COVID-19 Messed Up the State's Bottom Line and Budget Timeline: Now What?

Back in January, everything looked on track for California financially. The state was even looking at a $6 billion surplus and had accumulated a healthy "rainy day fund" of $18 billion.

That's all changed since the coronavirus swept around the world and decimated the economy. The state of California is now looking at a projected $54 billion deficit.

The virus hasn't just upended the economy, it has disrupted the state's entire budget cycle. Normally, the governor must present the initial balanced budget proposal to the Legislature by Jan. 10. After that, the Senate and Assembly Budget Committees get an overview of the governor's proposal. All of that happened as planned this year.

In the spring, between March and May, the various budget subcommittees start conducting deep dives into specific departments and agencies with the goal of sending suggested changes to the full budget committees. Those subcommittee hearings had just gotten underway when the Legislature suddenly recessed because of the coronavirus pandemic.

While the subcommittees are meeting, the governor and his team usually work on an updated budget proposal, known as the May Revise — reflecting the tax revenue California took in following the April 15 tax filing deadline. But this year, with the deadline pushed to July to help taxpayers adjust to the new economic realities, the state won't be certain how much money it has to work with until the middle of summer.

The show must go on. Gov. Gavin Newsom is still planning to present his May Revise on time Thursday.

The Legislature was out of session in the weeks it would ordinarily hold hearings and take testimony from the public to refine its own budget priorities in anticipation of negotiations with the governor. Now, the entire process has been shortened.

Newsom and the Legislature must still move forward because the state Constitution mandates lawmakers pass a balanced budget by June 15. However, what they pass next month will be far less complete than the standard budget.

It's likely the Legislature will pass a continuation of the state's current budget and work on a revised budget for next fiscal year after the new July tax filing deadline.

Given the impact of the pandemic on current economic realities, budgets will be tightened in almost every aspect of state government. The ripple will be felt across the state for tens of millions of Californians who rely on state funding for everything from K-12 public schools to higher education, health care and public safety.