Legislative office estimates California budget surplus just $38B, not $76B

A new estimate by the nonpartisan Legislative Analyst’s Office in California has found the state’s budget surplus is $38 billion, half the amount California Gov. Gavin Newsom’s (D) office estimated last week. 

“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 office wrote in its report released Monday.

To a significant extent, the office said, the difference was technical. The California Constitution requires certain levels of payouts to schools, community colleges, rainy day reserves and debt payments.

“We do not consider these spending amounts part of the surplus because they must be allocated to specified purposes,” the report said.

Newsom’s administration noted that the nonpartisan office agreed that the overall surplus amount was equivalent once the required spending was factored back in.

“The $76 billion figure includes the total amount of new available resources, including the amounts for schools and for reserves, that are reflected in both the Governor’s Budget and the May Revision,” said H.D. Palmer, deputy director for external affairs for the California Department of Finance.

In California, the legislature’s fiscal estimates frequently differ from those of the administration.

But that $38 billion distinction could have implications for Newsom’s $100 billion worth of proposals.

When Newsom, who is facing a recall election, announced the state was expecting the $76 billion surplus, it was a surprise, as the state had been expecting a surplus of around $54 billion. 

Newsom announced a slew of new benefits, including $600 stimulus payments to residents, as a result of the initial surplus estimate.

“California’s recovery is well underway, but we can’t be satisfied with simply going back to the way things were,” Newsom said of the proposal at the time.

The legislative report dinged the governor for continuing to use emergency tools, such as $12 billion in reserve funds and borrowing.

“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,” the report said.

It recommended prioritizing the funds among the 400 proposals in Newsom’s revised budget and delaying others.

The surplus in California raised concerns among some lawmakers in Washington, which has allocated some $350 billion to boost state and local budgets suffering from the aftermath of the pandemic.

Congressional Republicans, who opposed the $1.9 trillion COVID-19 relief bill that included the aid, argued that the surplus was proof that the package was too big for the needs of the economy.

Reid Wilson contributed.