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The 2022-23 Budget: Initial comments on the Governor’s May Revision

The Legislative Analyst’s Office has just published the following report:

The 2022-23 Budget: Initial Comments on the Governor’s May Revision

Key Takeaways:

  • Governor Allocates $52 Billion Overall General Fund Surplus in May Revision. Reflecting extraordinary revenue growth for a second year in a row, we estimate the Governor had a $52 billion General Fund surplus to allocate in the May Revision. In addition, under the administration’s revenue estimates, the Governor had a $33.5 billion surplus within the school and community college budget to allocate to discretionary purposes. Across these two surpluses, the Governor allocates $39 billion to meet the state’s constitutional requirements under the state appropriations limit (SAL). The largest categories of spending from the overall General Fund surplus are for natural resources and transportation programs.
  • May Revision Sets Up Fiscal Cliff for 2023-24. While the administration meets the SAL requirements across the prior and current year, the Governor leaves $3.4 billion in unaddressed SAL requirements in 2022-23. Moreover, we estimate the state will face an additional SAL requirement of over $20 billion in 2023-24. The Governor’s May Revision does not have a plan to address this roughly $25 billion requirement. As a result, the state will very likely face a significant budget problem next year, which would require reductions to programs.
  • Recession Risk Heightened. Predicting precisely when the next recession will occur is not possible. However, certain economic indicators historically have offered warning signs that a recession is on the horizon. Many of these indicators currently suggest a heightened risk of a recession within two years.
  • Recommend Increasing Reserves. We strongly recommend the Legislature consider building more reserves than proposed by the Governor in the May Revision. Additional reserves can help the state either address future SAL requirements or a budget problem resulting from a recession. We recommend taking a fiscally prudent approach, which would be to identify several billion dollars in non-excluded spending and instead dedicate those the funds to reserves.

This report is available using the following link: https://lao.ca.gov/Publications/Report/4598?utm_source=laowww&utm_medium=email&utm_campaign=4598

Over the next several days, as we publish responses to the Governor’s 2022-23 May Revision, we will add them to our May Revision analyses page: https://lao.ca.gov/Budget?year=2022&subjectArea=May&utm_source=laowww&utm_medium=email&utm_campaign=4598

This article was released by the Legislative Analyst’s Office.