STATE BUDGET
Legislative Analyst’s Office responds to Governor’s January Budget Proposal
LAO attributes differences in budget projections to differences in “baseline charges”

In December, the nonpartisan Legislative Analyst’s Office (LAO) released its 2024–25 Fiscal Outlook, projecting the state’s budget deficit over the three-year fiscal period of 2022–23, 2023–24 and 2024–25 at $68 billion with a drop in the Proposition 98 Guarantee by $21 billion. On Jan. 10, 2024, Gov. Gavin Newsom announced the three-year budget deficit sitting at $37.86 billion — a nearly $30 billion difference. Referring to his January Budget Proposal as a “normalization” and a “correction” of the “distortions” seen in prior year budgets during the pandemic, the Governor proposes to fully fund the Proposition 98 Minimum Guarantee at $109.1 billion.

Three days after Gov. Newsom announced the state’s January Budget, the LAO provided its annual review of the Governor’s budget. The review is another development in what has become differing assessments of the size of the state’s budget deficit and what options lay before the Legislature in bridging the gap. In its explanation of the differences between the two projected budget deficits, the LAO stated it is “largely due to differences in what we consider to be baseline changes. The largest of these changes impacts schools and community colleges.” Describing the Governor’s approach as “plausible, but optimistic,” the LAO writes that the Governor relies on higher budget revenue projections to the tune of $15 billion, a reasonable dip into the state’s reserves and significant spending-related solutions, which may “pose challenges.” Concerningly, the LAO highlights that the Governor’s “budget lacks a plan for implementing proposed reductions to schools and community colleges, and some other solutions are unlikely to yield the anticipated savings.”

The LAO is making five recommendations to the Legislature as it begins its review of the Governor’s January Budget:

  1. Plan for lower revenues
  2. Maintain a similar reserve withdrawal
  3. Develop a plan for school and community college funding
  4. Maximize reductions in one‑time spending
  5. Apply a higher bar for any discretionary proposals and contain ongoing service level(s)
What’s next?
With the release of the January Budget the Legislature’s budget hearing process will begin. It is anticipated that the differing budget projections will play a significant role as the Legislature will be faced with whether to use the Governor’s or the LAO’s projections, or somewhere in between.

CSBA’s Governmental Relations team will continue to provide updates and opportunities for advocacy as the budget cycle continues.

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