Governor Releases FY 24-25 Budget Proposal: State School Bond, Student Housing, and More

Today, Governor Newsom released his FY 2024-25 budget proposal, which includes $291.5 billion in total spending ($208.7 billion General Fund).

The Governor’s budget estimates a shortfall of $37.9 billion, which is significantly lower than the $68 billion deficit estimated in December by the Legislative Analyst’s Office. The Governor indicated that this year’s budget is a story of “correction and normalization” after a period of “tremendous distortion” driven by the impact that capital gains has on the state’s revenue system. The Governor spoke about the challenges of crafting the budget in FY 2023-24, given the Federal tax filing deadline delay from April to November 2023; the FY 2024-25 budget must now resolve last year’s budget shortfall, which was not understood when the budget was passed in June 2023.

The Governor spoke about keeping promises for the state’s core priorities related to addressing homelessness, funding mental health reform, creating a safer California, transforming TK-16 and career education, California’s climate commitment, and maintaining California’s economic dominance. He emphasized the historic investments that are being made in infrastructure across the state, with major support from unprecedented funding from the Federal government.

The Governor’s budget proposes a mix of solutions, including a planned withdrawal from the Budget Stabilization Account (BSA) (i.e. reserves). Solutions include:

• Reserves - $13.1 billion
  • $10.4 billion from the Mandatory BSA Balance and Transfer Suspension
  • $1.8 billion from Discretionary BSA Balance
  • $900 million from the Safety Net Reserve
• Reductions - $8.5 billion – from climate, housing, school facilities, legislative requests (worth $350 million), and higher education.
• Revenue/Internal Borrowing - $5.7 billion
• Delays - $5.1 billion – delays for multiple items to be spread across the three-year period beginning 2025-26, without reducing the total funding through that period.
• Fund Shifts - $3.4 billion – shifts expenditures from the General Fund to other funds.
• Deferrals - $2.1 billion – including payroll deferral and UC/CSU deferrals.

Additionally, the budget includes withdrawals from the Public School System Stabilization Account (PSSSA) of $5.7 billion to maintain support for Local Educational Agencies and community college districts.

The Proposition 98 minimum guarantee for K-12 and community colleges is estimated to be $98.3 billion in 2022-23, $105.6 billion in 2023-24, and $109.1 billion in 2024-25. These revised Proposition 98 levels represent a decrease of approximately $11.3 billion over the three-year period, relative to the 2023 Budget Act. The budget proposes statutory changes to address roughly $8 billion of this decrease to avoid impacting existing school and community college district budgets.

CCC Capital Outlay Program and State School Bond

The Governor’s budget includes $29.3 million (Proposition 51 bond dollars) for one continuing capital outlay project at Siskiyou Joint Community College District, College of the Siskiyous: Remodel Theater and McCloud Hall project. The budget does not include funding for any new start projects. The Governor indicates that Proposition 51 (2016) authorized $2 billion in state General Obligation bonds to support community college facilities, and over 98 percent of these bond funds have been “committed to addressing nearly 100 critical infrastructure projects.”

The budget includes good news related to state school bond efforts, stating “This Spring, the Administration expects to move forward with discussions with the Legislature on an education facilities bond to be considered on the November 2024 ballot.” During the press conference, when asked about a potential state school bond, the Governor expressed his support for it, and that policymakers will be evaluating the size of the bond and whether it will include UC and CSU.

Student Housing

The FY 2023-24 budget actions made a series of changes to the Higher Education Student Housing Grant Program, first shifting funding from General Fund grants to locally-issued state revenue bonds, then reversing that decision with a promise for the state to issue lease revenue bonds or another financing solution in the 2024 Budget Act. The Governor’s budget indicates that “The Administration remains committed to a statewide lease revenue bond approach and is developing a proposal for consideration at the May Revision. In addition, for a limited number of projects that do not currently fit within a statewide lease revenue bond approach, the Administration proposes using resources included in the 2023 Budget to support those projects.” We are awaiting additional information on how this is proposed to be implemented. The FY 2023-24 budget provided $61.5 million to support community college student housing projects.

The budget also proposes to suspend funding for the Student Housing Revolving Loan Fund Program. This includes pulling back $300 million (one-time General Fund) previously intended to be appropriated each year from 2024-25 through 2028-29, and reverting $194 million of $200 million (one-time General Fund) that was appropriated in 2023-24. Of that, $50 million was identified for community college student and workforce housing projects in FY 2023-24. The California School Finance Authority has been developing regulations to implement this program, but CCFC has been told that they will  pause those efforts until there is more clarity on the status of program funding.

For more information on recent actions pertaining to the Higher Education Student Housing Grant Program and CCFC’s advocacy efforts, see these prior updates:

Affordable Student Housing Solution Introduced – Aug. 29, 2023

State School Bond Bill and Affordable Student Housing – Sept. 19, 2023

Deferred Maintenance

The FY 2023-24 budget reduced funding in FY 2022-23 for deferred maintenance and instructional support by $494.3 million (one-time Proposition 98 General Fund), leaving $346.4 million. That budget also included flexibility language, allowing colleges to use the remaining funds from the COVID-19 Block Grant, student retention and recruitment, and deferred maintenance for any of those purposes. The amount available for those activities was about $1.1 billion. The FY 2024-25 budget summary does not include any reference to additional investments for deferred maintenance.

Other CCC Issues

• CCC Apportionments – The budget includes an increase of $69.1 million (ongoing Proposition 98 General Fund) to provide a 0.76 percent cost-of-living adjustment (COLA) for Student Centered Funding Formula apportionments and $29.6 million (ongoing Proposition 98 General Fund) for 0.5 percent enrollment growth.
• CCC Categorical Program COLA – The budget includes an increase of $9.3 million (ongoing Proposition 98 General Fund) to provide a 0.76 percent COLA for select categorical programs and the Adult Education Program.
• K-14 Rainy Day Fund – The budget includes a withdrawal of roughly $235.9 million in 2023-24 and $486.2 million in 2024-25 to support Student Centered Funding Formula resource needs.
• Nursing Program Support – The budget includes an increase of $60 million (one-time Proposition 98 General Fund) to expand nursing programs and Bachelor of Science in Nursing partnerships to develop, educate, and maintain the next generation of registered nurses through the community college system, subject to future statutory changes. 

Next Steps

The Governor’s budget is a starting point for negotiations between the Administration and the Legislature. The Legislature will review the Governor’s budget proposal, holding budget subcommittee hearings over the coming months. The Governor will update his budget proposal in May to reflect updated revenue projections based on 2023 income tax receipts. The Legislature will work to meet a constitutional deadline of adopting a budget by June 15. CCFC will provide additional information as it becomes available during this process.

Rebekah Kalleen
CCFC Executive Director