During a live webinar hosted by the California Chamber of Commerce, Joe Stephenshaw, Director of Finance for California, provided an optimistic outlook on the state’s financial health. According to Stephenshaw, California is in a stronger fiscal position compared to the past two years, with no anticipated revenue shortfall. The Governor’s proposed budget for the upcoming fiscal year totals approximately $322.3 billion, with significant contributions from personal income tax. Key proposals include increasing the Film and Television Tax Credit, excluding military retirement income from taxes up to certain limits, and adjusting financial institution regulations. Additionally, changes to the Rainy Day Fund aim to enhance financial stability. During the Q&A session, Stephenshaw addressed concerns about inflation, tariffs, and wildfire recovery efforts.
The improved fiscal standing of California can be attributed to the collaborative efforts of Governor Gavin Newsom and the Legislature in crafting the 2024 Budget Act. This legislation has set a solid foundation for the state's financial future. While there are no immediate signs of a revenue shortfall, ongoing monitoring of baseline program increases remains crucial. Stephenshaw emphasized that the May Revision will continue to assess and adjust as necessary to maintain fiscal health. Revenue projections have exceeded forecasts through November, primarily driven by personal income tax receipts. The state’s total spending plan for the next fiscal year stands at around $322.3 billion, with nearly $228.9 billion allocated from the General Fund.
One of the key elements of the proposed budget is the management of California’s reserves. As part of a two-year plan established by the 2024 budget agreement, $7.1 billion will be withdrawn from the Rainy Day Fund for the upcoming budget year. To better prepare for future economic volatility, the Governor has proposed two significant changes: increasing the mandatory deposit into the Rainy Day Fund from 10% to 20% of General Fund revenues and exempting these deposits from the state appropriations limit. These adjustments aim to strengthen the state’s ability to manage financial uncertainties.
Other notable proposals in the Governor’s budget include boosting the Film and Television Tax Credit from $330 million annually to $750 million, excluding military retirement income up to $20,000 from state taxes for eligible filers, transitioning financial institutions to a single sales factor, and extending the pass-through-entity tax. Each of these measures seeks to bolster various sectors of the economy while addressing specific needs.
In response to questions during the webinar, Stephenshaw clarified that the Department of Finance (DOF) and the Legislative Analyst’s Office (LAO) differ slightly in their fiscal forecasts for 2025, but only by about 1.4%, well within acceptable margins. He also highlighted concerns about sustained inflation and the potential impacts of tariffs and immigration policies on economic stability. Regarding the recent wildfires in Southern California, Stephenshaw assured that the state is prepared to support affected communities, making recovery a top priority. Lastly, he discussed the evaluation of the research and development (R&D) tax credit as part of the May Budget Revise process.
The overall message from Joe Stephenshaw underscores the importance of proactive fiscal management and strategic planning to ensure California remains financially resilient. The proposed budget initiatives reflect a balanced approach to addressing current challenges while preparing for future uncertainties. By implementing these changes, the state aims to foster economic growth and stability for all Californians.