Cash Rich in a Budget Crisis

The final state controller's report for fiscal year 2023-24 that ended June 30th shows the state is sitting on $103.3 billion in unused borrowable resources, up from $97.6 billion at the same time last year. That seems like a lot of cash.*

It also shows that actual revenues fell almost $39 billion below what had been anticipated when 2023-24 began.

How is this possible? And, if we have all that cash, why are we in a state budget crisis?

The first thing to understand is that not all state cash is in reserves associated with the General Fund. There are lots of funds outside the General Fund earmarked for various purposes. The state is not allowed to borrow money without a vote of the people, but courts have interpreted that restriction to apply to long term debt (more than one year). Within the fiscal year, the state can borrow so long as the money is repaid before June 30. When it has lots of cash, the state can borrow internally within the year and doesn't need to go to external financial markets for its short-term needs.

Essentially what happened when it was clear that revenues were falling short of expectations was that the legislature took various actions. Some were real and others were cosmetic, i.e., moving expenses so that they would fall after June 30th. Those steps allowed the internal short-term borrowing to be paid back before June 30th. Borrowing internally can begin again now that we are in July. The gamble is that given actual reserves for the General Fund and internal borrowing from other funds, the state will make it through the current year and perhaps some combination of economic growth and tax money from capital gains will take care of things thereafter.

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*https://sco.ca.gov/Files-ARD/CASH/June2024StatementofGeneralFundCashReceiptsandDisbursements.pdf [p. B-1]