JBC staff: Dec. revenue forecast and HCPCS overexpenditure leave state about $200M–$340M short of reserve

Craig Harper, Joint Budget Committee staff director, told the committee the December 2024 revenue forecast and higher-than-expected caseloads have left the state with a substantially larger shortfall than projected at the end of the 2024 session.

Harper said the general fund picture has changed from an approximately $34 million gap to a figure “about $200,000,000 in the whole for the current year” under council staff and slightly more under the governor’s office, and that the most important driver of the difference was an “overexpenditure in Health Care Policy and Financing.” He told members the governor had proposed a temporary reduction of the reserve requirement to help balance the current year and would try to restore the 15% target the following year.

Harper framed supplementals as midyear adjustments that fall into a few categories: caseload-driven requests (most prominently Medicaid/HCPCS and school finance), “true up” adjustments to align appropriations with actual expenditures, and balancing proposals the governor and agencies submit to reduce the gap. He flagged roughly $82.1 million of official supplemental requests on hand at the time of the presentation and said placeholders for anticipated caseload requests — chiefly in HCPCS and corrections — would push that closer to $130 million.

Harper told members the governor’s letter included two distinct reserve-related items: a roughly $230 million temporary reduction of the reserve requirement in the current year and a proposed transfer of $350 million tied to Proposition 130. He warned that, taken together with judicial and other independent elected officials’ requests, the governor’s package as submitted would leave the state short of the reserve requirement next year unless additional balancing actions are taken.

Committee members pressed for timing and mechanics. Harper explained statute sets deadlines for supplemental bills (the rule gives a deadline for introduction; staff said Feb. 3 was the statutory/house rule deadline this year), with most supplements due Jan. 2, corrections moved to Jan. 10, school finance and youth services around Jan. 15, and HCPCS caseload material arriving Feb. 15. Harper repeatedly recommended delaying final decisions on the reserve reduction until the March revenue forecast, saying that picking a forecast in March is one of the most consequential choices the JBC will make as it balances both years.

Harper and members discussed specific drivers and uncertainties: judicial branch requests came in above the governor’s assumptions; the HCPCS caseload projection was the largest single near-term risk; and some balancing proposals (for example, severance-tax restructuring or changes to cash-fund transfers) are highly forecast dependent and would yield different general-fund benefits depending on the March forecast.

Harper closed by offering a recommended operational timeline for supplementals: staff presentations and decisions through late January, comebacks and drafting in the final week of January, and bill introduction by the statutory deadline in early February. He also asked members to direct agencies to plan comebacks on a coordinated schedule so staff could meet drafting deadlines.

Members asked clarifying questions about where supplemental funding would come from if departments did not return money. Harper said options are cuts elsewhere, additional revenue, or drawing on the reserve — and noted the governor’s framing of a one‑day or one‑year reduction that would lower the reserve at June 30 and return it to 15% on July 1 under the technical mechanics of the reserve statute.

Harper repeatedly emphasized uncertainty: the December snapshot was likely to change with the March forecast and with the February HCPCS caseload submission. He urged members to treat the January materials as the start of intensive decisions rather than the final balance.