LAO Issues California Spending Plan Overview

This week, the Legislative Analyst’s Office (LAO) published the California Spending Plan providing an overview of the 2020-21 Budget Act, a history of notable events during the budget process, and major features of the budget approved by the Legislature and signed into law by Governor Gavin Newsom. The report details the state’s $54.3 billion budget deficit, primarily as a result of lower revenues and higher caseload-related spending amid the ongoing COVID-19 pandemic.

The LAO discusses the solutions adopted by the Legislature during the budget process to address the state’s unprecedented budget challenge, including making baseline adjustments and assumptions (19 percent), using budgetary reserves (15 percent), increasing revenues (eight percent), adjusting K-14 education spending (27 percent), reducing spending (15 percent), shifting costs and borrowing (10 percent), and using federal funds (five percent). Notably, the LAO indicates that approximately $11 billion in spending reductions, K-14 deferrals, and special fund loans are subject to federal “trigger” language. Under this arrangement, if the federal government passes legislation by October 15, 2020, providing at least $14 billion in funding to California, all the amounts subject to the trigger would be restored.

The report further details the condition of the state’s General Fund, indicating that the state makes its first-ever withdrawal from the Budget Stabilization Account (BSA) in the amount of $7.8 billion, largely in response to the COVID-19 pandemic. The LAO determines that under the spending plan assumptions and estimates, California would end FY 2020-21 with $11.4 billion in reserves.

The LAO report is rounded out by a timeline of major events in the 2020-21 budget process, including the unprecedented adjustments in the California Legislature’s spring calendar. The report further details major features of the 2020-21 spending plan in areas of education, COVID-19 spending, safety net programs, and funding for local governments.

The full LAO report is available here.