LAO Issues Report on Governor’s May Revise
This week, the California Legislative Analyst’s Office (LAO) issued a report following the Governor’s release of his Administration’s May Revise Budget last week. The LAO provides the Legislature initial takeaways from the Governor’s budget and details considerations for the Legislature as they assess investment proposals over the coming weeks.
Of particular note, the LAO estimates the state’s budget surplus at $38 billion in FY 2021-22. This figure is markedly less than the Governor’s surplus figure of $76 billion which stems from different definitions between the LAO and the Administration. According to the LAO, the Governor’s estimate includes constitutionally required spending on schools and community colleges, reserves, and debt payments. The LAO does not consider these spending amounts as part of the budgetary surplus because they must be allocated for specific purposes.
The LAO recommends the Legislature not take a step back from its track record of prudent budget management by restoring budget resilience. The LAO details the state appropriations limit (SAL) which is estimated to be exceeded by $16 billion; the Legislature will play a key role in determining how to meet the constitutional requirement imposed by the SAL. Further, the LAO suggests the Legislature may be able to make more progress in several key policy areas by allocating the surplus in a more targeted manner as opposed to the Governor’s May Revision which proposes roughly 400 new investments.
Last, the LAO recommends the Legislature delay some of its investment decisions given the surplus and significant amount of federal fiscal recovery funds. State agency and department capacity to allocate this significant amount of funding in a timely and effective manner, according to the LAO, will likely be significantly constrained, and the Legislature is likely to need more time to deliberate proposed investments.