Overview of the State Budget

In an earlier post, we looked at the cash statement issued by the state controller for the fiscal year that ended on June 30, 2023 (FY 2022-23).* As noted in that post, the enacted state budget is done on an accrual basis rather than a cash basis. And the state does not produce a reconcilation between the two.

The Department of Finance has now issued more detailed information about the budget for 2023-24 (the current fiscal year) which also includes retrospective data on 2022-23. Let's take a look at what has appeared for an overview. (We will separately post about the UC portion later.)

Source: California Dept. of Finance, https://ebudget.ca.gov/2023-24/pdf/Enacted/BudgetSummary/SummaryCharts.pdf; https://ebudget.ca.gov/2023-24/pdf/Enacted/BudgetSummary/BS_SCH1.pdf.

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The general fund of the state contains its own reserves (savings) which rise or fall during the year depending on whether funds on net are flowing in or out. In addition, there are funds associated with the general fund which you can think of as allied savings accounts. Because they are all intertwined, if we look at the total reserves (total reserves in all the allied savings accounts) at the beginning of the year and again at the end, we can calculate the surplus or deficit. 

As we have noted many, many times on this blog, state budget-speak uses such terms as "surplus" and "deficit" to mean all kinds of things, but we follow the basic simple idea: If reserves are falling (because less is coming in than is going out), that is a deficit. The reverse is a surplus. And if reserves are neither rising nor falling, the budget is balanced.

So what do we learn from the table above?

• Revenue for this year in nominal terms is up slightly, but in real (inflation-adjusted terms) revenue is likely to fall.
• Expenditures exceed inflows last year and are projected to do so again this year.
• Expenditures are down in nominal terms this year as compared with last year (and in real terms the drop is greater due to likely inflation).
• The state ran a deficit last year, i.e., total reserves fell by about $27 billion. (The budget was not balanced.)
• The state is projected to run a deficit this year of about $16 billion. (The planned budget is not balanced.)
• If these projections work out, reserves will still be about $43 billion at the end of the current year. We have used up about half the reserves we had at the beginning of 2021-22 (July 1, 2021). It goes without saying that even with ample reserves on hand, if you keep drawing them down, you will eventually get into trouble. The reason we had large reserves - and still do - is a combination of the legacy of Jerry Brown plus the assumptions and planning when the pandemic hit that budget revenues would fall dramatically. Thanks to federal bailouts, big initial cuts in spending, and income taxes from high earners who were not adversely affected, we ended up unexpectedly with large reserves.

Finally, if the points above seem different from what you may have heard in statements from elected officials, you can draw whatever conclusions you like.

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*http://uclafacultyassociation.blogspot.com/2023/07/cashing-out-fiscal-year-2022-23.html.