The Legislative Analyst’s Office has just published the following report:

The 2021-22 Budget: Initial Comments on the Governor’s May Revision

We have released our initial comments on the Governor’s 2021-22 May Revision. Here are our key takeaways:

  • We Estimate the State Has a $38 Billion Surplus to Allocate. We estimate the state has $38 billion in discretionary state funds to allocate in the 2021-22 budget process, an estimate that is different than the Governor’s figure—$76 billion. The differences in our estimates stem from our differing definitions. The Governor’s estimate includes constitutionally required spending on schools and community colleges, reserves, and debt payments. We do not consider these spending amounts part of the surplus because they must be allocated to specified purposes.
  • In Contrast to the Governor, Recommend Legislature Restore Budget Resilience. Despite a historic surge in revenues, the Governor continues to rely on budget tools from last year. Specifically, he uses $12 billion in reserve withdrawals and borrowing to increase spending. The state will need these tools to respond to future challenges, when federal assistance might not be as significant. We urge the Legislature not to take a step back from its track record of prudent budget management.
  • State Appropriations Limit (SAL) Is Important Issue in May Revision. The Governor’s May Revision estimates the state will collect $16 billion in revenues in excess of the SAL this year. However, the ultimate amount of a potential excess will depend on decisions by the Legislature. Ultimately while the SAL will be an important consideration in this year’s budget process, the Legislature has substantial discretion in how to meet the constitutional requirements.
  • Trade-Off Between Addressing Many Issues and Making More Significant Inroads on a Smaller Subset. The May Revision includes roughly 400 new proposals. While the surplus is large enough to make significant inroads in addressing a few key policy priorities, it is unlikely sufficient to do so across the number of issues contemplated in the May Revision. If the Legislature preferred to make surer substantial progress in a few key areas, it could allocate the surplus in a more targeted manner that reflect its top priorities.
  • Consider Withholding Some Decisions. The surplus, in combination with the federal fiscal recovery funds, represents resources equal to about half of pre-pandemic General Fund budgets. Departments’ capacity to allocate this funding in a timely and effective manner likely will be significantly constrained. More importantly, the Legislature’s time to deliberate over choices made in this budget is extremely limited. We recommend the Legislature delay some of those decisions and offer options for doing so.

This report is available using the following link: