Governor Releases May Revision Budget Proposal: Modifies Student Housing & Deferred Maintenance

Today the Governor released his May Revision budget update for FY 2023-24, which includes $224.1 billion in General Fund spending.

The May Revision modifies the Governor’s January budget proposal using updated revenue projections based on income tax receipts. In his press conference, the Governor highlighted the state’s fiscal restraint in recent years, which allows the May Revision to protect foundational programs despite additional shortfalls. In January, the Governor estimated a $22.5 billion budget deficit; the May Revision now estimates a deficit of $31.5 billion. The May Revision utilizes various solutions to bridge the additional gap, such as spending reductions and delays, borrowing, revenue solutions, and fund shifts. It does not propose tapping into the state’s Rainy Day Fund, and it does not include additional “trigger cuts” to mitigate lower-than-anticipated revenues.

The May Revision does not anticipate a recession scenario. However, the Governor spoke about facing “macroeconomic headwinds” and uncertainties, such as the Federal debt ceiling, higher interest rates, and the delay of tax receipts. Due to winter storm emergency declarations, most Californians have the option to defer filing taxes until October 2023, which makes it more difficult to predict revenues. The Governor estimated that $42 billion in tax receipt revenues will be delayed until October, which is approximately 23% of projected Personal Income Tax and 32% of corporation tax revenues for the current fiscal year.

In January, the Governor estimated the Proposition 98 minimum guarantee for K-12 and community colleges at $108.8 billion for FY 2023-24. The May Revision amends that down to $106.8 billion.

CCC Capital Outlay Program

The January budget included $143.8 million in 2023-24 for 10 continuing community college capital outlay projects. It did not include any new start projects. The May Revision includes $232.3 million (General Obligation bonds) for capital outlay projects, including two new projects at Golden West College and College of San Mateo, and for twelve continuing projects approved in prior budgets.

Student Housing

Prior budgets committed a total of $2.2 billion (one-time General Fund) for student housing construction grants over a three-year period for the three higher education segments, including the final planned investment of $750 million for FY 2023-24. The Governor’s January budget proposed delaying $250 million of this to FY 2024-25, maintaining $500 million for student housing grants in 2023-24.

The May Revision modifies the student housing construction grants proposal. Instead of the $250 million delay, the May Revision proposes $450 million (one-time General Fund) for FY 2023-24 and $95.4 million (one-time General Fund) for FY 2024-25 for community college affordable student housing projects. This proposal would provide $545.4 million total to community college projects over the next two years and maintains the promise to provide 50% of the total student housing construction grant funds to community colleges. The May Revision proposes to shift approximately $1.1 billion in current and planned General Fund support for UC and CSU affordable student housing grants from General Fund to bonds issued by UC and CSU, with General Fund dollars to support the debt service on those bonds.

The Governor’s January budget also proposed to delay the initial funding for the student and workforce housing Revolving Loan Fund Program for the three higher education segments. The 2022 Budget Act included intent language to provide $1.8 billion (one-time General Fund) over two years ($900 million in 2023-24 and $900 million in 2024-25) for this purpose. The January budget proposed delaying the 2023-24 expenditure to 2025-26, and delaying $250 million from 2024-25 to 2025-26. This delay would result in no funding in 2023-24, $650 million in 2024-25, and $1.15 billion in 2025-26. The May Revision does not appear to make any changes to the January budget proposal.

CCFC opposed the $250 million delay for the student housing construction grants and is neutral on the Revolving Loan Fund delay. The construction grants will create housing with more affordable student rents.

Deferred Maintenance

The Governor’s January budget proposed a decrease of $213 million (one-time Proposition 98 General Fund) for deferred maintenance in the current year (FY 2022-23), down from $840.7 million. In lieu of this, the Governor proposed $200 million (one-time Proposition 98 General Fund) for enrollment recruitment and retention strategies.

The May Revision deepens the cut, proposing an additional $239 million decrease (one-time Proposition 98 General Fund), for a total reduction of $452 million. The May Revision indicates that this cut reflects “revised estimates of available Proposition 98 resources.”

CCFC opposes the proposed deferred maintenance cut.

Other Community College Items of Interest

The May Revision includes the following adjustments:

• Flexibility for Districts Meeting CCC Roadmap Goals – Statutory changes to allow community college districts to spend flexibly among specified categorical programs. This authority would be revoked after five years if districts do not make sufficient progress toward roadmap goals.
• Cost-of-Living Adjustment and Growth – An increase of $25.4 million (ongoing Proposition 98 General Fund) to reflect a change in the cost-of-living adjustment from 8.13% to 8.22% for apportionments and select categorical programs/the Adult Education Program. It includes a decrease of approximately $2.4 million (ongoing Proposition 98 General Fund) needed to sustain 0.5% enrollment growth.
• East Los Angeles College Entrepreneurship and Innovation Center – An increase of $2.5 million (one-time Proposition 98 General Fund) for the East Los Angeles College Entrepreneurship and Innovation Center.
• Student Enrollment and Retention – A decrease of $100 million (one-time Proposition 98 General Fund) for community college efforts and focused strategies to increase student retention rates and enrollment, bringing the cumulative total to $100 million.
• CCC COVID-19 Recovery Block Grant – A decrease of approximately $345 million (one-time Proposition 98 General Fund) for the COVID-19 Recovery Block Grant, bringing the total amount to $305 million.

Legislative Budget Positions

On April 26, the Senate released a framework for its own budget plan, called “Protect Our Progress.” That plan rejected many of the Governor’s proposed funding cuts and delays, including rejecting the proposed delays for the student housing construction grants and Revolving Loan Fund, and rejecting the cut to deferred maintenance. The Senate’s plan generates additional revenue by raising taxes on corporations, and the Governor has indicated that he does not support those tax increases. This budget plan positions the Senate for final negotiations with the Governor and Assembly. The Assembly has not released a similar budget plan.

Next Steps

Over the next few weeks, the Senate and Assembly will continue to review of the Governor’s budget proposals, working toward a constitutional deadline of June 15 to pass the budget for FY 2023-24. It is possible that the Legislature and Governor may continue work on the budget through the summer and into the fall, when the revenue picture becomes clearer. The Legislature and Governor will also develop “trailer bills,” which are bills that contain policy changes to enact the budget.

Rebekah Kalleen
CCFC Executive Director