Special fund loans to General Fund now total $4.5 billion

Sizable state treasury balances, including special funds, provide fiscal flexibility

On July 19, the Department of Finance released its regular update on outstanding budgetary loans made to California’s General Fund from other state accounts (typically known as special funds).

The principal amount of the outstanding budgetary loans is now $4.5 billion—up from $3.4 billion in the January 29 edition of this report. (The June 2024 state budget included about $2.1 billion of new and extended budgetary loans to help balance the General Fund. Some prior loans were repaid in 2024-25 as scheduled.) The Finance letter accompanying the July 19 update says it includes new loans “enacted as part of the 2024 Budget Act.” The current balance remains below levels recorded after the 2007-2009 Great Recession, especially when adjusted for inflation.

Broadly speaking, there are three types of interfund loans in California’s state budget:

• budgetary loans (such as the $4.5 billion described above) that reduce special fund balances over multiple fiscal years in order to help balance the General Fund budget in down years,

• cash flow loans that come from the state’s pooled treasury resources (not individual special funds) and allow the state General Fund to meet obligations in a timely manner despite seasonal fluctuations in tax receipts (authorized in Government Code Section 16310), and

• special purpose loans that come from pooled treasury resources (not individual special funds) to fund a specific purpose over a multiple year period, such as:

  • the state’s financing to reduce pension liabilities (SB 84 of 2017),

  • the state’s longstanding program to provide interim financing for bond projects in advance of issuance of long-term state bonds (Government Code Section 16312, originally enacted in AB 55 (Roos) of 1987), and

  • possible future loans to capitalize a fund to address wildfire liabilities related to electric utilities (Public Utilities Code Section 3285, enacted as part of AB 1054 [Holden] in 2019).

Special funds typically receive money from fees, such as user fees or license charges, dedicated to a specific state department’s services to the public. Courts have given the Legislature significant flexibility to decide when special funds lend money to the General Fund and when and how the loans are paid back. In Daugherty v. Riley, 1 Cal.2d 298 (1934), the state’s Supreme Court suggested that special funds could be loaned to the General Fund, so long as the funds are returned to the special fund “as soon as funds are available” and the loan does not interfere “with the object for which the special fund was created.” In California Medical Assn. v. Brown, 193 Cal.App.4th 1449 (2011), the appellate court cited the 1934 Daugherty decision in allowing a loan from the Medical Board of California’s Contingent Fund to the General Fund. In Tomra Pacific, Inc. v. Chiang, 199 Cal.App.4th 463 (2011), an appellate court noted that special fund loans may cause some negative impacts on programs, but a “practical approach is necessary” that allows “the state sufficient ‘flexibility to balance its budget.’”

Available special fund balances are tallied monthly as part of the State Controller’s estimates of treasury resources that are “borrowable” for General Fund cash purposes. As of July 31, unused borrowable balances totaled $105 billion, of which around $30 billion consisted of the rainy day fund and other reserves. That means that around $70 billion of special fund balances were borrowable at that time.