However, the State Assembly’s newly released 2023 budget plan stakes out education spending as a priority for protection in uncertain times. Assembly Budget Chair Phil Ting (D-San Francisco) was upbeat Wednesday, saying the state would be able to maintain the investments made in areas like education, healthcare, and public safety over the previous ten years even if revenues weren't exactly rosy.
Budget reserves are the key source of confidence. The state has been successful in creating a safety net against potential downturns after the Great Recession. According to the LAO, the state's general fund reserves are about $23 billion, or roughly equal to the anticipated deficit. The Assembly estimates a total of around $37 billion, including reserves from Proposition 98, which must be used for education and calculates reserves differently than the LAO.
According to Ting's office, reserves are enough to maintain essential activities, including funding for classrooms. But how much of the reserves would be required will depend on the state of the economy in June, when parliamentarians will discuss the finer points of the budget. Ting stated that while it is conceivable, he prefers to avoid using reserves: "Reserves are not going to be the first place we go to balance the budget." He mentioned other solutions, such as dividing one-time expenses throughout several years. Additionally, Ting's office mentioned that it could be challenging to update all programs to reflect inflation rates.
Look at the monthly revenue data if you're curious how California went from a nearly $100 billion surplus this year to the possibility of a $24 billion deficit. Most of the state's spending is covered by income taxes, and since the beginning of the current fiscal year in July, the state's revenue has consistently fallen short of projections.
The $25 billion problem is almost entirely outside of Prop. 98 (in fact, slightly reduced Prop 98 Guarantees over two years are primarily what reduce the $42 billion shortfall to a $25 billion problem). The General Fund reserves are mainly what Ting is talking about, but those are less relevant to K-14. The “problem” for K-12 from the LAO’s perspective is whether there is enough available Prop 98 funding (given the slightly lower Guarantees than what was used in the Budget Act) to continue ongoing programs and provide a large COLA. The answer from the LAO is “yes” because we did a bunch of one-time spending in the last budget and, when necessary, we can tap into the Prop 98 reserve. As a result, the LAO thinks we are likely to be fine for the next few years unless the downturn is more severe than anticipated, which is a strong possibility.
Gov. Gavin Newsom faces an entirely new set of difficulties in light of the fact that he has had a healthy budget for the previous four years because of a soaring stock market and a thriving tech industry. The governor has already taken steps to balance the budget, including vetoing many high-cost bills this year in anticipation of looming budget concerns. When he submits his initial 2023 budget proposal in January, we'll learn more about his plans to maintain the state's commitments to education and his ideas for insuring financial stability.
Governor’s January Budget Workshops
Reminder that we’re working with county superintendents around the state to host the January Budget Perspectives workshops in conjunction with SSDA, ACSA, CSBA, and Climatec. We’ll explore all the fiscal, economic, and political implications. The workshops are offered at no cost to attendees.
Workshop registration is open here.
-Kevin
Kevin Gordon, President
Capitol Advisors Group, LLC
California’s Leading Advocates for Education