Dollars & Democracy: An Introduction to California’s State Budget Process

The administration refers to the agencies, departments, and other entities that make up California’s executive branch. Sometimes called the “governor’s administration.”

California budget analysts and policymakers sometimes use the term A Pages to refer to the content of the governor’s budget summary (GBS). Up to the late 1970s, the content of what eventually became the GBS was included in the “A” section of a larger state budget publication. The pages of this A section were numbered A-1, A-2, A-3, etc. As a result, this budget content became known as the A Pages — a term that has remained in use decades after the GBS was established as a separate publication and the A Pages were phased out.

An appropriation authorizes California agencies, departments, and other entities to spend money or create obligations from a specific fund for a specific purpose. Under the California state budget process, only budget bills may contain more than a single item of appropriation.

The Assembly Budget Committee reviews the governor’s budget proposals and develops the Assembly’s version of the California state budget. Most of the committee’s work is done through subcommittees that focus on specific policy areas.

California’s balanced-budget requirement is a constitutional mandate for estimated revenues to equal or exceed estimated spending. It applies both to the governor’s proposed budget and to the budget bill as passed by the Legislature.

A state constitutional mandate for estimated revenues to equal or exceed estimated spending. It applies both to the governor’s proposed budget and to the budget bill as passed by the Legislature.

See Workload Budget.

Baseline changes are adjustments to spending or revenue that occur automatically under current California law or policy and therefore do not require legislative action to take effect.

The “Big Three” refers to the top elected California officials who negotiate and make final decisions on the state budget package: the governor, the Assembly Speaker, and the Senate President pro Tempore.

The “Big Three” refers to California’s top sources of state revenue: the personal income tax (largest), the sales & use tax (second-largest), and the corporation tax (third-largest).

A bond bill is a California legislative bill authorizing the sale of general obligation bonds.

Bond funds are California state funds that account for the receipt and disbursement of proceeds from general obligation bonds.

The Budget Act is the initial budget bill passed by the California Legislature and signed into law by the governor, after any line-item vetoes. The Budget Act can be referred to by the year in which it becomes law (“Budget Act of 2025”) or by the fiscal year to which it applies (“2025-26 Budget Act”).

A budget ask is a request for a budget expenditure from an advocacy organization or a member of the California Legislature. A budget ask is usually directed to the Assembly Budget Committee or the Senate Budget & Fiscal Review Committee. Budget asks can also be directed to the governor’s administration, in which case the ask would typically come from an advocacy organization.

See Budget Package.

A budget bill is a California legislative bill that provides authority to spend money (appropriations) across an array of public services and systems for a single fiscal year. Each year’s budget package typically contains multiple budget bills, including the Budget Act and at least one Budget Bill Jr. Budget bills move through the California Legislature’s budget committees rather than through the Legislature’s policy bill process. The Legislature can pass budget bills with a simple majority vote of each house.

Budget Bill Jr. is the informal term for any budget bill that amends California’s Budget Act. Multiple Budget Bill Jrs. are sometimes described using Roman numerals (Budget Bill Jr. I, Budget Bill Jr. II, etc.).

Budget bill provisional language explains how appropriations in the Budget Act must be administered, such as by specifying constraints on expenditures or providing additional or exceptional authority. Provisional language is inserted after an appropriation, or a set of appropriations, and is distinct from the control sections in California’s Budget Act.

A budget change proposal is a recommendation by a California agency, department, or other entity to revise a currently authorized level of service, create a program, or eliminate a program. BCPs that are approved by the governor and submitted to the California Legislature for consideration are posted to the Department of Finance website.

A budget conference committee is a small group of legislators from both houses who work to reconcile differences between the Assembly and Senate versions of the California budget. Members are appointed by the leadership of each house, typically in late May or early June, with the majority party controlling most of the allotted seats. Lawmakers do not have to form a conference committee to create a unified legislative budget. Instead, they may reconcile differences through private negotiations, which may or may not include the participation of the minority party.

The budget package is the combined set of budget bills and trailer bills — potentially numbering into the dozens — that make up the California budget for a fiscal year. The Legislature typically sends the initial set of bills in the budget package to the governor in late June and sometimes early July. Additional budget-related legislation is enacted at other times during the fiscal year, thus increasing the size and scope of the initial California budget package. From time to time, bills that move independently of the Budget Act — and therefore are not trailer bills — may be considered part of the budget package. This could include, for example, legislation to place a constitutional amendment before the voters.

See Deficit.

The Budget Stabilization Account is California’s main state budget reserve. Deposits into and withdrawals from the BSA are governed by rules added to the state Constitution by Proposition 2 (2014). The BSA is commonly referred to as the state’s “rainy day fund.”

The budget window refers to the three-year period that California policymakers focus on when developing the state budget; specifically, the prior fiscal year, the current fiscal year, and the upcoming fiscal year (the budget year). See also Multiyear Window.

The budget year is California’s upcoming state fiscal year, which begins on July 1. See also Current Year.

Capital outlay expenditures in California include state spending used to acquire land; construct, modify, or expand buildings; and/or purchase construction-related equipment. Certain types of capital outlay expenditures — including for housing-related projects — are excluded from appropriations that are subject to California’s state spending cap (Gann Limit).

A constitutional amendment is a resolution to change the language of the California Constitution. Such resolutions require a two-thirds vote of each house of the California Legislature and must be approved by voters in a statewide election (simple majority vote). Constitutional amendments also can be placed on a statewide ballot through the initiative process, thus bypassing the Legislature. On rare occasions, legislative proposals to amend the state Constitution may be integral to the state budget framework, and in these cases would typically be recognized as part of the overall budget package.

A continuing appropriation is an appropriation for a specific amount in the California budget that is available for more than a single year. Not to be confused with continuous appropriation.

A continuous appropriation is an expenditure that is authorized by the California Constitution or by state law that is renewed each year without additional action by the Legislature. Not to be confused with continuing appropriation.

Control sections are the individual sections of the California Budget Act, beginning with 1.00. Control sections define the terms used in the budget, identify restrictions on appropriations, and provide other instructions and information related to the budget.

A cost-of-living adjustment revises spending (usually upward) to reflect the change in California’s cost of living. The Legislature and the governor may provide “discretionary” COLAs through the annual state budget process. In contrast, “statutory” COLAs are required by state law. However, the Legislature may suspend a statutory COLA for a fiscal year by a simple majority vote of each house.

A cost shift is a budget solution that generates savings in the near term, but creates a binding obligation or higher costs for California in the longer term. Cost shifts can be similar to borrowing but often are not explicitly structured as borrowing. Examples include 1) taking out loans from special funds to temporarily pay for services typically supported with General Fund dollars and 2) deferring one month of state employee payroll to the following fiscal year in order to generate temporary state budget savings. Compare to Fund Shift.

The current year refers to California’s present fiscal year, which ends on June 30. See also Budget Year.

A deficit occurs when California’s state budget expenditures exceed resources under current law and policy. In contrast to an operating deficit, which applies to a single fiscal year, the term “deficit” is generally used in assessments of California’s fiscal condition over multiple fiscal years.

A delay is a budget solution that moves previously appropriated funding to a future fiscal year. This approach is often used to close a California budget deficit because it results in a temporary spending reduction. However, delayed amounts are subject to future legislative decisions, and there is no guarantee that the funding will actually be provided.

The California Department of Finance leads the development of the governor’s budget proposals, prepares the governor’s budget documents, testifies on behalf of the governor at budget committee hearings, develops economic and demographic forecasts, and performs several other functions. The DOF’s director (Director of Finance) is the governor’s chief fiscal advisor.

Early action refers to budget decisions that are made before June, when the California budget package is typically finalized. For example, early action on the budget can occur during the winter or spring prior to the start of the new fiscal year (July 1).

The enacted budget is the initial set of bills in the California budget package as passed by the Legislature and approved by the governor. The Legislature typically sends these bills to the governor in late June and sometimes early July.

Enactment occurs when a bill is passed by both houses of the California Legislature and signed by the governor — or allowed to become law without the governor’s signature. In other words, these bills are “enacted into law.”

An encumbrance reflects the obligation of a California appropriation, in whole or in part. Examples include an unfulfilled purchase order or an outstanding contract. Outstanding encumbrances recognize commitments that will be recorded as spending when goods or services are received. The purpose of an encumbrance is to prevent an appropriation from being overspent.

Finance Letters are proposals from the Department of Finance to revise the governor’s proposed budget submitted to the Legislature in January. These requested changes are outlined in letters from the Director of Finance to the chairpersons of the Assembly Budget Committee and the Senate Budget and Fiscal Review Committee. Finance Letters are due to the Legislature by April 1, May 1, or May 14, depending on the subject matter.

California’s fiscal year is the 12-month period (July 1 to June 30) during which the state budget is in effect.

A fund shift is a California budget solution that moves costs usually paid with General Fund dollars to other fund sources, such as a special fund. This action displaces spending that the other fund source would have otherwise supported, and therefore results in lower overall state spending. Examples include 1) shifting spending for certain programs from the General Fund to the Greenhouse Gas Reduction Fund and 2) using revenue from a special tax on managed care organizations to reduce General Fund spending on Medi-Cal health care services. Compare to Cost Shift.

The Gann Limit, also known as the State Appropriations Limit, is a constitutional spending cap established in 1979 through voter approval of Proposition 4. It restricts the growth of certain appropriations from tax proceeds in California. At the state level, the Gann Limit is based on 1978-79 spending and is adjusted annually for changes in population and per capita personal income. (The limit works differently for local governments.) If the state limit is exceeded over two consecutive years, half of the revenue above the limit goes to taxpayers and the other half goes to K-12 schools and community colleges.

The General Fund is California’s major operating fund, which accounts for revenues that are not designated for a specific purpose. The three major sources of General Fund revenues are the state personal income tax, the state sales and use tax, and the state corporation tax. Most General Fund expenditures go toward K-12 and higher education, health and human services programs, and the state prison system.

General obligation bonds are funds borrowed from investors generally to finance infrastructure projects in California. Repayment of GO bonds typically comes from the state’s General Fund and, in all cases, is guaranteed by the full faith and credit of the state. GO bonds require a two-thirds vote of each house of the California Legislature and must be approved by voters in a statewide election (simple majority vote). GO bonds may also be placed on the ballot through the initiative process, thus bypassing the Legislature. See also Lease-Revenue Bonds.

The governor’s budget summary provides the governor’s economic and revenue outlook, highlights major policy initiatives in the governor’s proposed budget, and summarizes proposed expenditures through the California budget. The governor’s budget summary is released — along with the proposed budget — on or before January 10.

The governor’s proposed budget provides the governor’s recommended spending for California’s upcoming fiscal year, estimated expenditures for the current fiscal year, and actual expenditures for the prior fiscal year. The proposed budget is released — along with the governor’s budget summary — on or before January 10.

In the context of the California state budget process, a jailbreak occurs when a legislator whose policy bill has been rejected or held by a legislative committee tries to have the bill — or key parts of the bill — included in the state budget package. This practice is generally discouraged by the Legislature’s budget committees.

January 10 is California’s constitutional deadline for the governor to propose a budget for the upcoming fiscal year. The budget bill, as prepared by the Department of Finance, reflects the governor’s proposal and is introduced immediately into each house of the Legislature by the chairpersons of the Assembly Budget Committee and the Senate Budget and Fiscal Review Committee.

June 15 is California’s constitutional deadline for the Legislature to pass the initial budget bill for the upcoming fiscal year. If lawmakers miss this deadline, they permanently forfeit both their pay and their reimbursement for travel and living expenses (“per diem”) for each day after June 15 that the budget is not passed and sent to the governor. Budget-related trailer bills do not have to be passed by June 15.

Lease-revenue bonds are funds borrowed from investors generally to finance infrastructure projects. They are repaid with lease payments — typically General Fund dollars — made by California agencies that use the facilities they finance. These facilities include prisons, courthouses, and university buildings. Lease-revenue bonds are not guaranteed by the full faith and credit of the state. They require a simple majority vote of each house of the California Legislature, but do not need voter approval. See also General Obligation Bonds.

The Legislative Analyst’s Office is an independent, nonpartisan office that conducts research and analysis on California state budget issues, analyzes statewide ballot measures, and provides fiscal and policy advice to the Legislature. The LAO is overseen by the Legislature’s bipartisan Joint Legislative Budget Committee.

The line-item veto is the California governor’s power to reduce or eliminate specific items of appropriation while approving other portions of a bill. The governor must offer reasons for any items that are reduced or eliminated. The Legislature may override a line-item veto with a two-thirds vote of each house. See also Veto.

Local assistance refers to California budget expenditures that support local governments or other locally operated activities.

May 14 is the deadline for the governor to release a revised California budget plan, which is known as the May Revision.

The May Revision, released on or before May 14, updates the governor’s economic and revenue outlook for California; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the governor’s proposed budget in January; and outlines adjustments to the minimum funding guarantee for K-14 education required by Proposition 98 (1988).

The multiyear projection — often called “the multiyear” — is an analysis of California’s General Fund condition, focusing on the current fiscal year, the budget year, and the three fiscal years that follow (the multiyear window). The Department of Finance is constitutionally required to produce the multiyear projection three times per year — first with the governor’s proposed budget, then with the May Revision, and finally following the enactment of the annual budget package. Commonly called “the multiyear” by Capitol insiders.

The multiyear window is the three-year period that follows California’s budget year. For example, if 2026-27 is the budget year, then the multiyear window consists of 2027-28, 2028-29, and 2029-30. State budget projections often focus on the multiyear window. For example, the Legislative Analyst’s Office highlights the multiyear window in their annual assessment of the state’s fiscal condition (the “Fiscal Outlook”). In addition, the Department of Finance focuses on the multiyear window in their multiyear projection. Compare to Budget Window.

A NASCAR letter features dozens of logos representing the advocacy organizations who signed the letter. In the context of the California state budget process, a NASCAR letter urges support for or opposition to specific policy and/or funding proposals. These letters are typically sent to the governor and to influential legislators, such as the chairs of key budget subcommittees.

A one-time cost is a proposed or actual expenditure in California that is non-recurring — usually reflected only in a single annual budget — and is not permanently included in the baseline budget.

An operating deficit occurs when expenditures for a fiscal year exceed revenues for that same fiscal year under current California law and policy. “Revenues” excludes any balance, positive or negative, carried in from the prior fiscal year.

An operating surplus occurs when revenues for a fiscal year exceed expenditures for that same fiscal year under current California law and policy. “Revenues” excludes any balance, positive or negative, carried in from the prior fiscal year. An operating surplus provides policymakers with discretionary revenues to allocate through the state budget process. However, the existence of an operating surplus does not indicate that Californians’ needs have been fully met or that additional state investments are unnecessary. In fact, an operating surplus may result — at least in part — from maintaining spending cuts that were made in prior fiscal years, which leaves spending lower than it otherwise would be and thus contributes to the operating surplus.

A policy bill is a proposed change to California law that is reviewed by the Legislature’s policy committees and, if required, by appropriations committees to estimate the cost of the proposal. In general, policy bills need only a simple majority vote of each house and take effect on the following January 1 if signed by the governor or allowed to become law without a signature. A policy bill may take effect immediately if it receives a two-thirds vote of each house (“urgency statute”). On rare occasions, policy bills may be integral to the state budget framework, and in these cases would typically be recognized as part of the overall budget package.

The Projected Surplus Temporary Holding Account is a California state reserve that is intended to temporarily hold a projected state budget surplus for use in future fiscal years. The Legislature and governor created this reserve in 2024. State leaders have significant flexibility in determining whether to deposit funds into the reserve and how to use those funds.

Proposition 2 governs deposits into and withdrawals from California’s Budget Stabilization Account as well as the Public School System Stabilization Account. Prop. 2 also requires the state to pay down certain debts. Funding for these two reserves and for the debt payments comes from state General Fund revenue based on formulas in the California Constitution.

Proposition 25 allows the California Legislature to pass budget bills and certain trailer bills by a simple majority vote of each house. Bills passed under the rules of Prop. 25 take effect immediately upon being signed by the governor or on a date specified in the legislation. To qualify as a Prop. 25 trailer bill, the bill must be identified in the budget bill and contain an appropriation of any amount. Bills that require a supermajority vote of the Legislature — such as a bill to increase a tax — cannot be passed as Prop. 25 majority-vote trailer bills, although they still may move through budget committees along with other trailer bills.

Proposition 26 requires a two-thirds vote of each house of the California Legislature to increase any tax. Prop. 26 also expanded the definition of a tax to include some charges that were previously considered “fees” and could be passed by a simple majority vote of each house. These redefined “taxes” require a two-thirds vote of each house.

Proposition 54 requires bills to be distributed to legislators and published on the internet, in their final form, at least 72 hours before being passed by the California Legislature. This rule applies to all bills, including bills that are part of the budget package.

Proposition 98 guarantees a minimum annual level of funding for California’s K-12 schools and community colleges. The amount of the guarantee is calculated each year using one of three tests that apply under varying fiscal and economic conditions. Two of these tests include adjustments for changes in statewide K-12 attendance. Prop. 98 funding comes from the state General Fund as well as from local property tax dollars.

The Public School System Stabilization Account is a state budget reserve for California’s K-12 schools and community colleges. Deposits into and withdrawals from the PSSSA are based on rules added to the state Constitution by Proposition 2 (2014).

See Budget Stabilization Account (BSA).

A reduction is an action to spend less money than what has been established under current California law or policy. Also known as a spending cut.

Resources are the funding available to support state programs and services, typically from the General Fund. In assessments of the state’s fiscal condition, resources consist of three major components: 1) revenue projected to be generated in a specific fiscal year; 2) the balance, positive or negative, projected to be carried in from the prior fiscal year; and 3) transfers to or from the state’s constitutional rainy day fund (the Budget Stabilization Account) that are required by current California law or policy.

Revenue consists of funds received by California, generally derived from taxes, licenses, fees, or investment earnings. Revenues are deposited into specific funds and are not available for expenditure until appropriated.

A reversion is the return of the unused portion of an appropriation to the fund from which the appropriation was made. This return typically occurs two years after the last day of an appropriation’s availability period (or four years in the case of federal funds). Funds may be reverted more quickly with legislative action. In addition, the Department of Finance may order a reversion. See also Sweep.

The Safety Net Reserve is a General Fund reserve created in 2018 to help pay for higher state costs in the CalWORKs and Medi-Cal programs during recessions.

The term score has several closely related meanings, including “to account for,” “to count,” and “to estimate.” Examples:

• “The new refundable tax credit is scored as a revenue reduction.” 
• “The May Revision scores $200 million in savings from closing a prison.” 
• “The costs are scored to the 2026-27 fiscal year.”

The California Senate Budget and Fiscal Review Committee reviews the governor’s budget proposals for the upcoming fiscal year and develops the Senate’s version of California’s state budget. Most of the committee’s work is done through subcommittees that focus on specific policy areas.

A solution is a proposal or action to close a California state budget deficit. Solutions include, but are not limited to, revenue increases, spending reductions, spending delays, cost shifts, fund shifts, and reversions.

Special funds are California state funds that account for taxes, fees, and licenses that are designated for a specific purpose. The state has more than 500 special funds.

The Special Fund for Economic Uncertainties is California’s discretionary General Fund budget reserve. The SFEU serves as a buffer against unanticipated revenue shortfalls or spending increases. The reserve level is equal to the difference between General Fund resources and General Fund expenditures in a fiscal year. Due to California’s constitutional balanced-budget requirement, the projected SFEU balance cannot be less than zero at the time the budget is adopted. If revenues come in lower than projected or spending unexpectedly rises, the SFEU balance will decline and can become negative if spending exceeds revenues.

See Gann Limit.

State operations spending supports key functions of California’s state government. For example, state support for the California State University and the University of California as well as for the state prison system primarily consists of state operations funding.

A statute is a law that has been formally approved and recorded; an enacted bill. See also Enactment.

A subvention typically refers to money that is spent as local assistance and allocated based on a formula, rather than being provided selectively as grants.

A surplus occurs when California’s state budget resources exceed expenditures under current law and policy. In contrast to an operating surplus, which applies to a single fiscal year, the term “surplus” is generally used in assessments of the state’s fiscal condition over multiple fiscal years. A surplus provides policymakers with discretionary revenues to allocate through the California state budget process. However, the existence of a surplus does not indicate that Californians’ needs have been fully met or that additional state investments are unnecessary. In fact, a surplus may result — at least in part — from maintaining spending cuts that were made in prior fiscal years, which leaves spending lower than it otherwise would be and thus contributes to the surplus.

Sweep refers to the act of pulling back an appropriation that was previously provided to a California agency, department, or other state entity; essentially, a less formal way of referring to a reversion. Example: “The budget package sweeps unspent child care funding to help close the deficit.”

A tax expenditure is an exception to “normal tax law” that reduces the revenue that governments would otherwise collect. Tax expenditures include, but are not limited to, exemptions, deductions, exclusions, tax credits, deferrals, elections, and preferential tax rates. Tax expenditures are commonly referred to as tax breaks, tax loopholes, or tax preferences.

A trailer bill generally makes changes to state law needed to implement the policies assumed in the Budget Act. For example, if the Budget Act includes funding for a new program, the details of the program would be outlined in a trailer bill. Trailer bills move through the California State Assembly and Senate budget committees, with each bill addressing a specific policy area, such as health, housing, higher education, or transportation. The Department of Finance is required to post trailer bill language that is needed to implement the governor’s proposed budget by February 1.

Under rules established by Proposition 25 (2010), California trailer bills generally can be passed by a simple majority vote of each house of the Legislature and take effect immediately upon being signed by the governor. The only requirements for Prop. 25 trailer bills are that they (1) be listed in the Budget Act and (2) contain an appropriation of any amount. Still, even with Prop. 25, some types of trailer bills require a supermajority — generally two-thirds — vote of each house. This includes, for example, trailer bills that would raise taxes or amend a state law that was approved by voters through a ballot initiative. However, most trailer bills in a budget package will need only a simple majority vote to pass.

A trigger is a California state budget mechanism that is typically used to reduce certain expenditures automatically if revenues fail to reach a predetermined target. A trigger also can be used to automatically increase certain expenditures if revenues exceed a set level.

Unanticipated revenue occurs when California state revenue collections are expected to exceed prior projections, such as the revenue forecast included in the enacted budget. Not to be confused with surplus.

A veto is the governor’s power to reject a bill by returning it with any objections to the house of origin. The California Legislature may override a veto by passing the bill with a two-thirds vote of each house. See also Line-Item Veto.

The workload budget estimates how much California’s currently authorized services will cost in the upcoming fiscal year. To determine the workload budget, current-year costs are adjusted to reflect changes in student enrollment, program caseloads, and the prison population; statutory cost-of-living adjustments; recently enacted legislation; expenditures required by court orders or by the federal government; one-time expenditures; and several other factors. A workload budget is also known as a baseline budget.