Governor releases 2024-25 May Revision
Under updated revenue estimates, aims to balance budget this year and next year
The May Revision is now online here.
Following is an excerpt from the Assembly Budget Committee’s upcoming summary of the May Revision:
The Governor’s 2024-25 May Revision—released in summary form on May 10, 2024, with more details to follow on the statutory deadline date of May 14—aims to address the recent state revenue shortfall that intensified after the Governor finalized his January 2024 budget proposal. The Governor’s revised budget proposal would:
Cut significantly into undisbursed one-time funding appropriated in recent years.
Reduce state administrative costs by several percentage points.
Cut planned Medi-Cal provider rate increases planned for next year and other health and human services programs.
Reduce further planned expenditures on housing and homelessness programs.
Reduce the proposed reliance on state rainy day funds for the 2024-25 fiscal year from $12.2 billion to $3.3 billion.
Limit temporarily the use of net operating loss (NOL) deductions and most tax credits (including research and development tax credits) by medium-sized and larger businesses for up to three years beginning in 2025. (This is a tax change often employed by the state during times of fiscal stress.)
Balance the budget, under the administration’s revised revenue projections, both this year and next year. (Projected deficits reportedly would decline in later years as well, pending receipt of multiyear forecast information next week from the administration.)
Maintain the January Budget proposal to shift Proposition 98 costs from the 2022-23 Budget Act above the revised constitutional guarantee calculation to the 2025-26, 2026-27, and 2027-28 Budget years. This cost shift is now estimated at $8.8 billion. For the 2024-25 Budget Year, projects per-pupil funding remains relatively stable in the May Revision at a funding rate of $23,940 per student. State TK-12 funding per student is proposed to be $17,502 in 2024-25.
$27.6 Budget Problem Projected
There always have been multiple ways to estimate the size of the state’s deficit for reference purposes.
The administration estimates that the deficit it pegged at $37.9 billion in January shrunk by $17.3 billion due to actions already approved by the Legislature in the “early action” budget package in April 2024. (The early action package also tentatively approved the use of $12.2 billion from rainy day funds to balance the General Fund budget, but as noted above, the May Revision proposes a smaller draw on the rainy day fund in the 2024-25 fiscal year.)
With the state’s major tax revenue projections across the 2022-23, 2023-24, and 2024-25 now lowered by $10.5 billion in the May Revision, the 2024 deficit grows by a net amount of $7 billion after considering changes to the Proposition 98 minimum guarantee.
After the changes above, the Governor’s May Revision estimates the state must now address a $27.6 billion deficit this year, as well as ongoing deficits of around $30 billion per year beginning in 2025.
The Legislative Analyst’s Office (LAO) likely will report a larger 2024 deficit estimate, principally because it classifies a major Proposition 98 proposal as a “policy change” needed to balance the budget, rather than a “baseline” budget policy consistent with existing law and standard practice. In addition, the LAO’s most recent revenue estimates for 2022-23, 2023-24, and 2024-25 are somewhere around $10 billion lower than those in the May Revision. Assembly staff expects the LAO may report that the May Revision solves for a remaining deficit problem of somewhere around $50 billion—perhaps more than $20 billion larger than the figure reported by the Governor.
These “headline deficit” figures are a reference point only. They do not affect the actual budget balancing process in and of themselves. The budget is balanced based on the projected revenues and actual expenditure decisions embedded in the annual budget. The Legislature chooses the revenue estimate included in the annual budget act, which typically is that provided by the administration in the May Revision.
What’s Next
Legislative budget hearings on the May Revision will commence next week and provide the public an opportunity to learn more about the proposals. (Hearing information is posted on the Assembly and Senate websites.) The public should contact legislators directly to let them know their views on the Governor’s proposals.
The Assembly and Senate aim to unite on a legislative budget plan in late May or early June, to facilitate passage of the constitutionally required legislative budget bill on or before Saturday, June 15. The Governor will have until Thursday, June 27, at the latest, to sign or veto the legislative budget bill. In late June, trailer bills to amend statutes to reflect the budget plan typically are passed. The 2024-25 fiscal year begins on Monday, July 1.