On April 10, 2020, Keely Bosler, Director of the Department of Finance (DOF) issued an interim fiscal update to state policy makers on the impact of the COVID-19 pandemic on the State Budget and in anticipation of the May Revision.
Ms. Bosler noted that “the economic disruption from the pandemic is expected to result in a recession and have significant negative effects on state revenues. This impact is expected to be immediate, affecting fiscal year 2019–20, and will continue into fiscal year 2020–21 and additional years depending on the pace of recovery of local, state, and national economies.”
Ms. Bosler further indicated that the DOF is evaluating all budget year costs of currently authorized services within a workload budget and prioritizing and reducing expenditures. Despite the federal government reimbursing a majority of expenditures related to public health and safety, the state expects higher expenditures in Medi-Cal, California Work Opportunity and Responsibility to Kids (CalWORKs), and other health and human services programs. General Fund revenues are heavily reliant on the “big three” taxes of personal income, sales and use, and corporation—generating over two-thirds of General Fund revenue. Due to the delay in filing taxes and payments from April to July, revenues from the big three will be approximately 39% of receipts estimated in the Governor’s January Budget.
Additional federal funding of $8.4 billion in May 2020 through the Coronavirus Aid, Relief, and Economic Security (CARES) Act; roughly $7 billion for COVID-19-related expenditures in 2020; and other federal funding for schools, colleges, universities, childcare, etc., are critical in supporting the state’s expenditures.
Although the state has maintained significant budget reserves and cash by paying off all of its budgetary borrowing or “wall of debt”, paying down other liabilities, and maintaining a balanced budget in the last several years, the Governor has authorized the State Controller to establish the General Cash Revolving fund. The State Controller’s Office (SCO) uses the General Cash Revolving fund as a precautionary measure to allow the state to issue Revenue Anticipation Warrants (RAW). However, the SCO doesn’t anticipate issuing RAWs this year because of projected available cash and unused borrowable sources.
The Director concludes by stating, “The May Revision that the Administration will submit to the Legislature by the statutory deadline will reflect the extraordinary impacts of the COVID-19 pandemic on the state’s fiscal condition. As this letter demonstrates, the state faces daunting challenges and difficult decisions in the weeks and months ahead. The Administration will continue to work with the Legislature during this unprecedented crisis to maintain a balanced budget that promotes opportunity and supports an equitable economic recovery.”
We will continue to monitor the state’s fiscal condition and keep you up to date, so stay tuned.