LAO Issues Overview Report on Governor’s FY 2021-22 Proposed Budget

Following the issuance of the Governor’s FY 2021-22 Proposed Budget last Friday, the Legislative Analyst’s Office (LAO) issued its overview report this week. The LAO report provides a high-level assessment of the Governor’s proposed investments, highlighting areas for further legislative consideration and providing commentary on potential legislative actions relative to proposed investments.

The LAO report discusses the state’s fiscal picture following last year’s enacted budget, detailing the receipt of higher revenues and realization of lower expenditures through the ongoing COVID-19 pandemic. Under the Governor’s upcoming fiscal year budget, the state is anticipated to end 2021-22 with $18.9 billion in total reserves, representing an increase of $7.5 billion over the last year’s enacted level. Additionally, as a result of the budget experience during the current fiscal year, the Governor is anticipated to have a $15.5 billion windfall to allocate in 2021-22. However, the state budget is projected to have structural deficits in out years, reaching $11.3 billion in FY 2024-25.

At the outset, the LAO recommends that the Legislature consider federal funding relief that was signed into law in late December as they consider the Governor’s proposed investments. As the LAO indicates, many of the investments proposed by the Newsom Administration overlap with funds appropriated through the federal relief measure. Given the timing of the passage of the federal measure, the Governor’s proposed budget does not include details around the use of federal funds that are to be received by California.

The LAO assesses the Governor’s proposed investments by subject area and details major budget proposals outlined by the Governor last week. Related to health, the LAO discusses the Governor’s proposed California Advancing and Innovating Medi-Cal (CalAIM) initiative, recommending the Legislature learn about proposed changes from last year’s CalAIM proposal, resolve key outstanding questions around the proposal, and weigh the potential benefits and risks associated with the Administration’s “complex reform package.”

The report additionally discusses the funding of ongoing COVID-19 response activities, indicating that “state funding can make a significant difference for public health measures and controlling the virus” and urging rapid vaccine distribution.

Over the coming weeks and months, the LAO is expected to issue subject area-specific reports of the Governor’s proposed budgetary investments. The full LAO report is available here.