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Abundance of Revenue May Trigger State Spending Limits

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Even though the state will bring in billions of dollars in surplus revenue this year, its ability to spend those additional dollars may be more limited than it has been for many years. This unique challenge facing the Legislature and administration as they craft the 2022-23 state budget is being driven by a voter-approved requirement in the state Constitution. 

Essentially, the requirement limits how much in state revenue may be used to pay for new or existing programs — it’s part of a 1979 constitutional amendment that attempts to keep state and local spending in check. Known as the State Appropriations Limit, it uses an intricate calculation to limit how the funds can be used. 

It comes into play when revenues reach past a certain point, and over the last two years, California has reached that point. The spending limits we’re now facing could affect not only the governor’s 2022-23 budget proposals but two proposals CHA has advanced for the Medi-Cal program. 

One of those proposals would update Medi-Cal rates that have been frozen since 2012-13, delivering more equitable funding for health care resources to communities that are highly reliant on Medi-Cal. This critically important proposal would bring hundreds of millions of dollars annually to care for Medi-Cal patients, who face unequal health outcomes due to structural inequities in the care delivery system. 

Another of our budget proposals would expand Medi-Cal graduate medical education to include all eligible hospitals — rather than only designated public hospitals — and make ongoing investments in Medi-Cal graduate medical education to help rebuild our depleted health care workforce. 

On the flip side, CHA’s disaster preparedness proposal that aims to modernize the 2030 seismic mandate may be crafted in a way that ensures the associated spending does not count against the appropriations limit, which could help its prospects in the Legislature. (Five types of state appropriations are excluded from the limit: certain state funding that goes to local governments, capital outlay projects, debt service, federal and court mandates, and certain kinds of emergency spending.) 

For now, these complexities have created a murky view of state spending in 2022-23. More details about the State Appropriations Limit and the Legislature’s options for addressing its budgetary constraints are available in this issue brief prepared by CHA. In the meantime, we’ll be sure to keep you informed as lawmakers grapple with the spending limits, budget negotiations unfold, and the prospects for hospitals’ priorities become clearer.