The cost of maintaining current services in the upcoming 2025–27 operating budget is expected to be higher than currently-forecasted revenues for funds subject to the outlook (NGFO).

Including the September revenue forecast, a preliminary estimate of the maintenance level (the cost of continuing current services, adjusted for enrollment and inflation) for the biennium, and the estimated cost of collective bargaining agreements, we estimate that the unrestricted NGFO ending balance could be negative $5.120 billion in 2025-27 (and negative $7.546 billion over four years). The rainy day fund will have an estimated $2.977 billion at the end of the outlook period.

These are preliminary estimates, and there are two more revenue forecasts and two more caseload forecasts before the Legislature enacts the 2025–27 budget. These forecasts could considerably change the revenues and maintenance level spending in our estimated outlook.

Revenues did not unexpectedly drop due to a recession. Instead, the estimated $5.1 billion shortfall for 2025–27 is the result of choices made by the Legislature. In a forthcoming policy brief, we will outline how this happened. In short, the state increased spending even as it knew revenues would come in more slowly. Further, the Legislature used reserves to increase general spending; as a result, remaining reserves are expected to be insufficient to cover the shortfall.

Read the report here.