Federal dollars support a wide array of public services and systems that touch the lives of all Californians — from health care and food assistance to child care and public schools. Under the incoming Trump administration and a Republican-controlled Congress, many of these services are expected to face significant reductions — in large part to pay for tax cuts for corporations and the wealthy. Federal funding cuts would devastate vital services that help the most vulnerable Californians, including immigrant communities, Californians with disabilities, low-income families with young children, older adults living on fixed incomes, and many more.
How Federal Funds Support California’s State Budget and Programs
A significant share of federal funding for California flows through the state budget. The enacted state budget for 2024-25 — the fiscal year that began on July 1, 2024 — includes $153 billion in federal funds. This is more than one-third (33.9%) of the total state budget.
More than 3 in 4 federal dollars that are estimated to flow through the state budget in 2024-25 — $115.7 billion — support vital health and human services (HHS) for millions of Californians, including children, seniors, and families with low incomes.
The largest share of federal funding for HHS programs — $98.5 billion — is budgeted through the Department of Health Care Services for Medi-Cal (California’s Medicaid program). Medi-Cal provides health care services to more than 14 million Californians with low incomes, including children, older adults, and people with disabilities. More than half of Californians enrolled in Medi-Cal are Latinx.
The second-largest share of federal funding for HHS programs — $12.1 billion — goes to the Department of Social Services. These funds support child welfare services, foster care, the CalWORKs program, and other critical services that assist low-income and vulnerable Californians.
The remaining federal funds that are projected to flow through the state budget in 2024-25 — $37.3 billion — support a broad range of public services and systems. This includes:
$8.5 billion for labor and workforce development programs, primarily for unemployment insurance benefits for jobless Californians;
$7.9 billion for K-12 education;
$7.4 billion for higher education (the California Community Colleges, the California State University, and the University of California);
$6.8 billion for transportation, primarily to improve state and local transportation infrastructure; and
$6.8 billion for additional public services and systems, including environmental protection, the state court system, and state corrections.
Potential Federal Cuts Threaten California: Health Care, Safety Net, Education At Risk
The outcome of the November 2024 national election portends major cuts to federal funding for key public services. Such cuts would have devastating consequences for Californians. Federal funding for Medi-Cal alone comprises almost two-thirds (64.4%) of all federal funding that flows through the state budget. Republicans have made clear their intention to curtail this spending.
Certain Republican-championed cuts would be particularly harmful to Medi-Cal, like the proposal to fund Medicaid through a block grant. This change would cap federal funding well below California’s actual Medi-Cal costs, forcing state policymakers to find alternative funding in an already tight budget and/or consider cuts to Medi-Cal eligibility, services, or provider rates. This block grant proposal, and others like it, would jeopardize access to Medi-Cal for the one-third of Californians — more than 14 million — who rely on it.
Other services are also at risk, including some that are funded with federal dollars that flow directly to Californians outside of the state budget — such as federal food assistance provided through the state’s CalFresh program and federal Supplemental Security Income (SSI) payments for low-income seniors and people with disabilities.
The incoming Trump administration and congressional Republicans have proposed to decrease federal support in several other policy areas — including for K-12 education — while simultaneously reducing federal revenues by extending tax cuts for corporations and the wealthy.
The resulting ebb in federal funding would trickle down to the state level and cause harm across the country. This would leave state policymakers with difficult decisions about how to fill — as much as possible — the resulting funding gaps in order to prevent the erosion of public services and systems that promote economic security and opportunity for millions of Californians.
Every year, California’s 58 counties adopt local budgets that provide a framework and funding for critical public services and systems — from health care and safety net services to elections and the justice system.
But county budgets are about more than dollars and cents.
A county budget expresses our values and priorities as residents of that county and as Californians. At its best, a county budget should reflect our collective efforts to expand opportunities, promote well-being, and improve the lives of Californians who are denied the chance to share in our state’s wealth and who deserve the dignity and support to lead thriving lives.
Because county budgets touch so many services and our everyday lives, it is critical for Californians to understand and participate in the annual county budget process to ensure that county leaders are making the strategic choices needed to allow every Californian — from different races, backgrounds, and places — to thrive and share in our state’s economic and social life.
This guide sheds light on county budgets and the county budget process with the goal of giving Californians the tools they need to effectively engage local decision-makers and advocate for fair and just policy choices.
Key Takeaways
the bottom line
County budgets are about more than dollars and cents.
Crafting the annual spending plan provides an opportunity for county residents to express their values and priorities.
County and state budgets are inherently intertwined because counties are legal subdivisions of California and perform functions as agents of the state.
To a large degree, county budgets reflect funding and policy choices made by the governor and the Legislature as well as by federal policymakers.
However, county budgets also reflect local choices, as counties allocate their limited “discretionary” dollars to local priorities.
Counties’ ability to raise revenue to support local services is constrained.
For example, counties cannot increase the property tax rate to boost support for county-provided services.
Counties may increase other taxes to establish or improve local services, but only with voter approval.
Both state law and local practices shape the county budget process.
State law establishes minimum guidelines that counties must adhere to in developing their budgets.
Counties can — and often do — exceed these state guidelines in crafting their budgets and sharing them with the public.
The county budget process is cyclical, with decisions made throughout the year.
The public has various opportunities for input during the budget process.
This includes writing letters of support or opposition, testifying at budget hearings, and meeting with supervisors, the county manager, and other county officials.
In short, Californians have the opportunity to stay engaged and involved in their county’s budget process year-round.
California’s Counties: The Basics
California Has 58 Counties That Vary Widely In Population and Size
California’s counties range widely in population.
10 counties have more than 1 million residents, and 21 counties have fewer than 100,000 residents.
Los Angeles County has the largest population of any county in the state (9.8 million).
Alpine County has the smallest population (less than 1,200).
California’s counties also differ considerably in size.
San Bernardino is California’s largest county (20,057 square miles).
San Francisco — which has the state’s only consolidated city and county government — is the smallest county (47 square miles).
California's Counties Are Legal Subdivisions of the State
California’s Constitution requires the state to be divided into counties. Counties’ powers are provided by the state Constitution or by the Legislature.
The Legislature may take back any authority or functions that it delegates to the counties.
There are 44 general-law counties and 14 charter counties.
Unlike general-law counties, charter counties have a limited degree of independent authority over certain rules that pertain to county officers. However, charter counties lack any extra authority with respect to budgets, revenue increases, and local regulations.
Counties Have Multiple Roles in Delivering Public Services
Counties operate health and human services programs as agents of the state.
These include foster care; child welfare services; Medi-Cal (health care for low-income residents); public health; behavioral health (mental health services and substance use disorder treatment); the CalWORKs welfare-to-work program; and others.
Counties carry out a broad range of countywide functions.
These include overseeing elections and operating — along with cities and the courts — the local justice system.
Counties provide some municipal-type services in unincorporated areas.
These include policing, fire protection, libraries, planning, and road repair.
Other Types of Local Agencies Also Deliver Public Services
Counties provide public services alongside other agencies that operate at the local level. A wide array of local services are delivered by:
More than 2,000 independent special districts, which provide specialized services such as fire protection, water, or parks.
More than 900 K-12 school districts, which are responsible for thousands of public schools.
More than 480 cities, which provide policing, fire protection, and other municipal services.
More than 70 community college districts, which oversee 113 community colleges.
Counties Are Governed By an Elected Board of Supervisors
The Board of Supervisors consists of five members in all but one county.
The City and County of San Francisco has an 11-member Board and an independently elected mayor.
Because counties do not have an elected chief executive (except for San Francisco), the Board’s role encompasses both executive and legislative functions.
These functions include setting priorities, approving the budget, controlling county property, and passing local laws.
Boards also have a quasi-judicial role.
For example, Boards may settle claims and hear appeals of land-use and tax-related issues.
A Number of Other County Officers Also Are Elected
Along with an elected Board of Supervisors, the state Constitution requires counties to elect:
An assessor.
A district attorney.
A sheriff.
Although not required by the state Constitution, a few other key county offices are typically filled by election, rather than by Board appointment. These include:
The auditor-controller.
The county clerk.
The treasure-tax collector.
The County Manager Oversees the Daily Operations of the County Government
The top administrator in each county is appointed by the Board of Supervisors.
Counties have various titles for this position. This guide uses the generic term “county manager.”
San Francisco, with an independently elected mayor, does not have a county manager position.
The county manager:
Prepares the annual budget for the Board’s consideration.
Coordinates the activities of county departments.
Provides analyses and recommendations to the Board.
May hire and fire department heads, if authorized to do so.
May represent the Board in labor negotiations.
Key Facts About County Revenues and Spending
County Budgets Reflect State and Federal Policy Priorities and Local Policy Choices
To a large degree, county budgets reflect state and federal policy and funding priorities.
As agents of the state, counties provide an array of services that are supported with state and federal dollars and governed by state and federal rules.
This means that a large share of any county budget will reflect priorities that are set in Sacramento and in Washington, DC.
County budgets also reflect the policy and funding priorities of local residents and policymakers.
Counties can use a portion of their locally generated revenues to fund key local services and improvements.
County Revenues = State Funds + Federal Funds + Local Funds
County revenues consist of state and federal dollars along with locally generated funds.
State and federal revenues pay for health and human services, roads, transit, and other services.
Local revenues, particularly property tax dollars, are important because they are mostly “discretionary” and can be spent on various local priorities.
In 2022-23, almost two-thirds of county revenues statewide came from the state government, the federal government, and local property taxes.
County Budgets Support a Broad Range of Public Services and Systems
In 2022-23, nearly half of all county spending across the state funded the local justice system or public assistance.
The local justice system includes the district attorney, adult and youth detention, policing provided by the sheriff’s department, and probation.
Public assistance includes spending on cash aid for Californians with low incomes, including families with children in the CalWORKs welfare-to-work program.
Large shares of county spending in 2022-23 also supported either 1) public ways and facilities, health, and sanitation (18.5%) or 2) enterprise activities (16%), which include airports, hospitals, and golf courses.
The State Rules That Determine Counties' Revenue-Raising Authority
State Rules Establish Counties' Authority to Raise Revenue
Counties can levy a number of taxes and other charges to fund public services and systems.
The rules that allow counties to create, increase, or extend various charges are found in state law — as determined by the Legislature — as well as in the state Constitution.
Statewide ballot measures approved by voters since the late 1970s have constrained counties’ ability to raise revenues.
These measures are Proposition 13 (1978), Prop. 62 (1986), Prop. 218 (1996), and Prop. 26 (2010).
Counties Can Increase the Property Tax Rate Solely to Pay for Voter-Approved Debt
Prop. 13 (1978) limits the countywide property tax rate to 1% of a property’s assessed value.
Each county collects revenues raised by this 1% rate and allocates them to the county government, cities, and other local jurisdictions based on complex formulas.
Revenues from the 1% rate may be used for any purpose.
Local jurisdictions may increase the 1% rate to pay for voter-approved debt, but not to increase revenues for services or general operating expenses.
Most voter-approved debt rates are used to repay bonds issued for local infrastructure projects.
At the county level, bonds must be approved by a two-thirds vote of both the Board of Supervisors and the voters.
Counties Can Raise Other Taxes, But Only With Voter Approval
In contrast to counties’ limited authority over property taxes, counties may levy a broad range of other taxes to support local services. These include taxes on:
Retail sales.
Short-term lodgings.
Businesses.
Property transfers.
Parcels of property.
However, county proposals to increase taxes generally must be approved by local voters. These voter-approval requirements vary depending on whether the proposal is a “general” tax or a “special” tax.
Must be placed on the local ballot and approved by a simple majority of voters.
Special taxes
Include both parcel taxes and taxes dedicated to specific purposes.
Must be placed on the local ballot and approved by at least two-thirds of voters.
Counties Also Can Levy Charges That Are Not Defined as "Taxes"
In addition to taxes, counties can establish, increase, or extend other charges to support local services. These are:
Charges for services or benefits that are granted exclusively to the payer, provided that such charges do not exceed the county’s reasonable costs.
Charges to offset reasonable regulatory costs.
Charges for the use of government property.
Charges related to property development.
Certain property assessments and property-related fees.
Fines and penalties
The state Constitution, as amended by Prop. 26 (2010), specifically excludes these charges from the definition of a “tax.”
Charges that are not defined as “taxes” can be created, increased, or extended by a simple majority vote of the Board of Supervisors. A countywide vote is not required.
However, Prop. 218 (1996) does require the Board of Supervisors to consult property owners regarding two types of charges.
Property assessments, which pay for specific services or improvements, must be approved by at least half of the ballots cast by affected property owners, with ballots weighted according to each owner’s assessment liability.
Property-related fees — except for water, sewer, and garbage pick-up fees — must be approved by 1) a majority of affected property owners or 2) at least two-thirds of all voters who live in the area.
The County Budget Process: State Rules and Local Practices
State Law Shapes the County Budget Process
Counties develop and adopt their annual budgets according to rules outlined in state law.
Rules pertaining specifically to county budgets are found in the County Budget Act (Government Code, Sections 29000 to 29144).
The Ralph M. Brown Act (Government Code, Sections 54950 to 54963) includes additional rules that county officials must follow when discussing official county business.
State law delineates:
The process by which county budgets must be developed and shared with the public and the information that must be included in these budgets.
Local Practices Also Shape the County Budget Process
Counties have some discretion in how they craft their annual spending plans.
For example, the Board of Supervisors may hold more public hearings than state law requires and/or convene informal public budget workshops. Some counties also begin developing their budgets earlier than others do.
Counties have some leeway in how they structure their budgets and share them with the public.
County budgets may include more information and provide a higher level of detail than the state requires.
Counties may make their spending plans and other budget-related materials widely accessible to the public in multiple formats, including online.
Three Versions of Annual County Budget
At all stages, the county budget must be balanced (funding sources must equal financing uses).
The Recommended Budget is the county manager's proposed spending for the next fiscal year, as submitted to the Board of Supervisors.
The Adopted Budget is the budget as formally adopted by the Board by October 2 or — at county option — by June 30.
The Final Budget is the adopted budget adjusted that reflects all revisions made by the Board during the fiscal year.
Counties Must Adopt Their Budgets Using One of Two Models
State law provides two models for adopting the annual county budget.
One model — called the “two-step” model in this guide — requires the Board of Supervisors to first approve an interim budget by June 30 and then formally adopt the budget by October 2.
The other model — called the “one-step” model in this guide — allows the Board to formally adopt the budget by June 30 of each year, with no need to first approve an interim budget. This alternative process was created by Senate Bill 1315 (Bates, Chapter 56, Statutes of 2016).
Each county decides which model to follow in adopting its annual budget.
Two-Step Model (Step 1): Board Approved the Recommended Budget By June 30
The Board of Supervisors must approve — on an interim basis — the Recommended Budget, including any revisions that it deems necessary, on or before June 30.
The Board must consider the Recommended Budget, as proposed by the county manager, during a duly noticed public hearing.
The Recommended Budget must be made available for public review prior to the public hearing.
At this stage, the Recommended Budget is essentially a preliminary spending plan, which authorizes budget allocations for the new fiscal year (beginning on July 1) until the Board formally adopts the budget.
Two-Step Model (Step 2): Board Adopts the County Budget by October 2
The Board of Supervisors must formally adopt the county budget on or before October 2.
On or before September 8, the Board must publish a notice stating 1) that the Recommended Budget is available for public review and 2) when a public hearing will be held to consider it. At this stage, the budget reflects the preliminary version approved by the Board along with any changes proposed by the county manager.
The public hearing must begin at least 10 days after the Recommended Budget is made available to the public.
The Board must adopt a balanced budget, including any additional revisions that it deems advisable after the public hearing has concluded, but no later than October 2.
One-Step Model: Board Adopts the County Budget by June 30
The Board of Supervisors must formally adopt the county budget on or before June 30, with no need to initially approve the Recommended Budget on a preliminary basis.
On or before May 30, the Board must publish a notice stating that 1) the Recommended Budget (as proposed by the county manager) is available for public review and 2) when a public hearing will be held to consider it.
The public hearing must begin at least 10 days after the Recommended Budget is formally released to the public, but no later than June 20.
The Board must adopt a balanced budget, including any revisions that it deems advisable, after the public hearing has concluded, but no later than June 30.
County Budget Actions Require a Simple Majority Vote or a Supermajority Vote
State law allows the Board of Supervisors to make certain budget decisions by majority vote.
These include approving the Recommended Budget and/or the Adopted Budget as well as eliminating or reducing appropriations.
However, a four-fifths supermajority vote of the Board is required for a number of budget actions, including to:
Appropriate unanticipated revenues.
Appropriate revenues to address an emergency.
Transfer revenues between funds or from a contingency fund after the budget has been formally adopted.
Increase the general reserve at any point during the fiscal year.
The Timeline of the County Budget Process
The County Budget Process is Cyclical and Interacts with the State Budget Process
County budgets are developed, revised, and monitored throughout the year.
Because counties perform functions required by the state and receive significant state funding, county budgets are shaped by state budget choices.
County officials must take into account decisions made as part of the state’s annual budget process. Federal policy and funding decisions also affect county budgets.
The budget process varies somewhat across counties.
For example, counties can hold more public hearings than required, and some counties start developing their budgets earlier than others do.
The county manager prepares budget instructions for county departments, taking into account the Board of Supervisors’ budget objectives and guidance. (This step may occur before January.) Instructions typically include deadlines, spending targets, and priorities.
Meanwhile, at the state level:
By January 10, the governor releases a proposed state budget for the upcoming fiscal year. This budget outlines recommended policy changes — some of which could affect counties — and provides counties with an initial look at the amount of state and federal funds they could receive in the upcoming fiscal year.
February to April
At the county level:
County departments develop budget requests.
The county manager reviews budget requests in light of the county’s fiscal situation and other factors.
The Board of Supervisors may convene budget workshops in order to clarify Board and public priorities as the county manager develops the Recommended Budget.
Meanwhile, at the state level:
The Legislature reviews the governor’s proposed budget.
The governor’s Department of Finance prepares the May Revision, which revises the governor’s initial spending plan and may include new or modified policy proposals affecting counties.
May
At the county level (two-step budget adoption model):
The Board of Supervisors makes the Recommended Budget available for public review and announces a public hearing date. One or both of these actions could occur in June.
At the county level (one-step budget adoption model):
The Board of Supervisors makes the Recommended Budget available for public review and announces a public hearing date. These steps must occur by May 30.
Meanwhile, at the state level:
The governor releases the May Revision on or before May 14.
June
At the county level (two-step budget adoption model):
The Board of Supervisors convenes a public hearing to review the Recommended Budget.
The Board may revise the Recommended Budget.
The Board approves the Recommended Budget, with or without revisions, by June 30.
At the county level (one-step budget adoption model):
The Board convenes a public hearing to review the Recommended Budget by June 20.
The Board may revise the Recommended Budget.
The Board formally adopts the budget for the upcoming fiscal year by June 30.
Meanwhile, at the state level:
State lawmakers and the governor negotiate a state budget deal for the fiscal year that begins on July 1.
Following approval by the Legislature, the governor signs the state budget and related legislation (“trailer bills”) into law, giving counties a clear picture of funding levels and any state policy changes that will affect them in the new fiscal year.
July to September
At the county level (two-step budget adoption model only):
The county manager prepares an updated budget, building on the Recommended Budget as approved by the Board of Supervisors. This document may take into account the county’s closing fund balances for the fiscal year that ended on June 30, funding included in the state budget, state or federal policy changes, updated revenue estimates, and other factors.
The Board convenes a public hearing to consider the updated county budget. This review typically occurs in September, but may happen in July or August, at county discretion.
The Board formally adopts the budget, possibly with additional revisions, by October 2.
After the County Budget is Adopted
After the Board of Supervisors adopts the budget:
The county provides a copy of the Adopted Budget to the California State Controller by December 1.
The county manager provides revenue and spending updates to the Board throughout the year.
The Adopted Budget may be revised as the fiscal year proceeds, with many types of changes requiring a four-fifths vote of the Board of Supervisors.
County officials may develop or update a strategic plan, establishing longterm priorities that will be reflected in the county budget for the upcoming fiscal year.
The Board, the county manager, department heads, and the public look ahead to the next budget cycle.
Appendix
How to Find Your County's Budget
Counties generally make their budget documents available on the internet.
Online budget materials are typically located in a “budget and finance” section of the county’s website or the county manager’s webpage.
Perhaps the fastest way to find a county’s budget is by using an internet search engine and entering a phrase like “Kern County budget.”
In addition, counties make their budget documents available in county buildings and local libraries.
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
Overview
What’s the difference between a trailer bill and a policy bill? A surplus and an operating surplus? Special funds and the General Fund? And what exactly is a “Budget Bill Jr.”? Understanding these and other key budget-related terms is critical to navigating the state budget process and effectively engaging decision-makers in order to advocate for fair and just policy choices for Californians.
The agencies, departments, and other entities that make up the state’s executive branch. Sometimes called the “governor’s administration.”
Appropriation
Authorizes agencies, departments, and other entities to spend money or create obligations from a specific fund for a specific purpose. Only budget bills may contain more than a single item of appropriation.
Assembly Budget Committee
Reviews the governor’s budget proposals and develops the Assembly’s version of the state budget. Most of the committee’s work is done through subcommittees that focus on specific policy areas.
Augmentation
An increase to a previously authorized appropriation.
Balanced-Budget Requirement
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.
Baseline Budget
See Workload Budget.
Baseline Change
Adjustments to spending or revenue that occur automatically under current law or policy and therefore do not require legislative action to take effect.
Big Three (decision makers)
The three elected state officials who negotiate and make final decisions on the budget package: the Governor, the Assembly Speaker, and the Senate President pro Tempore.
Big Three (revenue sources)
California’s three major sources of state revenue: the personal income tax (largest), the sales & use tax (second-largest), and the corporation tax (third-largest).
Bond Bill
A bill authorizing the sale of state general obligation bonds.
Bond Funds
State funds that account for the receipt and disbursement of proceeds from general obligation bonds.
Budget Act
The initial budget bill passed by the 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”).
Budget Ask
A request for a state budget expenditure from an advocacy organization or a state legislator. 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.
Budget Agreement
See Budget Package.
Budget Bill
A 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 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.
The informal term to describe any budget bill that amends the Budget Act. Multiple Budget Bill Jrs. may be 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 the Budget Act.
Budget Change Proposal (BCP)
A proposal by an 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 Legislature for consideration are posted to the Department of Finance website.
Budget Conference Committee
A small group of legislators from both houses who work to reconcile differences between the Assembly and Senate versions of the state 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.
Budget Package
The combined set of budget bills and trailer bills — potentially numbering into the dozens — that make up the state 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 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.
Budget Problem/Shortfall
See Deficit.
Budget Stabilization Account (BSA)
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.”
Budget Window
The three-year period that 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.
Budget Year
The upcoming state fiscal year, which begins on July 1. See also Current Year.
Capital Outlay
Expenditures 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 the state spending cap (Gann Limit).
Constitutional Amendment
A resolution to change the language of the state Constitution. Such resolutions require a two-thirds vote of each house of the 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.
Continuing Appropriation
An appropriation for a specific amount that is available for more than a single year. Not to be confused with continuous appropriation.
Continuous Appropriation
An expenditure that is authorized by the state 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
The individual sections of the 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.
Cost-of-Living Adjustment (COLA)
An adjustment in spending that reflects the change in the 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.
Cost Shift
A budget solution that generates savings in the near term, but creates a binding obligation or higher costs for the state 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.
Related Content
See our report Dollars and Democracy: A Guide to the California State Budget Process to learn more about the state budget and budget process.
The present state fiscal year, which ends on June 30. See also Budget Year.
Deficit
Occurs when 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 the state’s fiscal condition over multiple fiscal years.
Delay
A budget solution that moves previously appropriated funding to a future fiscal year. This approach is often used to close a 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.
Department of Finance (DOF)
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
Budget decisions that are made before June, when the 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).
Enacted Budget
The initial set of bills in the 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
A bill that is passed by both houses of the Legislature and signed by the governor — or allowed to become law without the governor’s signature — is “enacted into law.”
Encumbrance
The obligation of an appropriation, in whole or in part, such as for an unfulfilled purchase order or an outstanding contract. Outstanding encumbrances recognize commitments that will be logged as spending when goods or services are received. The purpose of an encumbrance is to prevent an appropriation from being overspent.
Finance Letters
Proposals from the Department of Finance to revise the governor’s proposed budget as provided 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.
Fiscal Year
The 12-month period (July 1 to June 30) that the state budget is in effect.
Fund Shift
A 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.
Gann Limit
A constitutional spending limit established in 1979 through voter approval of Proposition 4. The Gann Limit — also known as the State Appropriations Limit — restricts the growth of certain appropriations from tax proceeds. At the state level, the cap is tied to California’s 1978-79 spending level and is adjusted each year 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.
General Fund
The state’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 (GO) Bonds
Funds borrowed from investors generally to finance infrastructure projects. 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 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.
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 state expenditures. The governor’s budget summary is released — along with the proposed budget — on or before January 10.
Governor’s Proposed Budget
Provides a detailed overview of the governor’s proposed expenditures for the 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.
January 10
The state 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
The state 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
Funds borrowed from investors generally to finance infrastructure projects. Lease-revenue bonds are repaid with lease payments — typically General Fund dollars — made by state 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 Legislature, but do not need voter approval. See also General Obligation Bonds.
Legislative Analyst’s Office (LAO)
An independent, nonpartisan office that conducts research and analysis on 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.
Line-Item Veto
The 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
Expenditures for the support of local governments or other locally operated activities.
May 14
The deadline set in state law for the governor to release the May Revision.
May Revision
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; 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).
Multiyear Projection (“the Multiyear”)
An analysis of the state’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.
Multiyear Window
The three-year period that follows the budget year. If 2025-26 is the budget year, then the multiyear window consists of 2026-27, 2027-28, and 2028-29. 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.
California Budget
The California budget is the pathway to building a just and equitable state. By ensuring Californians have access to engage in meaningful conversations and strategic decisions, our budget and policies can better reflect Californians’ values and aspirations.
A proposed or actual expenditure that is non-recurring — usually reflected only in a single annual budget — and is not permanently included in the baseline budget.
Operating Deficit
Occurs when expenditures for a fiscal year exceed revenues for that same fiscal year under current law and policy. “Revenues” excludes any balance, positive or negative, carried in from the prior fiscal year.
Operating Surplus
Occurs when revenues for a fiscal year exceed expenditures for that same fiscal year under current 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.
Policy Bill
A proposed change to state 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.
Proposition 2 (2014)
Governs deposits into and withdrawals from the Budget Stabilization Account and 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 state Constitution.
Proposition 25 (2010)
Allows the 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 (2010)
Requires a two-thirds vote of each house of the 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 (2016)
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 Legislature. This rule applies to all bills, including bills that are part of the budget package.
Proposition 98 (1988)
Guarantees a minimum annual level of funding for 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.
Public School System Stabilization Account (PSSSA)
A state budget reserve for 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).
Rainy Day Fund
See Budget Stabilization Account (BSA).
Reduction
An action to spend less money than what has been established under current law or policy. Also known as a spending cut.
Resources
Funding available to support state programs and services, typically from the General Fund. In assessments of the state’s fiscal condition, “resources” consists 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 law or policy.
Revenue
Funds received by the state, generally derived from taxes, licenses, fees, or investment earnings. Revenues are deposited into specific funds and are not available for expenditure until appropriated.
Reversion
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.
Safety Net Reserve
A General Fund reserve created in 2018 to help pay for higher state costs in the CalWORKs and Medi-Cal programs during recessions.
Score
A flexible term that has several closely related meanings, including “to account for,” “to count,” and “to estimate.” Examples: “The May Revision scores $200 million in savings from closing a prison.” “The new refundable tax credit is scored as a revenue reduction.” “The costs are scored to the 2026-27 fiscal year.”
Senate Budget and Fiscal Review Committee
Reviews the governor’s budget proposals for the upcoming fiscal year and develops the Senate’s version of the state budget. Most of the committee’s work is done through subcommittees that focus on specific policy areas.
Solution
A proposal or action to close a budget deficit. Solutions include, but are not limited to, revenue increases, spending reductions, spending delays, cost shifts, fund shifts, and reversions.
Special Funds
State funds that account for taxes, fees, and licenses that are designated for a specific purpose. The state has more than 500 special funds.
Special Fund for Economic Uncertainties (SFEU)
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.
State Appropriations Limit
See Gann Limit.
State Operations
Expenditures for the support of state government, excluding capital outlay and local assistance. State support for the California State University and the University of California, for example, primarily consists of state operations funding.
Statute
A law that has been formally approved and recorded; an enacted bill. See also Enactment.
Subventions
Typically refers to money that is spent as local assistance and allocated based on a formula, rather than being provided selectively as grants.
Surplus
Occurs when 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 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
The act of pulling back an appropriation that was previously provided to an 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.”
Tax Expenditure
Refers to exceptions to “normal tax law” that reduce the revenue that governments would otherwise collect. These exceptions 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.
Related Content
Walk through the California budget process — including deadlines and the role of the governor, the Legislature, and the public in making policy decisions for our communities — in Looking Ahead to 2024: The State Budget Process Explained.
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 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), 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 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.
Trigger
A 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 predetermined level.
Unanticipated Revenue
Revenue collections that are expected to exceed prior projections, such as the revenue forecast assumed in the enacted budget. Not to be confused with surplus.
Veto
The governor’s power to reject a bill by returning it with any objections to the house of origin. The Legislature may override a veto by passing the bill with a two-thirds vote of each house. See also Line-Item Veto.
Workload Budget
The estimated cost of currently authorized services 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.”
Every year, California’s governor and Legislature adopt a state budget that provides a framework and funding for critical public services and systems — from child care and health care to housing and transportation to colleges and K-12 schools.
But the state budget is about more than dollars and cents. The budget expresses our values as well as our priorities for Californians and as a state. At its best, the budget should reflect our collective efforts to expand economic opportunities, promote well-being, and improve the lives of Californians who are denied the chance to share in our state’s wealth and who deserve the dignity and support to lead thriving lives.
State budget choices have an impact on all Californians. These decisions affect the quality of our schools and health care, the cost of a college education, families’ access to affordable child care and housing, the availability of services and financial support to help older adults age in place, and so much more.
Because the state budget touches so many services and our everyday lives, it is critical for Californians to understand and participate in the annual budget process to ensure that state leaders are making the strategic choices needed to allow every Californian — from different races, backgrounds, and places — to thrive and share in our state’s economic and social life.
This report sheds light on the state budget and the budget process with the goal of giving Californians the tools they need to effectively engage decision makers and advocate for fair and just policy choices.
Key Takeaways
The Bottom Line
The state spending plan is about more than dollars and cents.
Crafting the budget provides an opportunity for Californians to express our values and priorities as a state.
The state Constitution establishes the rules of the budget process.
Among other things, these rules allow lawmakers to approve spending with a simple majority vote, but require a two-thirds vote to increase taxes. Voters periodically revise the budget process by approving constitutional amendments.
The governor has the lead role in the budget process.
Proposing a state budget for the upcoming fiscal year gives the governor the first word in each year’s budget deliberations.
The May Revision gives the governor another opportunity to set the budget and policy agenda for the state.
Veto power generally gives the governor the last word.
The Legislature reviews and revises the governor’s proposals.
Lawmakers can alter the governor’s proposals and advance their own initiatives as they craft their version of the budget prior to negotiating an agreement with the governor.
Budget decisions are made throughout the year.
The public has various opportunities for input during the budget process.
This includes writing letters of support or opposition, testifying at legislative hearings, and meeting with officials from the governor’s administration as well as with legislators and members of their staff.
In short, Californians have ample opportunity to stay engaged and involved in the budget process year-round.
Key Facts About California’s State Budget
The State Budget = State Funds + Federal Funds
Three Kinds of State Funds
Three kinds of state funds account for almost two-thirds (66.1%) of California’s $450.8 billion budget for 2024-25, the fiscal year that began on July 1, 2024. Specifically:
General Fund — The state General Fund accounts for revenues that are not designated for a specific purpose. Most state support for education, health and human services, and state prisons comes from the General Fund.
Special Funds — Over 500 state special funds account for taxes, fees, and licenses that are designated for a specific purpose.
Bond Funds — State bond funds account for the receipt and disbursement of general obligation (GO) bond proceeds.
Federal funds comprise the rest (33.9%) of the state’s 2024-25 budget.
Most State General Fund and Special Fund Revenue Comes From Three Sources
California's "big three" taxes
Most state revenue comes from California’s “Big Three” taxes. In 2024-25, General Fund and special fund revenue combined is estimated to total $288.2 billion, with almost 74% ($211.7 billion) expected to come from the Big Three. California’s Big Three taxes are the:
Personal income tax — This is a tax on the income of California residents as well as the income of nonresidents derived from California sources. It is California’s largest source of revenue.
Sales & use tax — This is a tax on the purchase of tangible goods in California (the sales tax) or on the use of tangible goods in California that were purchased elsewhere (the use tax). Services are excluded from the sales and use tax, as are other items exempted by law, including groceries and medications. The sales and use tax is California’s second-largest source of revenue.
Corporation tax — This is a tax imposed on corporations that do business in or derive income from California, with the exception of insurance companies, which instead pay the insurance tax. The corporation tax is California’s third-largest source of revenue.
Other state revenue is estimated to make up more than one-quarter (26.5%) of total projected General Fund and special fund revenue in 2024-25. This other revenue comes from a broad range of sources, including taxes, fees, and fines.
The State Budget is a Local Budget
Dollars spent through the state budget go to individuals, communities, and institutions across California. Under the enacted 2024-25 state budget:
Almost four fifths of total spending (79.9%) flows as “local assistance” to K-12 public schools, community colleges, families enrolled in the CalWORKs program, and other essential state services and systems that are operated locally.
Nearly one-fifth of total spending (18.7%) goes to 23 California State University campuses, 10 University of California campuses, over 30 state prisons, and other recipients of “state operations” dollars.
Less than 2% of total spending flows as “capital outlay” dollars, supporting infrastructure projects across California. (Local assistance and state operations dollars also fund infrastructure.)
State Funds Primarily Support Health and Human Services or Education
Under the enacted 2024-25 state budget:
3 in 4 General Fund and special fund dollars support three categories of spending: health and human services (38.9%), K-12 education (27.3%), and higher education (8%).
Just over 6% of General Fund and special fund dollars go to corrections, primarily the state prison system.
The balance of these dollars supports other essential services (such as transportation and environmental protection) and institutions (such as the state’s court system).
Federal Funds Primarily Support Health and Human Services
Under the enacted 2024-25 state budget:
Three-quarters of federal dollars (75.6%) support health and human services programs.
The balance of federal dollars supports other essential services, including labor and workforce development, K-12 education, higher education, and transportation.
The State Budget is Part of a Package of Bills
The state budget never stands alone. Instead, it moves as part of a package of legislation that typically includes two to three dozen bills, and sometimes many more — particularly in years when there is a budget shortfall and state leaders need to make multiple changes to balance the budget. In 2024, Governor Newsom signed more than 30 budget-related bills.
four kinds of budget-related bills
The budget package consists of two types of budget bills along with trailer bills and other budget-related legislation.
Budget Act — The state budget is formally known as the Budget Act. The Budget Act is the initial budget bill passed by the Legislature and signed into law by the governor. In general, budget bills:
Provide authority to spend money (“appropriations”) across an array of public services and systems for a single year.
Move through the Legislature’s budget committees on their own timeline.
Budget Bill Juniors — This is the informal term for any budget bill that amends the Budget Act, such as by increasing or reducing authorized expenditures. There is no limit on the number of Budget Bill Juniors that may be included in a budget package. This means state leaders can revise the Budget Act as many times as they wish by passing additional budget bills.
Trailer bills — The state budget package also includes trailer bills. Trailer bills generally make changes to state law related to the Budget Act and, like budget bills, move through the Legislature’s budget committees. In addition, trailer bills:
Must contain at least one appropriation and be listed in the Budget Act — a requirement that directly links trailer bills to the state budget.
Are organized by major policy areas in the budget. For example, health-related changes would be included in a “health” trailer bill, housing-related changes would be included in a “housing” trailer bill, etc.
Other budget-related bills — Other bills may be included in the budget package from time to time. These are bills that move independently of the Budget Act (and therefore are not trailer bills) but are still considered part of the state budget framework. This could include, for example, legislation to increase taxes or to place constitutional amendments before the voters as well as bills passed in a special session of the Legislature. This other budget-related legislation can move either through the Legislature’s policy committees or through budget committees.
Assembly Budget Committee and Senate Budget & Fiscal Review Committee
Review the governor’s budget proposals and develop each house’s version of the state budget. Most budget committee work is done through subcommittees that focus on specific policy areas.
Budget Act
The initial budget bill passed by the 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 2024”) or by the fiscal year to which it applies (“2024-25 Budget Act”).
Budget Bill Jr.
The informal term to describe any budget bill that amends the Budget Act. Budget Bill Jrs. may be numbered sequentially using Roman numerals (e.g., Budget Bill Jr. I, Budget Bill Jr. II, etc.).
Budget-Related Bills (“Trailer Bills”)
Generally make changes to state law related to the Budget Act. These bills are formally known as “bills … related to the budget bill,” but are more commonly called “trailer bills.” Trailer bills are listed in the Budget Act and move through the Assembly and Senate budget committees. Trailer bills are organized by issue area, such as “health,” “housing,” “higher education,” and “public safety.”
From time to time, bills that move independently of the Budget Act — and therefore are not trailer bills — may be considered part of the overall state budget framework. This could include, for example, legislation to increase taxes or to place constitutional amendments before the voters.
Department of Finance (DOF)
Leads the development of the governor’s budget proposals, prepares the governor’s budget documents, testifies on behalf of the governor at legislative budget hearings, develops the governor’s economic forecasts, and performs several other functions. The DOF’s director is the governor’s chief fiscal adviser.
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 state expenditures. The budget summary is released on or before January 10.
Governor’s Proposed Budget
Provides a detailed overview of the governor’s proposed expenditures for the upcoming fiscal year, estimated expenditures for the current fiscal year, and actual expenditures for the prior fiscal year. The proposed budget is released on or before January 10.
Legislative Analyst’s Office (LAO)
An independent, nonpartisan office that conducts research and analysis on 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.
Line-Item Veto
The governor’s power to reduce or eliminate specific items of appropriation while approving other portions of a bill. This power applies to any bill that contains an appropriation, including budget bills and budget-related bills. The Legislature may override a line-item veto with a two-thirds vote of each house.
May Revision
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; 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 Proposition 98 minimum funding guarantee for K-14 education.
The Constitutional Framework
The State Constitution Establishes the Rules of the Budget Process
The governor and legislators craft the state’s annual spending plan according to rules outlined in the state Constitution.
California voters periodically revise these rules by approving constitutional amendments that appear on the statewide ballot.
Proposals to amend the state Constitution can be placed on the ballot through a citizens’ initiative or by the Legislature.
A constitutional amendment takes effect if approved by a simple majority of voters.
Three Key Budget Deadlines
Two in the State Constitution (January 10 and June 15), One in State Law (May 14)
The governor must propose a budget for the upcoming fiscal year on or before January 10. The budget must be balanced: Estimated revenues (as determined by the governor) must meet or exceed the governor’s proposed spending.
The governor must release the May Revision on or before May 14.
The Legislature must pass a budget bill for the upcoming fiscal year by midnight on June 15. The budget bill must be balanced: Estimated General Fund revenues (as set forth in the budget bill passed by the Legislature) must meet or exceed General Fund spending.
Proposition 25: Simple Majority Vote for Budget Bills and Trailer Bills
The budget package generally may be passed by a simple majority vote of each house of the Legislature.
Prop. 25 of 2010 allows lawmakers to pass, by a simple majority vote, budget bills as well as trailer bills that may take effect as soon as the governor signs them.
Under the rules of Prop. 25, trailer bills must (1) be listed in the Budget Act and (2) contain an appropriation of any amount.
Even with Prop. 25, some types of trailer bills that could be included in a budget package will require a supermajority — generally two-thirds — vote of each house. This includes, for example, bills that would raise taxes or amend a state law that was approved by voters via a ballot initiative. However, most trailer bills in the budget package will need only a simple majority vote to pass.
Proposition 25: Penalties for a Late Budget
Lawmakers face penalties if they fail to pass the budget bill on or before June 15.
Prop. 25 requires lawmakers to permanently forfeit both their pay and their reimbursement for travel and living expenses for each day after June 15 that the budget bill is not passed and sent to the governor.
These penalties do not apply to budget-related bills, which do not have to be passed on or before June 15.
Proposition 26: Supermajority Vote for Tax Increases
Any tax increase requires a two-thirds vote of each house of the Legislature.
Under the state Constitution, “any change in state statute which results in any taxpayer paying a higher tax” requires a two-thirds vote of each house.
This standard was imposed by Prop. 26 of 2010. This measure expanded the definition of a tax increase and thus the scope of the two-thirds vote requirement, which was originally imposed by Prop. 13 of 1978.
Prior to Prop. 26, only bills changing state taxes “for the purpose of increasing revenues” required a two-thirds vote. Bills that increased some taxes but reduced others by an equal or larger amount could be passed by a simple majority vote of each house.
Proposition 26: Supermajority Vote for Tax Increases
Prop. 26 of 2010 also expanded the definition of a tax to include some fees.
Prior to Prop. 26, lawmakers could create or increase fees by a simple majority vote. These majority-vote fees included regulatory fees intended to address health, environmental, or other problems caused by various products, such as alcohol, oil, or hazardous materials.
Prop. 26 reclassified regulatory and certain other fees as taxes. As a result, a two-thirds vote of each house of the Legislature is now required for many charges that previously were considered fees and could be passed by a simple majority vote.
Additional Supermajority Vote Requirements
The state Constitution requires a two-thirds vote of each house of the Legislature in order to:
Appropriate money from the General Fund, except for appropriations that are for public schools or that are included in budget bills or in trailer bills.
Pass bills that take effect immediately (urgency statutes), except for budget bills and trailer bills.
Place constitutional amendments or general obligation bond measures before the voters.
Override the governor’s veto of a bill or an item of appropriation.
Proposition 54: A Bill Must Be Published for At Least 72 Hours Before the Legislature Can Act on It
Proposition 54 of 2016 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 Legislature.
This rule applies to all bills, including the budget bill and other legislation included in the budget package.
This mandatory review period can be waived for a bill if:
The governor declares an emergency in response to a disaster or extreme peril, and
Two-thirds of legislators in the house considering the bill vote to waive the review period.
Proposition 98: A Funding Guarantee for K-12 Schools and Community Colleges
Prop. 98 of 1988 guarantees a minimum annual level of funding for K-14 education.
The amount of the guarantee is calculated each year based on 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 and local property tax revenues.
The Legislature can suspend the guarantee for a single year by a two-thirds vote of each house and provide less funding. Following a suspension, the state must increase Prop. 98 funding over time to the level that it would have reached absent the suspension.
While the Legislature can provide more funding than Prop. 98 requires, the guarantee has generally served as a maximum funding level.
Proposition 2: Saving for a Rainy Day, Paying Down Debt
Prop. 2 of 2014 revised the rules that apply to the Budget Stabilization Account (BSA) — the state’s constitutional rainy day fund — and also established a new requirement to pay down state budgetary debt.
The state is required to set aside 1.5% of General Fund revenues each year, plus additional dollars in years when tax revenues from capital gains are particularly strong.
Until 2029-30, half of the revenues go into the BSA and the other half must be used to pay down state budgetary debt, which includes unfunded pension liabilities. Starting in 2030-31, the entire annual transfer goes into the BSA.
State policymakers may suspend or reduce the BSA deposit and withdraw funds from the reserve, but only under limited circumstances that qualify as a “budget emergency.”
Proposition 2: A Budget Reserve for K-12 Education
Prop. 2 of 2014 also created a state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA).
Deposits come from state capital gains tax revenues in years when those revenues are particularly strong.
However, various conditions must be met before these dollars could be transferred to the PSSSA. For example, transfers may occur only in so-called “Test 1” years under Prop. 98, which have been relatively rare.
Proposition 55: Potential New Funding for Medi-Cal From a Tax on the Wealthiest Californians
Prop. 55 of 2016 extends, through 2030, personal income tax rate increases on very high-income Californians and establishes a formula to boost funding for Medi-Cal, which provides health care services to Californians with low incomes.
Starting in 2018-19, General Fund revenues — including those raised by Prop. 55 — must first be used to fund (1) the annual Prop. 98 guarantee for K-12 schools and community colleges and (2) the cost of other services that were authorized as of January 1, 2016, as adjusted for population changes, federal mandates, and other factors.
If any Prop. 55 revenues remain after meeting these required expenditures, MediCal would receive 50% of this excess, up to a maximum of $2 billion in any fiscal year.
Prop. 55 has not yet resulted in any additional funding for Medi-Cal.
Proposition 4: State Appropriations Limit (SAL) — A Cap on Spending
Appropriations are subject to a limit established by Prop. 4 of 1979, as modified by later initiatives. This spending cap is known as the Gann Limit.
The SAL limits the amount of state tax proceeds that can be appropriated each year. This limit is adjusted annually for changes in population and per capita personal income.
Some appropriations from tax proceeds do not count toward the limit, including debt service and spending that is needed to comply with court or federal mandates.
Revenues that exceed the SAL over a two-year period are divided equally between Prop. 98 spending and taxpayer rebates. The state last exceeded the SAL in 2020-21 (but did not do so in the prior year).
State Mandates: Pay for Them or Suspend Them
The state must pay for or suspend mandates that it imposes on local governments.
Prop. 4 of 1979 requires the state to reimburse local governments for costs related to a new program or a higher level of service that is mandated by the state.
Prop. 1A of 2004 expanded the definition of a mandate to include the transfer of financial responsibility from the state to local governments.
Prop. 1A also requires the state to suspend a mandate in any year in which local governments’ costs are not fully reimbursed.
What Do the Governor and the Legislature Do?
The Governor
Approves, modifies, or rejects spending proposals prepared by state departments and agencies through an internal process coordinated by the Department of Finance.
Proposes a spending plan for the state each January, introduced as the budget bill in the Legislature.
Updates and revises the proposed budget each May (the “May Revision”).
Signs or vetoes the bills included in the budget package.
Can veto all or part of individual appropriations (line items), but cannot increase any appropriations above the level approved by the Legislature.
The Legislature
Approves, modifies, or rejects the governor’s proposals.
Can add new spending or make other changes that substantially revise the governor’s proposals.
Needs a simple majority vote of each house to pass budget bills and most trailer bills.
Needs a two-thirds vote to pass certain other bills that may be part of the budget package, such as bills that increase taxes or propose constitutional amendments.
Needs a two-thirds vote of each house to override the governor’s veto of a bill or an appropriation.
What Happens When?
The State Budget Timeline
The state budget process is cyclical. Decisions are made throughout the year.
State departments and agencies develop baseline budgets to maintain existing service levels in the upcoming fiscal year and may prepare “budget change proposals” intended to alter service levels. The Department of Finance (DOF) reviews these documents.
Following a series of meetings within the governor’s administration, the governor makes final decisions and the DOF prepares the proposed budget for release in January.
Independent of the governor, legislative leaders develop their budget priorities for the upcoming fiscal year.
In November, the Legislative Analyst’s Office (LAO) releases their Fiscal Outlook, which provides the LAO’s assessment of revenues, spending, and the state’s overall budget condition across several fiscal years.
By January 10
The governor releases the proposed budget for the upcoming fiscal year that begins on July 1.
January to Mid-May
A few days after the proposed budget is released: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the governor’s proposals, and later publishes an updated revenue forecast.
Late January: The Assembly Budget Committee and the Senate Budget and Fiscal Review Committee convene overview hearings on the governor’s proposed budget.
Late February to early May: Budget subcommittees in each house hold dozens of hearings to review the governor’s proposals in depth.
By May 14
The governor releases a revised budget (the May Revision) for the upcoming fiscal year that begins on July 1.
Mid-May to Early June
A few days after the May Revision: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the May Revision, and later publishes an updated revenue forecast and multiyear budget outlook.
The week after the May Revision: Assembly and Senate budget subcommittees convene to review the governor’s May Revision proposals.
Roughly 10 days after the May Revision: The Assembly and Senate publish summaries — “subcommittee reports” — of their versions of the budget package.
Roughly two weeks after the May Revision:
Assembly and Senate leaders reach a deal on a unified legislative version of the budget package and publish summaries of the agreement. For many years, legislative leaders convened a conference committee composed of Democrats and Republicans to resolve differences between the two houses’ spending plans. However, a conference committee has not been convened since 2019.
A full deal with the governor at this stage is possible, but rare. Nonetheless, the Legislature’s budget package will reflect many points of agreement with the governor based on ongoing, behind-the-scenes negotiations between the governor and legislative leaders.
Somewhat more than two weeks after the May Revision:
The Legislature begins drafting the initial budget bill, also known as the Budget Act. Finalizing the Budget Act for floor votes can take roughly a dozen days.
By June 15
The Legislature passes the Budget Act by June 15 — the constitutional deadline — and sends it to the governor.
If the two houses have scheduled floor votes for June 15, the Budget Act must be published on the California Legislative Information website by June 12 to meet the 72-hour bill-in-print requirement.
If the Legislature schedules floor votes before June 15, the Budget Act must be in print prior to June 12 to comply with the 72-hour rule — for example, by June 10 for floor votes on June 13.
Trailer bills, which are also part of the state budget package, are not required to be — and rarely are — passed by June 15.
Trailer bills generally make statutory changes needed to implement the policies assumed in the Budget Act.
Second Half of June
The governor and legislative leaders continue negotiating in order to reach a three-party deal on the budget package for the upcoming fiscal year.
Once a deal is reached, the rest of the bills in the budget package are unveiled, consisting of multiple trailer bills along with a “Budget Bill Jr.” The Budget Bill Jr. amends the Budget Act as passed by the Legislature in order to reflect the changes required by the deal with the governor.
The Assembly and Senate publish summaries of the budget package as agreed to with the governor.
The Legislature passes the Budget Bill Jr. and trailer bills.
The governor signs the Budget Act, the Budget Bill Jr., and the trailer bills (some trailer bills might not be signed until early July).
All bills must be signed within 12 days of being presented to the governor. However, if the 12th day is a Saturday, a Sunday, or a holiday, the period is extended to the next day that is not a Saturday, a Sunday, or a holiday.
The governor may reduce or eliminate any item of appropriation in any bill (the “line-item veto”).
State departments and agencies focus on the next state budget by beginning to prepare the governor’s proposed budget for release by January 10. This months-long process may begin earlier in June and continues through the summer and into the fall.
July and Beyond
The new state fiscal year begins on July 1.
The governor signs any remaining trailer bills that weren’t signed in June.
The Department of Finance publishes a summary of the June budget package as signed into law by the governor. This summary may be published before the end of June.
The Legislature breaks for a one-month summer recess starting around July 4 in election years and around mid-July in non-election years.
The Legislature reconvenes in August for the final few weeks of session, which ends in August in election years and in September in non-election years.
In August, state leaders typically advance changes to the state budget package adopted in June, including at least one Budget Bill Jr. along with additional trailer bills. The changes include budget “clean-up,” such as correcting errors in the Budget Act, as well as substantive — often major — revisions to spending and policy.
The Assembly and Senate publish summaries of the budget revisions as agreed to with the governor.
The full budget committee in each house holds a single hearing on the budget revisions before sending the package to the Assembly and Senate floors for final votes.
The governor signs the budget revisions into law in September — or sometimes October in non-election years — possibly with line-item vetoes.
Legislative Counsel: Bills and bill analyses, a free bill-tracking service, the state codes, and the state Constitution.
State Assembly and Senate: Committee agendas and other publications, floor session and committee schedules, the annual legislative calendar, and live and archived video streaming of legislative proceedings.
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
Join Dollars and Democracy for expert-led California budget training and advocacy insights to make an impact in 2025.
Register today
About this event
As California navigates a shifting budget landscape, a hostile federal administration, and the impact of recent ballot measures, 2025 promises pivotal decisions. Join us for Dollars and Democracy, our premier state budget training, followed by an in-depth conversation with expert advocates and budget insiders to help you engage effectively and amplify your cause in Sacramento.
Whether new to advocacy or a seasoned veteran, this training offers valuable insights. Our Budget Director, Scott Graves, will guide you through California’s budget process, highlighting key deadlines and the essential roles of the governor, the Legislature, and advocates in driving community investments.
Next, a discussion panel of budget and election experts will share practical advocacy tools and insights on what to expect in 2025.
Don’t miss this opportunity to equip yourself and your community for the year ahead. Register now to secure your spot and prepare to make an impact on the California budget!
Budget Trainer
Dollars and Democracy training, approx. 25 minutes
Scott Graves, Budget Director, California Budget & Policy Center
Discussion Panel
Looking ahead and what to expect in 2025, approx. 35 minutes
Alissa Anderson, Policy Director, California Budget & Policy Center
Mary Ignatius, Executive Director, Parent Voices
Elisa Wynne, Staff Director, Senate Committee on Budget and Fiscal Review
Thank you to our event sponsors
Conrad N. Hilton Foundation, James Irvine Foundation
About the California Budget & Policy Center
The California Budget & Policy Center (Budget Center) is a nonpartisan research and analysis nonprofit advancing public policies that expand opportunities and promote well-being for all Californians.
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
California’s Budget Reserves
California’s Constitution and state law govern when funds may be withdrawn from the state’s budget reserves, the amount that can be withdrawn, and how funds may be used.
Established in the state Constitution: Budget Stabilization Account, Public School System Stabilization Account
Established in state law: Safety Net Reserve, Special Fund for Economic Uncertainties, Projected Surplus Temporary Holding Account
Budget Stabilization Account (BSA) (aka Rainy Day Fund)
Public School System Stabilization Account (PSSSA)
Safety Net Reserve
Special Fund for Economic Uncertainties (SFEU)
Projected Surplus Temporary Holding Account
Is the state required to make an annual deposit?
Yes
No However, a deposit is required under a restricted set of circumstances.1For example, these circumstances include requirements that deposits only occur when capital gains tax revenues exceed a specific level of total General Fund proceeds of taxes and when growth in the state’s minimum funding guarantee for K-12 schools and community colleges is relatively strong.
No
No
No
Can a required deposit be reduced or suspended — and by who?
Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote.
Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote.
Not applicable
Not applicable
Not applicable
When can funds be withdrawn?
Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.2These withdrawal rules apply to funds that are deposited into the BSA as required by Proposition 2 of 2014. State policymakers may also deposit funds into the BSA on top of Prop. 2 requirements, creating a “discretionary” balance within the reserve. The Legislative Analyst’s Office suggests that the Legislature can withdraw a discretionary balance at any time without a declaration of a budget emergency by the governor. Separate from this issue, funds must be withdrawn from the BSA — without the need for a declaration of a budget emergency — when updated revenue estimates indicate that a prior-year deposit was greater than required.
Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.3Funds must be withdrawn from the PSSSA — without the need for a declaration of a budget emergency — when the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level, adjusted for changes in student attendance and the cost of living, or when updated revenue estimates indicate that a prior-year deposit was greater than required.
The Legislature may withdraw the funds at any time by majority vote.
The Legislature may withdraw the funds at any time by majority vote.4Additionally, the Department of Finance may withdraw funds from the SFEU without legislative approval to cover the cost of state disaster response efforts upon an emergency proclamation by the governor.
The Legislature may withdraw the funds by majority vote at any time up to one year after they are deposited. After one year, any unappropriated funds must be transferred back to the General Fund.
Is there a limit on the amount of funds that can be withdrawn?
Yes The amount that can be withdrawn is limited to the lower of 1) the amount needed to address the budget emergency or 2) half of the funds in the BSA, unless funds had been withdrawn in the previous fiscal year, in which case all of the funds remaining in the BSA may be withdrawn.
No5However, in any year when funds must be withdrawn from the PSSSA because the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level — adjusted for changes in student attendance and the cost of living — the required withdrawal is limited to the amount of that shortfall.
No
No
No
How can the funds be used by the state?
Funds may be used for any purpose.
Funds must be used to support K-12 schools and community colleges.
Funds are intended to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn, but may be used for any purpose if the Legislature so chooses.
Funds may be used for any purpose.
Funds may be used for any purpose.
Note: A ”budget emergency” that’s declared by the governor is defined as either: 1) the existence of ”conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof” as defined in Article XIII B, Section 3(c)(2) of the state Constitution; or 2) a determination by the governor that there are insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living. Article XIII B, Section 3(c)(2), defines “conditions of disaster or of extreme peril” as being “caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.”
Sources: California Constitution, California Government Code, and California Welfare and Institutions Code
For example, these circumstances include requirements that deposits only occur when capital gains tax revenues exceed a specific level of total General Fund proceeds of taxes and when growth in the state’s minimum funding guarantee for K-12 schools and community colleges is relatively strong.
2
These withdrawal rules apply to funds that are deposited into the BSA as required by Proposition 2 of 2014. State policymakers may also deposit funds into the BSA on top of Prop. 2 requirements, creating a “discretionary” balance within the reserve. The Legislative Analyst’s Office suggests that the Legislature can withdraw a discretionary balance at any time without a declaration of a budget emergency by the governor. Separate from this issue, funds must be withdrawn from the BSA — without the need for a declaration of a budget emergency — when updated revenue estimates indicate that a prior-year deposit was greater than required.
3
Funds must be withdrawn from the PSSSA — without the need for a declaration of a budget emergency — when the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level, adjusted for changes in student attendance and the cost of living, or when updated revenue estimates indicate that a prior-year deposit was greater than required.
4
Additionally, the Department of Finance may withdraw funds from the SFEU without legislative approval to cover the cost of state disaster response efforts upon an emergency proclamation by the governor.
5
However, in any year when funds must be withdrawn from the PSSSA because the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level — adjusted for changes in student attendance and the cost of living — the required withdrawal is limited to the amount of that shortfall.
You may also be interested in the following resources:
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
In late June, Governor Newsom and state leaders reached a deal on the 2024-25 California state budget. Confronted with a substantial shortfall, state leaders negotiated a budget package that presents a mixed bag for California families. Policymakers managed to protect many essential programs, but some financial maneuvers and the continued resistance to significantly raise revenues to help all Californians thrive may hinder progress in future years.
The June budget package rejects many harmful cuts to critical programs initially proposed by Governor Newsom in January and May. State leaders protected many essential programs that Californians rely on, including by drawing on the state’s reserves and delaying some program expansions. However, the budget also relies heavily on borrowing from future budgets, commits a higher percentage of future revenue growth to schools, and only temporarily increases revenues. These decisions could compromise the state’s ability to sustain core programs and stall much-needed investments in the coming years if revenue conditions do not improve.
This analysis highlights key components of the June budget package and examines how it protects — or misses opportunities to enhance — services that aim to improve the well-being of Californians with low incomes, Californians of color, women, immigrants, and others historically excluded from sharing in the state’s wealth.
How did state leaders close the budget shortfall?
State leaders closed a roughly $47 billion General Fund shortfall across the three-year “budget window” (fiscal years 2022-23 through 2024-25) using a broad array of budget tools. The “solutions” in the 2024-25 budget package include:
$16 billion in spending reductions.
$13.6 billion from a combination of additional revenue (which is mostly temporary) and internal borrowing from state special funds.
$6 billion in fund shifts, which transfer certain costs from the General Fund to other state funds.
Nearly $6 billion in withdrawals from two reserves: the Budget Stabilization Account (also known as the rainy day fund) and the Safety Net Reserve.
$3.1 billion in funding delays and pauses. This includes delaying, for two years, an expansion of food assistance to undocumented Californians as well as postponing, for six months, a wage increase for people who provide services to Californians with intellectual and developmental disabilities.
$2.1 billion in deferrals, which postpone certain payments to later years. This includes shifting one month of state employee payroll costs from June 2025 (the last month of the 2024-25 fiscal year) to July 2025 (the first month of the 2025-26 fiscal year).
What happened to Prop. 98? Was school funding protected?
The budget agreement protects funding for Transitional Kindergarten, K-12 schools, and community colleges (TK-14 education) despite revenue challenges. Estimates of the Proposition 98 minimum funding guarantee for TK-14 education are updated to reflect two major budget actions: 1) the adoption of a proposal to “accrue” some funding from 2022-23 to future years and 2) the suspension of the Prop. 98 guarantee in 2023-24. These actions increase the Prop. 98 minimum funding levels across the 2022-23 to 2024-25 “budget window” and also ensure funding growth beyond the three-year window.
Key details that further explain the Prop. 98-related budget actions are outlined below.
The enacted budget adopts a plan to accrue $6.2 billion in TK-14 spending to future years.
A drop in income tax collections in the 2022 tax year led to a reduction in the Proposition 98 minimum funding guarantee. This revenue drop only became clear in late 2023, after the 2022-23 fiscal year ended. As a result, the Prop. 98 disbursement amount exceeded the revised minimum funding guarantee for 2022-23. The budget agreement sets the 2022-23 minimum guarantee base at that higher level ($103.7 billion), which is $6.2 billion higher than what the formulas require under the revised revenue estimates. To account for these budgetary costs over the Prop. 98 guarantee in 2022-23, the enacted budget requires annual payments to be made in later fiscal years. These payments of $544 million annually over 10 years will begin in 2026-27 and will be paid for with non-Prop. 98 General Fund dollars.
The enacted budget suspends the Prop. 98 minimum funding guarantee.
The decision to set the Prop. 98 base at a higher level in 2022-23 increases the 2023-24 minimum guarantee to $106.8 billion. (Prop. 98 formulas in this case require the prior-year funding level to be one of the main components of the calculation in the subsequent year.) However, available state revenues are insufficient to meet this requirement in 2023-24. As a result, state leaders decided to suspend the Prop. 98 guarantee and set the funding level at $98.5 billion in 2023-24. Suspending the guarantee is allowed under the state Constitution for this particular purpose — this is the third time the guarantee has been suspended since Prop. 98 was passed in 1988.
The Prop. 98 suspension creates a funding gap called “maintenance factor.”
Constitutional provisions require that the Prop. 98 guarantee be restored to the level it would have reached absent the suspension. This happens over time by accelerating growth in the minimum guarantee depending on General Fund revenue growth. Furthermore, the maintenance factor amount is adjusted annually to reflect changes in student enrollment and the cost of living. Under current estimates, the 2023-24 suspension creates a maintenance factor amount of $8.3 billion.
Overall, decisions on the minimum guarantee push large spending obligations to future budget years that add pressure to the non-Prop. 98 side of the budget. First, while the Prop. 98 suspension provides relief in 2023-24, TK-14 education will get a higher percentage of future revenue growth than normal until the maintenance factor is paid. In other words, a larger portion of General Fund revenue growth will go toward the maintenance factor obligation, leaving less funding for the non-Prop. 98 side of the budget.
Second, shifting $6.2 billion in TK-14 education spending to the non-Prop. 98 side of the budget starting in 2026-27 will reduce funding available for other critical needs, such as food security, child care, housing, and other programs that help families make ends meet.
What revenue solutions does the budget include?
One of the budget solutions is a temporary increase in state revenues, which helps to avoid more harmful service cuts, but will also lead to decreased revenues in later years.
Specifically, for tax years 2024 through 2026, the budget agreement 1) limits the tax credits businesses can use to $5 million and 2) suspends tax deductions for prior-year losses (“net operating losses” or NOLs) for businesses with at least $1 million in profits. These provisions are estimated to increase revenues by $5.95 billion in 2024-25, $5.5 billion in 2025-26, and $3.4 billion in 2026-27.
However, the budget agreement also includes provisions to allow businesses impacted by these limitations to fully recoup the lost tax benefits in later years, reducing state revenues for several years beginning in 2027-28 by as much as a few billion dollars in some years. Notably, businesses subject to tax credit limitations will be allowed to receive the credits above the $5 million annual limit as a refund — spread across five years — after the limitation period ends. In other words, if the excess credits claimed in future years exceed a business’ tax bill, it can receive the difference in cash. Historically, business tax credits have generally not been refundable.
Additionally, if the governor’s administration determines that the budget can be balanced in 2025-26 and/or 2026-27 without the additional revenue from the temporary business credit limitation and NOL suspension, policymakers can specify in the Budget Act that these provisions do not apply for that year.
Finally, the budget contains some smaller, ongoing tax policy changes impacting businesses and investors. These changes will increase revenues by a few hundred million dollars ongoing, including eliminating tax subsidies that specifically benefit oil and gas companies.
state budget terms defined
What’s the difference between a trailer bill and policy bill? A deficit and an operating deficit? And what exactly is a “Budget Bill Jr.?” Our Glossary of State Budget Terms answers that and more.
How did California’s Rainy Day Fund and other reserves help cover the shortfall?
California has several reserve accounts that set aside funds intended to be used when economic conditions worsen and state revenues decline. These include:
The Budget Stabilization Account (BSA), commonly referred to as the Rainy Day Fund. This is the state’s largest reserve and its funds may be used for any purpose.
The Public School System Stabilization Account (PSSSA), which is also known as the Prop. 98 reserve. Funds withdrawn from this account must be used to support K-12 schools and community colleges.
The Safety Net Reserve Fund. Funds withdrawn from this account are intended to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn.
State Budget Reserves Explained
See our report, California’s State Budget Reserves Explained, to learn more about the savings accounts policymakers can use to support Californians in times of budget shortfalls.
The budget agreement rejects many harmful cuts to critical services in part by drawing on state reserves. However, the budget takes an imbalanced approach, taking around half the funds in the BSA, but draining all funds from the Safety Net Reserve, leaving no dedicated funds to help support CalWORKs and Medi-Cal in future years.
Specifically, the budget agreement withdraws $4.9 billion from the BSA in 2024-25, and assumes an additional BSA withdrawal of $7.1 billion in 2025-26, which would leave about $10.5 billion available for future years. In contrast, the budget withdraws all $900 million from the Safety Net Reserve in 2024-25. The budget also takes all $8.4 billion from the PSSSA in 2023-24, but makes a $1.1 billion discretionary deposit to that account in 2024-25.
As required by the state Constitution, the governor signed a proclamation on June 26 declaring a budget emergency in order to allow the withdrawal of funds from the BSA. The governor did not need to declare a budget emergency to withdraw funds from the PSSSA or the Safety Net Reserve.
The budget includes a big cut to “state operations” spending — what does this mean and is the cut achievable?
The budget agreement adopted the governor’s plan to permanently reduce “state operations” spending by around $3 billion starting in 2024-25. This funding supports the basic activities of state government. Savings are to be achieved through two actions implemented by the Department of Finance (DOF) in collaboration with state departments:
Reducing state operations spending tied to vacant positions, for General Fund savings of $762.5 million in 2024-25.
In addition, the governor is required to propose the permanent elimination of vacant positions as part of his 2025-26 state budget, which will be released in January 2025. The budget agreement exempts several state entities from this reduction, including the Legislature, the judicial branch, the California State University, and the University of California, and the UC College of the Law, San Francisco.
Cutting state operations spending by up to an additional 7.95%, for General Fund savings of $2.2 billion in 2024-25.
This reduction is to be applied on top of the cut to funding for vacant positions, with savings expected to be achieved through operational efficiencies and other cost-reduction measures. The budget agreement exempts the Legislature from this cut.
These reductions would equal roughly 10% of total General Fund state operations spending. However, it’s questionable whether $1 of every $10 in state operations costs could be permanently eliminated through efficiencies and other measures without eroding state services. Moreover, in some departments, most state operations spending supports employee salaries and benefits — which cannot be unilaterally cut to generate state savings. As a result, some departments may have relatively little state operations funding available to cut to help meet the $3 billion statewide reduction target.
Furthermore, the governor’s administration reported in budget hearings that 24-hour operations would be exempt from the reductions. This includes, for example, the state prison system, which is overseen by the California Department of Corrections and Rehabilitation (CDCR). The budget agreement assumes that CDCR will account for nearly $400 million of the $3 billion in state operations reductions. CDCR could easily achieve these savings by closing state prisons. However, the governor refuses to plan for more prison closures, and it’s uncertain whether CDCR will be able to cut roughly $400 million from its operating budget without downsizing the state prison system.
Overall, it’s highly unlikely that the projected $3 billion in statewide savings will fully materialize, according to the Legislative Analyst’s Office. Unrealized savings would need to be addressed during the 2025-26 budget process and would “add to any fiscal challenges” the state is facing that year. In the meantime, DOF will update the Legislature in October and again in January on any progress made toward reducing state operations spending as envisioned in the budget agreement.
What changes were proposed to the MCO tax, and how does it help support Medi-Cal services for Californians?
Managed Care Organizations (MCOs), also known as health insurance plans, are responsible for managing health care services as a way to manage cost, utilization, and quality. States, with federal approval, can impose a tax on MCOs to reduce — or offset — state Medicaid spending and draw down additional federal funds. The MCO tax is a charge based on enrollment in Medi-Cal managed care plans and private health insurance plans.
In 2023, California renewed its MCO tax with federal approval, effective from April 1, 2023 to December 31, 2026. State leaders planned to use the roughly $19.4 billion in tax revenue to offset General Fund spending on Medi-Cal and support provider rate increases to improve access to health care services. Currently, many Californians face difficulties accessing Medi-Cal health care services because local providers oftentimes do not accept Medi-Cal patients.
This year, state leaders proposed amendments to increase the tax, generating a net fiscal benefit of $24.3 billion total, given the budget shortfall. These amendments require federal approval.
The 2024-25 budget agreement outlines a plan to use revenue from the MCO tax to support the Medi-Cal program as well as rate increases for health providers, with some investments delayed to 2026. Budget allocations include:
$6.9 billion in 2024-25, $6.6 billion in 2025-26, and $5.0 billion in 2026-27 to help maintain existing services in the Medi-Cal program; and
$133 million in 2024-25, $728 million in 2025-26, and $1.2 billion in 2026-27 for new targeted Medi-Cal provider rate increases and investments.
However, the MCO tax spending plan would be overturned if voters approve a ballot initiative this November that would make the tax permanent and require the state to use these dollars solely for certain provider rate increases.
What was the overall impact of the budget on critical programs and services?
The budget agreement rejects many harmful cuts to critical programs proposed by Governor Newsom in January and May. However, despite growing needs, the agreement includes considerable cuts to housing and safety net programs and makes no significant ongoing investments in critical programs and services.
The budget agreement maintains funding for the CalFresh Minimum Benefit Pilot and the Work Incentive Nutritional Supplement (WINS) programs, which were at risk of being eliminated. Both of these programs are important in addressing food insecurity. The budget also includes a small increase of 0.3% to the California Work Opportunity and Responsibility to Kids (CalWORKs) cash grants and protects the recent increase to the Supplemental Security Income/State Supplementary Payment (SSI/SSP) programs.
Missed Opportunities
The budget agreement includes cuts to various CalWORKs services, including the Expanded Subsidized Employment and Home Visiting programs. While the cuts are tailored to match recent utilization levels, the cuts may limit the reach these programs could have. The budget agreement also drains the Safety Net Reserve, which leaves CalWORKs vulnerable to more cuts in the event of an economic downturn. While the agreement preserves the California Food Assistance Program (CFAP) expansion to older undocumented adults, a population experiencing high rates of food insecurity, it delays the start date to 2027.
The budget agreement allocates $1 billion for local flexible funding to address homelessness with additional requirements. It also adjusts previous allocations for various homelessness programs that serve vulnerable diverse populations including families involved with the child welfare system, individuals involved in Adult Protective Services, and unhoused individuals who are likely eligible for disability benefits. Separately, the budget agreement maintains over $1 billion for critical affordable housing programs including an additional $500 million for state Low Income Housing Tax Credits, $315 million for the Multifamily Housing Program, and $260 million for the Regional Early Action Program (REAP) 2.0.
Missed Opportunities
The budget agreement cuts roughly $1.1 billion from various critical affordable housing, homeownership, and homelessness programs, for which there is no slated future funding. Over half of California renters continue to pay unaffordable housing costs, the instability of which is a primary driver of homelessness. California cannot afford to continue piecemealing needed funding for affordable housing and homelessness through one-time funding allocations. Ongoing resources are needed for localities, service providers, and developers to effectively implement short- and long-term solutions to these challenges.
While the budget agreement temporarily pauses the promised 200,000 subsidized child care slot expansion at approximately 118,000 slots, it does solidify a plan for rolling out the remaining slots by 2027-28. Additionally, the budget agreement funds the approximately 11,000 general child care spaces awarded in March 2024. Lastly, the budget agreement includes trailer bill language to advance the creation of an alternative rate methodology for child care providers by the July 1, 2025 federal deadline, as well as language to ensure that provider rates do not revert back to the 2018 regional market rate if the deadline is missed.
Missed Opportunities
Due to various administrative and contextual challenges, the amount of funding for new child care slots can exceed the number of slots that actually materialize, leaving dollars unspent. The joint legislative budget agreement proposed creating a reversion account to ensure that unspent child care dollars remain within child care programming. In contrast, the budget agreement with the governor does not include this reversion account. Therefore, any unspent child care dollars will be reverted back to the General Fund.
The budget agreement preserves the expansion of Medi-Cal eligibility to undocumented adults ages 26 to 49 as well as In-Home Supportive Services (IHSS) for undocumented Californians. The IHSS program helps people with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. In May, the governor proposed eliminating IHSS for all undocumented Californians, a harmful and xenophobic proposal that could have pushed many immigrant families deeper into poverty.
Missed Opportunities
The budget agreement does not provide funding to reform the Medi-Cal Share of Cost program, which would alleviate financial burdens for many older adults and people with disabilities. Under the current program, many Californians must choose between paying for their health care, rent, food, or other basic needs. This reform was passed in the 2022 Budget Act but was subject to future appropriation.
The budget agreement provides key funding for survivors of domestic violence, among other crimes. Specifically, it includes $103 million in one-time state funding to fill a gap in federal Victims of Crime Act funds that provide critical services to survivors. The budget agreement also preserves funding for the Flexible Assistance for Survivors program, which provides grants to community-based organizations to provide flexible assistance such as relocation or care costs to survivors of crime. In May, the governor proposed removing all funding for this program, which would have eliminated crucial support for survivors.
What changes to the 2024-25 budget package might happen in August?
Budget decisions happen throughout the year, not just from January to June. In August, for example, the governor and legislative leaders will revisit the 2024-25 budget package and make changes by passing additional trailer bills and, potentially, amending the 2024 Budget Act.
In fact, the Legislature is expected to soon consider proposals that aim to smooth budget volatility by requiring the state to set aside more revenue in the future. State leaders have indicated that this plan includes two components:
Require a portion of a projected budget surplus to be placed in a “temporary holding account” to be allocated in future years if anticipated revenues are actually realized; and
Ask voters to 1) amend the state Constitution to increase the maximum size of the Budget Stabilization Account (“rainy day fund”) — which is currently capped at 10% of General Fund tax proceeds — and 2) exclude deposits to state reserve funds from the state spending limit created by Proposition 4 in 1979 (the “Gann Limit”).
These proposals involve trade-offs. Expanding reserves would provide more budget resilience during revenue downturns and help policymakers avoid making harmful cuts. But some critical needs of Californians may remain unmet if additional resources must be saved instead of being immediately invested in California’s communities.
What more should state leaders do next year and beyond to create an equitable California?
For every Californian — from different races, backgrounds, and places — to thrive and share in the state’s economic and social life, strategic policy choices must be made. To a large extent, these choices are made through the state budget process. State leaders should set funding and policy priorities that help all Californians share in the wealth that they help create while also ensuring that the state’s tax dollars are invested in the areas of greatest need.
To achieve these goals — and move toward a more equitable California — bold approaches are needed across a broad range of public services and systems. For example, state leaders should:
Raise revenues to boost tax fairness and invest in our communities.
The temporary tax revenue in the 2024-25 budget package helps to prevent many harmful spending cuts in the short term. But state leaders missed an opportunity to raise revenues on an ongoing basis by ensuring that profitable corporations and wealthy Californians are adequately contributing taxes to support critical public services. For example, policymakers can enact permanent tax policy changes to 1) address corporations’ use of tax havens to avoid state taxes and 2) impose reasonable limitations on business tax credits to prevent businesses from essentially zeroing out their tax bills.
Provide ongoing, at-scale resources to increase affordable housing and solve homelessness.
More Californians are experiencing homelessness than ever before. Recent state investments have been crucial in supporting these individuals and in promoting housing stability. However, policymakers can go further by creating sustainable systems to serve all Californians struggling to stay in their homes. Specifically, state leaders should prioritize at-scale, sustained funding and policy interventions that promote affordable and supportive housing, protect renters, and direct resources to rental assistance and homelessness services.
Close more state prisons to free up resources for critical services.
In recent years, state leaders have taken steps to downsize California’s costly and sprawling prison system, but progress has stalled. Spending on state corrections remains high — over $14 billion per year — and the prison system operates with roughly 15,000 empty beds. While the budget agreement deactivates selected prison housing units — lowering state costs by around $80 million per year — closing prisons would generate substantially more ongoing savings. California can safely close up to five additional prisons for state savings of roughly $1 billion per year. These resources could be used for reentry assistance and other services to promote rehabilitation, reduce poverty, and strengthen families and communities — particularly Black and Latinx communities, which have been disproportionately impacted by generations of discrimination at the hands of the criminal justice system.
How can the state avoid the whiplash of budget surpluses and shortfalls in the future?
This website uses cookies to analyze site traffic and to allow users to complete forms on the site. The California Budget & Policy Center does not share, trade, sell, or otherwise disclose personal information. By using our website you agree to our Privacy Policy.
California Budget & Policy Center
State Budget Preview: Understanding the Process and What’s to Comes in 2025
