Governor Releases May Revision and Student Housing Details TBD

Today, the Governor released his May Revision budget update for FY 2024-25, which includes $288.1 billion in total spending (including $201 billion General Fund).

The May Revision modifies the Governor’s January budget proposal using updated revenue projections based on income tax receipts. (Click here for CCFC’s report on the Governor’s January budget proposal.) The Governor indicated that his May Revision is a two-year proposal, containing solutions for both FY 2024-25 and FY 2025-26 to address the ongoing budget problem.

In January, the Governor estimated a $37.9 billion budget deficit. In April, the Legislature and Governor adopted an Early Action budget plan with $17.3 billion in solutions. The May Revision identifies an additional $7 billion shortfall since January, with a total remaining budget deficit of $27.6 billion to be solved. While the Governor indicated that these are “tough days,” he said that core services are protected and this problem is “solvable.” The May Revision proposes a mix of solutions, including reserves, efficiencies (i.e. state government solutions), reductions, revenues/borrowing, fund shifts, and delays.

The Governor spoke about the need to right-size expenditures to revenues, given the volatility of our tax system and unprecedented “supercharged” revenues associated with capital gains in recent years. He indicated that we are back in a period of “normalization” for capital gains. The May Revision states that in recent years the economy has “been resilient but behaved in ways that have defied traditional forecasts and historical precedent.” In particular, revenue volatility resulted in “the 2021 and 2022 Budget Acts reflecting higher growth assumptions, which created misalignment between expenditures and revenues in the last two fiscal years that will continue unless corrective action is taken.” Over the four-year period of 2022-23 through 2025-26, revenue estimates are now down $165.1 billion from the estimates originally made in the 2022 Budget Act. The May Revision proposes additional legislation that would require the state to set aside a portion of anticipated surplus funds to be allocated in a subsequent budget act, ensuring that the state does not commit future anticipated revenues until those revenues are realized.

Reserves

The May Revision maintains the Governor’s January budget proposal to draw down from reserves, including $12.2 billion from the Budget Stabilization Account (BSA) and $900 million from the Safety Net Reserve. The May Revision spreads the use of the BSA withdrawal over two fiscal years, including $3.3 billion in FY 2024-25 and $8.9 billion in FY 2025-26. The May Revision also includes withdrawals from the Public School System Stabilization Account of approximately $8.4 billion to “maintain predictable support” for local educational agencies and community college districts.

Proposition 98

The Governor indicated that the COLA is up from 0.76% in January to 1.07% at the May Revision.

Community College Issues

The May Revision includes a reduction of $510 million (ongoing General Fund) for the Middle Class Scholarship Program. Combined with technical support, $100 million in ongoing support for this program would remain.

Additionally, the 2022 Budget Act included a trigger that anticipated expenditures for certain programs in the 2024 Budget Act if revenues could support such spending over the multiyear forecast. Given the negative multiyear projections, some of these investments are not included in the May Revision, including the Cal Grant Reform Act through the California Student Aid Commission and the California Community College Cal Grant Expansion Program.

State School Bond

The Governor was asked by a reporter during the press conference about his receptiveness to bonds on the November ballot. The Governor indicated that the Administration is engaged in conversations with the Legislature regarding three potential bond measures: climate, housing, and schools. Regarding the school bond, he stated that there is still a question as to whether higher education (i.e. UC and CSU) should be included or not. The Governor indicated that the experience of Proposition 1 on the March 2024 ballot will be different than a November experience, though the March election “sobered” a lot of conversations. The Governor did not commit to which of the three bonds and how many of them he would support on the November ballot, though he did indicate that the state received more Federal funding for climate action recently than had been anticipated.

January Proposals

The Governor’s preliminary May Revision documents do not propose any significant changes to the following items which were proposed in the January budget. CCFC will provide additional information if the details of the May Revision, including pending trailer bill language proposals, include any proposed changes to these items.

• CCC Capital Outlay Program – The Governor’s January budget included $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 January budget did not include any new start projects.
• Higher Education Student Housing Grant Program – The Governor’s January budget indicated 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.” CCFC is awaiting the details of the May Revision proposal, which are anticipated to be shared in proposed trailer bill language that has yet to be released.
• Student Housing Revolving Loan Fund – The Governor’s January budget proposed to suspend funding for the Student Housing Revolving Loan Fund Program, including 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.
• Deferred Maintenance – The Governor’s January budget did not include any proposed investments for community college deferred maintenance in FY 2024-25.

Next Steps

Over the next few weeks, the Senate and Assembly will continue to review the Governor’s budget proposals, working toward a constitutional deadline of June 15 to pass the budget for FY 2024-25. Today the Speaker’s top budget consultant Jason Sisney indicated that the Assembly and Senate aim to “unite on a legislative budget plan in late May or early June, to facilitate passage of the constitutionally required legislative budget bill on or before Saturday, June 15.” The Legislature and Governor will also develop trailer bills that contain policy changes to enact the budget.

Rebekah Kalleen
CCFC Executive Director