LAO Publishes 2022-23 Fiscal Outlook, Projects $31b Surplus

On Wednesday, the California Legislative Analyst’s Office (LAO) issued its annual publication, “The 2022-23 Budget: California’s Fiscal Outlook,” providing an assessment of the state’s budget condition and a preview of major decision points for the Legislature ahead of budget activities in the new year.

Perhaps most notably, despite the ongoing pandemic and associated economic impacts, revenues in California continue to grow at historic rates. The LAO estimates the state will have a $31 billion surplus to allocate in 2022-23. Given the rosy budget projections, the LAO notes that the State Appropriations Limit (SAL) will be a key issue and decision-point for the Legislature and Administration next year.

Recall, the SAL limits how the Legislature can appropriate revenues that exceed a specific threshold. Before allocating the projected surplus for discretionary purposes, the Legislature must first determine how much of the state’s revenues are subject to the SAL. The Legislature can then satisfy constitutional requirements imposed by SAL by lowering tax revenues, splitting excess revenues between education spending and taxpayer rebates, or appropriate more funds for purposes excluded from the SAL. Per the LAO, current estimates place the amount of revenues that will need to be allocated pursuant to SAL at roughly $14 billion for 2020-21 and 2021-22. For 2022-23, the state could realize an additional $12 billion in SAL requirements.

The LAO further notes that the operating surplus, the amount available to allocate on an ongoing basis, is lower than the total $31 billion surplus figure. There are a series of expenditures where costs may be lower than anticipated, including related to Medi-Cal and Pensions, leaving the state with a projected operating surplus of $3 billion to $8 billion to support new, ongoing spending.

The LAO rounds out its report with commentary on budget uncertainties, inflationary pressures, and budget choices and oversight for consideration by the Legislature. The LAO offers a series of recommendations for lawmakers, including taking action in early 2022 to address SAL requirements and keeping in mind administrative capacities of specified state agencies and departments for new spending.

Following the release of the LAO report, Assembly Speaker Anthony Rendon issued a statement reiterating the Legislature’s budgetary progress and indicating additional investments will be made to benefit all communities. Senate President pro Tempore Toni Atkins similarly issued a statement applauding the work of legislators and governors for strengthening the state’s overall fiscal condition and pointing to the LAO publication as valuable guidance as lawmakers take budget action in 2022.

The full LAO publication is available here.