Legislative Analyst’s Office predicts significant budget deficit during presentation at CSBA’s Annual Education Conference

At CSBA’s 2023 Annual Education Conference and Trade Show, California’s Legislative Analyst’s Office (LAO) unveiled the state’s latest budget numbers, painting a sobering picture for state finances and education funding. The LAO predicts tax revenues will fall about $26 billion short of earlier estimates for the 2022–23 fiscal year, $32 billion below estimates through fiscal 2023–24 and a total of $68 billion under projections for the three-year span from 2022 through 2025. Those figures represent a marked increase from the $15 billion shortfall predicted when the 2023–24 budget was signed in June. In addition, the LAO estimated that the statutory cost-of-living adjustment (COLA) will be 1.27 percent or roughly $1.3 billion.

“The latest LAO projections reinforce what many expected, that the state is potentially entering into year-over-year budget deficits. Yet, while some belt tightening is required, it can’t come at the expense of public schools that are facing enormous challenges in the areas of learning recovery, student health and well-being, staffing shortages, school safety, facilities and the expiration of one-time COVID relief funds,” said CSBA CEO & Executive Director Vernon M. Billy. “If we use schools to balance the budget, we jeopardize efforts at the local level to boost achievement and address issues like student mental health. Only in recent years has the State Legislature begun to address the decades of disinvestment that undermined California schools and we can’t reverse the progress we’ve started to make at a critical time for public education.”

Budget projections are always challenging, but this year’s task was especially difficult since the state tax deadline for many payments originally due in the first or second quarter of 2023 was postponed until Nov. 16. Approximately 40 percent of total state tax revenues were delayed because of the extension, meaning the LAO only recently got a clearer idea of actual tax receipts.

Flat consumer spending over the past year, relatively weak job growth, reduced investment in business startups and expansion, lower state income tax collections and increased prices have combined to place significant pressure on the state budget. These developments have significant implications for the Proposition 98 Guarantee that provides the lion’s share of funding for the state’s TK-12 schools and community colleges. The Prop 98 Guarantee declines by roughly 40 cents for each $1 drop in the state’s general fund and reductions are likely to impact the guarantee for the prior, current and upcoming budget years.

12.7.23: The deficit amount has been updated with the official number from the LAO’s 2024-25 Budget: California’s Fiscal Outlook.