The May Revise Budget: Quick Analysis

You'll read headlines about a huge budget "surplus." Dedicated blog readers will know that the state uses lots of definitions of "surplus." If, however, you have the idea is that a surplus means that more is going into the general fund and related reserve accounts than is going out, the May Revise shows a small deficit. Let's look at the numbers below:

Source: https://www.ebudget.ca.gov/2022-23/pdf/Revised/BudgetSummary/SummaryCharts.pdf.

Total reserves were estimated in January for next fiscal year are expected to end up around $41.4 billion, down from the projected end of this year by about $2.5 billion. So that's your small deficit - small compared to the overall size of the budget. Reserves at the end of the upcoming year (the sum of General Fund reserves, Public School reserves, Safety Net reserves, and the Rainy Day fund reserves) were expected to end up notably higher back in January. But changes in estimates for this fiscal year along with revenue estimate revisions and changes in planned spending next year account for the drop. There is some concern about possible falling capital gains tax receipts due to the recent stock market trends. But ending up with over $41 billion in reserves still gives you a total reserve of about 18% of projected spending which is good by historical standards.

Keep in mind that the May Revise is a proposal. We don't have a final budget until the legislature enacts one and the governor signs it (with any line-item vetoes). 

===

What about UC? Although the governor likes to distinguish one-time dollars vs. ongoing dollars, we view dollars as just dollars. In the current year, we are projected to receive about $4.8 billion in general fund allocations. The governor back in January proposed to give UC about $4.6 billion in the coming year. But UC allocations were upped in the May Revise for next year to around $4.9 billion. So there is a proposed 4% increase for next year over the January proposal. But note that these are nominal dollars. Inflation is currently around 8%. Compared with last year, the increase is less than 8%. So UC could end up with a real decline, once inflation is factored in and depending on what the rate of inflation turns out to be.

Source: https://www.ebudget.ca.gov/budget/2022-23MR/#/Department/6440.