McGeorge Adjunct Professor Chris Micheli

Does California have a balanced budget requirement? The short answer is yes, but there are a number of constitutional and statutory provisions that create this requirement.

In Article IV, Section 12(a), there is a clause that states, “If recommended expenditures exceed estimated revenues, then the Governor shall recommend the sources from which those additional revenue should be provided.” This provision basically requires the Governor to submit a balanced budget.

Since 1983, California Government Code Section 13337.5 has stated “The annual budget act shall not provide for projected expenditures in excess of projected revenues. Further, it is the intention of the Legislature that in the event, after enactment of the Budget Act, revised estimates of expected revenues or expenditures, or both, show that expenditures will exceed estimated revenues, expenditures should be reduced or revenues increased, or both, to ensure that actual expenditures do not exceed actual revenues for that fiscal year.”

So basically, the California Constitution and Government Code prohibit the Legislature from sending the Governor an unbalanced budget, and the Governor is prohibited from signing an unbalanced budget. So how does one determine if the budget is balanced, and who gets to decide if the budget is actually balanced?

Article IV, Section 12(g) of the California Constitution and the decision in Steinberg v. Chiang from the Third District Court of Appeal provide that the determination of balanced is made based on what is contained in the budget bill. In practical terms, it means the legislative and executive branches decide if the budget is balanced or not.

The courts concluded that the Legislature complies with the constitutional mandate for a balanced budget when it enacts a budget bill in which revenue estimates for the coming fiscal year exceed the total amount of existing appropriations for the fiscal year. As for enforcing this, the courts have left that to the Governor.

The courts ruled that the Governor enforces the balanced budget requirement “through vetoing the budget as a whole or exercising his power to veto line items to bring appropriations into balance with accurate revenues.”

Essentially, the Legislature enacts what it designates to be a balanced budget, and the check is brought forth by the Governor by using his or her the blue pencil, the line-item veto.

It also means that the Legislature can adopt a “balanced budget” based upon its determination that federal funds or new revenues are forthcoming, even though there is no guarantee of receipt of those funds.

You can find the full transcript of today’s podcast here.