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LAO OVERVIEW OF THE GOVERNOR’S BUDGET

January 18, 2019

And in case you haven’t gotten enough of the new budget, the Legislature is starting to weigh-in:

The Legislative Analyst’s Office has released its review of the Governor’s Budget.  Released last week, the Governor’s Budget is Mr. Newsom’s blueprint for state spending and a good map to show where the Administration thinks the state is heading and where his priorities lie.

That blueprint, however, will go through a significant review and revision process in the Legislature who will also imprint the plan with their own priorities and policy adjustments.  The LAO’s report is the beginning of that process.

The LAO’s four main take aways from the Governor’s Budget Plan are presented here in full and below is a link to the full report.  If you are responsible for helping to guide your company’s decisions about the future, understanding where the state is going and/or where policymakers think the state is going, is key:

Budget Position Continues to Be Positive. In our November Fiscal Outlook publication, we noted that the budget is in remarkably good shape—a comment based in large part on the significant discretionary resources we estimated were available. The Governor’s budget proposal reflects a budget situation that is even better than our estimates. Largely as a result of lower‑than‑expected spending in health and human services programs, we estimate the administration had nearly $20.6 billion in available discretionary resources to allocate. That said, recent financial market volatility poses some downside risk for revenues.

Governor’s Budget Prioritizes Debt Repayments and One‑Time Spending. The figure shows how the Governor proposes allocating the nearly $20.6 billion in available discretionary resources. The Governor proposes spending nearly half of these resources, $9.7 billion, to pay down certain state liabilities, including unfunded retirement liabilities and budgetary debts. The Governor allocates $5.1 billion—25 percent—to one‑time or temporary programmatic spending. The Governor allocates $3 billion—15 percent—to discretionary reserves. Although this represents a smaller share of resources than other recent budgets have devoted to reserves, the Governor’s decision to use a significant share of resources to pay down state debts is prudent.

Ongoing Costs Are in Line With Estimates of Available Ongoing Resources, but Costs Could Grow. The Governor proposes spending roughly $3 billion on an ongoing basis, which is a significantly higher level than recent budgets have allocated. Our economic growth scenario in the November Fiscal Outlook indicated $3 billion was roughly the level of ongoing spending that the budget could support. This was just one scenario, however, and some ongoing proposals would have higher costs under different economic conditions.

Governor’s Budget Outlines Many Policy Priorities Early. The Governor’s budget establishes a number of priorities for 2019‑20 and beyond, many of which align with recent legislative actions. In many cases, the administration is still developing these proposals and some are not yet reflected in the budget’s bottom line. By proposing these ideas at the beginning of the budget process, the Governor gives the Legislature the opportunity to collaborate with the administration.

Click here for the full report.

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