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Department of Finance outlines governor's balanced budget and warns of revenue volatility
Summary
At the Judicial Council meeting, Department of Finance officials presented a high‑level overview of the governor’s proposed budget, describing a balanced plan with $4.5 billion in the SFEU, $23 billion in total reserves, $348.9 billion in total spending and flagged structural deficits and market risks that could affect judicial branch funding.
Joe Stepenshaw, director of the California Department of Finance, told the Judicial Council on Feb. 20 that the governor’s proposed budget, released Jan. 9, is balanced and meets constitutional requirements for a positive Special Fund for Economic Uncertainties balance.
Stepenshaw said the administration projects a $4.5 billion SFEU balance and roughly $23 billion in total reserves, with total spending near $348.9 billion and about $248.3 billion in general‑fund expenditures. He highlighted that California’s revenue structure is progressive and highly reliant on capital gains, which creates volatility: "Every time that we've seen a spike in capital gains, there's ... a significant correction," he said.
DOF officials told the council that the governor’s budget assumes increased revenues but begins with a multi‑year structural shortfall — the presentation cited structural deficits in the range of $20 billion over multiple years. Stepenshaw also said the administration plans to monitor revenue changes ahead of the May revision and repeated a recommendation to strengthen rainy day fund rules so the state can save more during upswings.
Council members pressed DOF on delayed obligations and reserve mechanics. A DOF presenter summarized deferred obligations at roughly $25 billion, including about $5.8 billion in special fund loans, roughly $11.7 billion in cash‑flow borrowing, and Prop 98 settle‑ups and deferrals totaling about $7.6 billion combined, which DOF said together account for the $25 billion figure.
When asked how the department evaluates agency funding requests, DOF staff described a budget policy letter process and said proposals are assessed against available general‑fund resources and priorities.
Why it matters: The council hears the presentation because state revenues and budget policy directly affect funding available to the judicial branch and trial courts. DOF’s emphasis on revenue volatility and proposals to change rainy‑day rules signals issues the council and trial courts may face in collaborating on long‑term planning.
What’s next: DOF said it will update forecasts and that the May revision may reflect changes in revenue and spending; council members requested follow‑up details on deferred obligations and migration data to better understand revenue risks.
