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Senate subcommittee reviews May Revision increase to Proposition 98 guarantee, debates $3.9 billion holdback
Summary
The Department of Finance and Legislative Analyst’s Office described a May Revision that raises the three‑year Proposition 98 minimum guarantee by roughly $28 billion across the window; the committee probed why the administration still proposes a $3.9 billion settle‑up holdback amid stronger revenue.
Alex Shope, a Department of Finance official, told the Senate budget subcommittee the May Revision ‘‘projects that the calculated minimum guarantee will increase by approximately $28,000,000,000 relative to the 2025 budget act, and increase by 6,400,000,000 relative to the governor's budget.’’ He walked members through year‑by‑year amounts, settle‑up adjustments and reserve deposits and highlighted enrollment declines that lower ADA projections.
The Legislative Analyst's Office echoed parts of that assessment but urged caution about the state’s revenue mix. ‘‘We think the estimates of both the Proposition 98 guarantee and the LCFF savings are reasonable,’’ the LAO told the committee, while also warning the state’s revenue outlook is concentrated in a small number of technology firms and therefore vulnerable to a sharp market correction.
Committee members pressed both the administration and the LAO on the $3.9 billion still being withheld as a settle‑up buffer for 2025‑26. Chair Powell said she was ‘‘surprised’’ to see such a large remaining settle‑up amount given stronger than expected revenues and asked for concrete indicators beyond general uncertainty to justify holding funds back. Department of Finance witnesses reiterated the timeline for tax receipts—personal income tax collections finalizing in spring 2027—and cited prior years when late returns produced multi‑billion‑dollar swings.
LAO staff recommended alternatives to delaying the payment, including placing funds into the Proposition 98 reserve or using a prepayment mechanism that gives districts an extra month’s payment in June so the state can later reverse it if revenues fall. The LAO described the ‘‘advanced payment’’ as mechanically reversing a deferral—providing 13 payments in a year as a down payment on the next year’s receipts to hedge volatility.
Members also questioned whether the May Revision’s discretionary reserve and proposed deposit schedule provided sufficient transparency and asked officials for options that would gradually address settle‑up over multiple years rather than all at once. The subcommittee did not take any formal votes during the hearing; staff indicated further discussion when the full committee meets.
