The 2024-25 Budget: Deficit Update

The 2024-25 Budget: Deficit Update Translate Our Website This Google ™ translation feature provided on the Legislative Analyst's Office (LAO) website is for informational purposes only. The LAO is unable to guarantee the accuracy of this translation and is therefore not liable for any inaccurate information resulting from the translation application tool. Choose your language: × Skip to main content Home --> Policy Areas Capital Outlay, Infrastructure Criminal Justice Economy and Taxes Education Environment and Natural Resources Health and Human Services Local Government State Budget Condition Transportation Other Government Areas Publications The Budget Propositions and Initiatives Staff Careers About Us Search LAO Contact Ann Hollingshead See More Publications Like This Back to the Top --> Tweet February 20, 2024 The 2024 25 Budget Deficit Update Under LAO Revenue Update, Budget Problem Grows by $15 Billion The state already faces a significant deficit this year we estimate it totaled $58 billion under the administration s revenue forecast at the time the Governor s budget was proposed in January. However, recent revenue collections data reflect even further weakness relative to those estimates. Specifically, our forecast is about $24 billion below the Governor s budget across 2022 23 to 2024 25. All else equal, this means the budget problem is likely to be higher at the time of the May Revision. The actual increase in the state s budget problem will depend on a number of factors, including formula-driven spending changes, most notably Proposition 98 spending requirements for schools and community colleges. (Due to specific circumstances this year, changes in revenues are unlikely to have a significant effect on the state s other major formula-driven spending requirements, specifically related to Proposition 2.) Roughly, a $24 billion erosion in revenues corresponds to a $15 billion increase in the budget problem. This would expand the $58 billion estimated deficit to $73 billion under our updated revenue forecast. Options to Address $15 Billion in Additional Budget Problem If the budget problem increases by $15 billion, the Legislature will need to find a like amount of new budget solutions to ensure the budget is balanced for 2024 25. Budget solutions include, for example: revenue increases and spending reductions (on both a one-time and ongoing basis), as well as other tools, like reserves and cost shifts. As the Legislature considers how to address this increased budget problem, we have put together a set of tables identifying one-time and temporary spending that could be pulled back or reduced in order to achieve budgetary savings. Below, we explain why we set forth these amounts as a possible first option to addressing a larger budget problem and then walk through our method for estimating the amounts potentially available in more detail. Why Reduce One-Time and Temporary Spending? The Legislature will weigh the implications of each possible solution including increasing revenues and spending reductions against others and, ultimately, choose a mix of solutions based on its priorities. We recommend the Legislature start by reviewing whether recent augmentations for one-time and temporary spending could be pulled back or reduced. We recommend this approach for two key reasons. First, when this one-time and temporary spending was adopted, it was understood that doing so would provide a cushion for future budget problems. For example, the administration frequently displayed operating surpluses in its multiyear forecasts excluding this type of spending implying that the administration understood that the state could not afford all of the commitments under its own projections, but the state could afford the ongoing budget. Second, the more the Legislature reduces one-time and temporary spending this year, the more other tools it can preserve for future budget problems. Reducing one-time and temporary spending is a use or lose tool for addressing the budget problem once the funds are disbursed to recipients, pulling them back becomes practically impossible. Other tools, like reserve withdrawals and cost shifts, also can be used only once, but at any time. Saving them to deploy in the future can help the Legislature avoid cuts to ongoing services which involve very difficult decisions. For example, in the Great Recession, the programs with some of the largest expenditure reductions were in health and human services, including to Medi-Cal, which provides health coverage to low-income individuals and the California Work Opportunity and Responsibility to Kids (CalWORKs) program, which provides income assistance to low-income individuals. Although the federal government has certain requirements for minimum state participation in these programs, California provides services well above these minimums. As a result, reductions tend to be concentrated in these areas because they are the ones where the state has the most flexibility to reduce spending without raising issues related to requirements imposed by courts, the voters, and the federal government. As such, maintaining other tools like reserves and cost shifts now could help mitigate reductions in these areas in the future. Options Possibly Available to Reduce One-Time and Temporary Spending State Allocated Large Shares of Surpluses to Temporary Purposes, Although Some Has Been Disbursed or Already Proposed for Reduction. Recent budgets allocated tens of billions of dollars in surpluses to one-time and temporary spending, including in 2023 24, 2024 25, and 2025 26. Some spending, most notably for 2023 24, has already been disbursed or encumbered. This means, for example, that grants have been awarded, funds have been transferred to other entities of government, and contracts or leases have been signed. (In some cases, funds have also been committed for 2024 25 and 2025 26, for example, through grant awards.) In addition, the Governor has already proposed pulling back much but not all of the undisbursed spending associated with these augmentations. State Has Nearly $16 Billion in Recent One-Time and Temporary Spending That Could Possibly Still Be Pulled Back or Reduced. After setting aside disbursements and Governor s budget proposals, we estimate the state possibly could pull back and reduce one-time and temporary augmentations by as much as $6.4 billion in 2023 24, $4.1 billion in 2024 25, and $5.1 billion in 2025 26. Figure 1 shows the distribution of these amounts by program area, while the Appendix includes a complete list of them. These figures represent our current estimates of the amounts for which the Legislature has broad authority to make reductions, which could help the state address a larger budget problem in May. (In some cases, however, further disbursements could occur between now and May, such smaller amounts would be available for reduction at that time.) Figure 1 Summary of Possible Remaining One Time and Temporary Spending (In Millions) 2023 24 2024 25 2025 26 Business and Labor $266 $284 $198 Criminal Justice 130 40 — Education 602 1,195 1,109 Health and Human Services 867 301 701 Housing and Homelessness 1,599 — 260 Other 1,752 557 432 Resources and Environment 1,049 1,005 1,377 Transportation 146 739 1,000 Totals $6,411 $4,121 $5,076 Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. This Information Reflects Our Best Current Understanding. While these estimates reflect the best information we have available, in many cases we do not have perfect information from the administration about the current status of funds. As such, we would view this list as a starting place for the Legislature as it begins crafting the final budget package. For any specific reductions, particularly in 2023 24, the Legislature could ask the administration for detailed and up-to-date information on disbursements and encumbrances. More Could Be Pulled Back From Earlier Years. For the purposes of this analysis, we only reviewed disbursements and encumbrances authorized for 2023 24 and later. There is, however, additional spending attributable to 2022 23 and earlier that has not yet been disbursed. The Legislature could ask the administration to provide information about the amount of unspent funds from these earlier years. Appendix Tables Appendix Figure 1 Possible Remaining One Time and Temporary Spending: Business and Labor (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 EDD New IT overhaul—EDDNext $99 — — GO Biz California Competes Grants 10 — — HCAI Health and home care workforce package 85 $259 $198 HCAI Behavioral health workforce capacity 52 — — HCAI Various other health care workforce initiatives 20 25 — Totals $266 $284 $198 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. EDD = Employment Development Department; IT = information technology; GO Biz = Governor’s Office of Business and Economic Development; and HCAI = Department of Health Care Access and Information. Appendix Figure 2 Possible Remaining One Time and Temporary Spending: Criminal Justice (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 BSCC Adult Reentry Grant $20 — — CDCR Expansion of community reentry centers 40 $40 — CDCR Various capital projects at San Quentin Rehabilitation Center 20 — — OES Nonprofit Security Grant Program 40 — — OES Family Justice Centers 10 — — Totals $130 $40 — Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. BSCC = Board of State and Community Corrections; CDCR = California Department of Corrections and Rehabilitation; and OES = Governor’s Office of Emergency Services. Appendix Figure 3 Possible Remaining One Time and Temporary Spending: Education (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 CSAC Golden State Teacher Grants $91 $128 $1 CSU CSU Dominguez Hills Dymally Institute facility 15 — — DGS State share for school construction projects 472 994 485 DGS Construction and renovation of transitional kindergarten, State Preschool, and full day kindergarten facilities — — 550 OPR California College Corps Program — 73 73 UC Cancer Research Relating to Firefighters 7 — — UC UC Berkeley School of Journalism Police Records Access Project 7 — — UC UC Los Angeles Ralph J. Bunche Center 5 — — UC UC Davis Equine Performance and Rehabilitation Center 5 — — Totals $602 $1,195 1,109 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. CSAC = Student Aid Commission; DGS = Department of General Services; and OPR = Governor’s Office of Planning and Research. Appendix Figure 4 Possible Remaining One Time and Temporary Spending: Health and Human Services (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 CalHHS Health innovation accelerator initiative — — $43 CDPH Carryover from certain one time funds in previous years $268 — — CDPH COVID 19 response 25 — — CDPH Public health IT systems 9 — — CDPH Public education and change campaign — $40 5 Aging Modernizing the Older Californians Act — 37 37 DHCS Behavioral Health Bridge Housing program — — 235 DHCS Behavioral Health Continuum Infrastructure Program — 100 381 DHCS Evidence based and community defined behavioral health programs — 109 — DSS CalFresh minimum nutrition benefit pilot — 15 — HCAI Carryover from certain one time funds in previous years 565 — — Totals $867 $301 $701 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. CalHHS = Health and Human Services Agency; CDPH = California Department of Public Health; Aging = Department of Aging; DHCS = Department of Health Care Services; DSS = Department of Social Services; and HCAI = Department of Health Care Access and Information. Appendix Figure 5 Possible Remaining One Time and Temporary Spending: Housing and Homelessness (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 BCH Agency a Homeless Housing, Assistance, and Prevention Program (HHAPP) $1,100 — $260 BCH Agency Encampment Resolution Grants 299 — — HCD Portfolio Reinvestment Program 100 — — HCD Multifamily Housing Program 75 — — HCD Infill Infrastructure Grant Program 25 — — Totals $1,599 — $260 a By the time the HHAPP costs are incurred, the program will have transferred to from BCSH Agency to HCD. Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. BCH Agency Business, Consumer Services, and Housing Agency and HCD = Department of Housing and Community Development. Appendix Figure 6 Possible Remaining One Time and Temporary Spending: Other (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 CDT Broadband infrastructure—increased middle mile network costs $420 $250 — CPUC Broadband infrastructure—last mile projects 900 100 $200 CPUC Broadband infrastructure—Broadband Loan Loss Reserve Fund 175 150 175 GO Biz Fresno Infrastructure Plan 50 — — OPR Establish new office of public outreach 60 57 57 SCO California State Payroll System 147 — — Totals $1,752 $557 $432 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages CDT = California Department of Technology; CPUC = California Public Utilities Commission; GO Biz = Governor’s Office of Business and Economic Development; OPR = Governor’s Office of Planning and Research; and SCO = State Controller’s Office. Appendix Figure 7 Possible Remaining One Time and Temporary Spending: Resources and Environment (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 CalEPA Environmental Justice Initiative (Community Resilience Package) $5 — — CalFire Post fire reforestation and regeneration (Wildfire Resilience Package) 50 — — CalFire Emergency surge (helitanker contract component) 45 $45 — CalFire Forest Improvement Program (Wildfire Resilience Package) 13 — — CalFire Tribal engagement (Wildfire Resilience Package) 10 — — CARB FARMER program 75 — — CARB Clean Cars 4 All (ZEV Package) 50 — — CARB AB 617 (Community Resilience Package) 50 — — CARB Equitable Building Decarbonization (Energy Package) 20 — — CEC Clean Energy Reliability Investment Plan (SB 846) 100 400 $500 CEC Distributed Electricity Backup Assets (Energy Package) 100 25 25 CEC Demand Side Grid Support (Energy Package) 95 — — CEC Equitable Building Decarbonization (Energy Package) — 53 92 CNRA Water resilience projects (Drought Water Resilience Package) 171 — — CNRA Tribal nature based solutions program (Nature Based Solutions Package) 30 — — CPUC Residential Solar and Storage (Energy Package) — 50 100 DTSC Brownfield cleanups — 85 15 DWR Flood and dam safety (Drought Water Resilience Package) 53 — — DWR Oroville Pump Storage (Energy Package) 4 10 20 DWR American River flood project — 27 — DWR Urban flood risk reduction — 35 — DWR Strategic Reliability Assets (Energy Package) — 75 75 DWR Water conveyance, water storage (Drought Water Resilience Package) — — 500 Go Biz or CNRA Diablo Canyon land use planning — — 50 IBank Transmission Financing (Energy Package) 25 — — OPC Ocean protection (Coastal Resilience Package) 13 — — OPC Coastal resilience SB 1 implementation (Coastal Resilience Package) 1 — — OPR Community Based Public Awareness Campaign (Extreme Heat Package) 14 — — SWRCB Water recycling, groundwater cleanup (Drought Water Resilience Package) 17 — — SWRCB Drinking water and wastewater projects (Drought Water Resilience) — 200 — Various Misc Nature Based Solutions Package 9 — — Various Misc Wildfire Resilience Package 5 — — WCB Protect fish and wildlife from changing conditions (Nature Based Solutions) 49 — — WCB Various WCB programs (Nature Based Solutions Package) 46 — — Totals $1,049 $1,005 $1,377 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages CalEPA = California Environmental Protection Agency; CalFire = California Department of Forestry and Fire Protection; CARB = California Air Resources Board; CEC = California Energy Commission; CNRA = California Natural Resources Agency; CPUC = California Public Utilities Commission; DTSC = Department of Toxics and Substances Control; DWR = Department of Water Resources; Go Biz = Governor’s Office of Business and Economic Development; IBank =California Infrastructure and Economic Development Bank; OPC = Ocean Protection Council; OPR = Governor’s Office of Planning and Research; SWRCB = State Water Resources Control Board; and WCB = Wildlife Conservation Board. Appendix Figure 8 Possible Remaining One Time and Temporary Spending: Transportation (In Millions) Department/ Program Area Description 2023 24 2024 25 2025 26 Caltrans Clean California $146 — — CalSTA Transit and rail funding (Transportation Infrastructure) — $739 $1,000 Totals $146 $739 $1,000 Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time. Note: Amounts reflect one time and temporary spending adopted in the 2021 and 2022 budget packages. Caltrans = California Department of Transportation and CalSTA = California State Transportation Agency. Subscribe | California State Legislature | Online Voter Registration | Privacy Policy | Accessibility Legislative Analyst's Office | The California Legislature's Nonpartisan Fiscal and Policy Advisor 925 L Street, Suite 1000 Sacramento, CA 95814 | (916) 445-4656