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Background: Navigating the California State Budget Process

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April 26, 2017

On a fundamental level, the California state budget is the vehicle that provides our communities with necessary public services. However, on a societal level, the state budget reflects the values that we prioritize as Californians. 

Increasingly, critical policy issues are being decided through the budget process, often making the full impact of these policies difficult to find. (See: State and Local Funding of Planned Parenthood.)

Although the fiscal system can be complex, advocates should have a basic understanding of the budget process and how it enables participation in key decisions that impact their neighborhood, region and state.

State Budget Composition

In the simplest terms, the California state budget is comprised of state funds and federal funds – roughly two thirds and one third of the total budget, respectively.  More specifically, the state funds are comprised of the General Fund (not designated by law for specific purposes), Special Funds (designated by law for specific purposes) and Bond Funds (money borrowed from citizens by government agencies).

State Budget Revenue Sources

There are several different revenue sources that support the comprehensive state expenditures for a given fiscal year.  Think back to all the sales, income and other taxes that you incur each year.

To put the various revenue sources into perspective, out of the total 2017-18 governor’s proposed estimated revenue sources: nearly 50% of revenue for the 2017-18 fiscal year will come from personal income tax; 21% from sales and use tax; 6% from corporation tax; 3% from highway users taxes; 5% from motor vehicle fees; 1.3% from insurance tax; 1.2% from cigarette tax; and 13% from other sources.

That is a total estimated revenue of $175.7 billion for one fiscal year alone.

State Budget Allocation

As you can imagine, there is an exhaustible list of state expenses. Each line item goes to the public services that affect you and millions of other Californians. These include systems of education, health and human services and more.

To put the state’s expenses into perspective, the 2017-18 governor’s proposed budget estimates that nearly: 33% of expenses will come from health and human services; 29% from K-12 education; 8% from higher education; 8% from corrections and rehabilitation; 6% from transportation; and 15% from a combination of sources – including natural resources, government operations, business services, consumer services and more.

According to the proposed budget, this yields roughly $179.5 billion in expenditures for 2017-18 alone. If this sounds like a significant amount of cash flow, it is. As of June 2016, California was reported to have the world’s sixth largest economy.

State Budget Timeline

The state budget is essentially a series of bills that authorize the state to allocate funding across public services and system over the course of one fiscal year. Development of the state budget is a year-long, cyclical process and can be understood in two stages.

Stage one takes place from July through December.  On July 1 each year, the start of the state fiscal year, the current budget is enacted and development of the Governor’s proposed budget for the following fiscal year begins.  From this point through the end of the year, three key players are active in different ways:

  1. The state legislature is able to pass amendments to the current budget and develop their budget priorities for the next fiscal year;
  2. The general public meets with state legislators and advocate for issues that they feel deserve a hearing in the following year; and
  3. State departments and agencies develop and submit budget proposals/requests for the next fiscal year to the Department of Finance (DOF). The DOF then meets with the departments and agencies to review the budget requests, and the Governor makes final decisions on the proposals.

By the end of December, the DOF must prepare the Governor’s proposed budget, which must be balanced – meaning that estimated revenues must meet or exceed estimated spending.

The beginning of stage two is marked by the release of the Governor’s proposed budget for the next fiscal year by January 10 each year. Several layers of review then take place:

  1. First, full Senate and Assembly budget committees and subcommittees (education, general government, environmental and health) review the Governor’s proposed budget and develop versions of their annual spending plan;
  2. Second, the general public can send letters to budget subcommittees supporting or opposing specific issues, meet with budget subcommittee members and/or legislative staff, and get involved in coalitions; and
  3. Lastly, officials from the Governor’s administration participate in legislative hearings to defend the proposed budget and develop the May budget revision. Members of the general public can also testify at budget subcommittee hearings and continue to meet with legislative staff and members of the Governor’s administration to advocate for issues.

By May 14, the Governor releases a revised budget proposal, known as the “May Revision,” or May Revise.

From mid-May to early June, officials from the Governor’s administration and the general public are able to testify at ongoing subcommittee hearings. Simultaneously, the State Assembly and Senate review the May Revise to finalize their versions of the budget in the hearings, while members of the general public are able to meet with Governor’s and legislative staff to discuss changes or new proposals to the May Revise.

By June 15, the Governor and other elected officials have met to address outstanding budget-related issues and the Legislature must have passed a balanced budget with a simple majority vote.

Between June 15 and July 1st, the Governor reviews the final budget package and must sign it or issue a veto. The Governor can issue a veto for individual appropriations, but cannot increase appropriations above the Legislature-approved level. Should the Legislature wish to override a Governor veto, a two-thirds vote is needed. Additionally, a two-thirds vote is needed to pass other bills in the budget package, including bills that increase taxes or propose constitutional amendments. If legislators do not pass a budget bill by June 15, they must forfeit their pay and expense reimbursement until the bill is passed and sent to the Governor.

Although the depth of this multi-layered budget process can seem overwhelming, it is essential for Californians to know how to participate in this annual process and have their voice heard in matters that affect them.