budget Action Bulletin are available on the CSAC website.