CSBA submits response to Governor’s proposed budget, Prop 98 concerns

Over the past five months, the financial challenges facing the state have become clearer. In December 2023, the  non-partisan Legislative Analyst’s Office (LAO) announced that the state budget was facing a deficit of $68 billion. However, in January, Gov. Gavin Newsom announced a revised budget deficit of $38 billion using budget reserves and differing revenue projections. After reviewing the Governor’s proposed 2024–25 budget, the LAO described the Governor’s approach as “plausible, but optimistic.” Concerningly, the LAO highlighted that the Governor’s budget “lacks a plan for implementing proposed reductions to schools and community colleges, and some other solutions … unlikely to yield … anticipated savings.”

Due to delayed taxes being filed in November in response to executive actions made at the federal and state levels, the state adopted a budget using estimated state budget revenues. As a result, the Proposition 98 Guarantee for the 2022–23 was funded $8 billion above what it should have been. To address this $8 billion funding gap in the 2022–23 fiscal year — using optimistic outyear state revenue estimates — the Governor is proposing a new “funding maneuver” to meet the estimated funding levels in the prior fiscal year by borrowing against future-year state general fund revenues. Essentially, if adopted, the state would fund the $8 billion in the 2022–23 fiscal year via a loan guaranteed against projected future state general fund revenues.

CSBA argues that the recalculation of prior-year enacted funding, resulting in a “loan” to Prop 98 as non-Prop 98 funding, and a manipulation of the operative test year are a new interpretation of Prop 98 that defies past practice and the standard understanding of the proposition. (Learn more about the Governor’s proposal.)

Recently, CSBA submitted a letter to the Governor and the Legislature raising its objection to this proposal on the grounds that it would undermine the spirit, statutory and constitutional requirements enshrined in Prop 98. The concern is that the proposal would set a worrisome precedent, which if adopted could be used by future governors and Legislatures to avoid complying with the Prop 98 funding guarantee. Specifically, CSBA is advocating the Legislature reject the proposed “funding maneuver” and ensure any efforts to reduce or alter education funding is in alignment with the statutory and constitutional provisions of Prop 98.

Read it now: CSBA Governor’s 2024-25 Budget Response Letter