Processes to Reduce Spending During Shortfall

The governor is permitted to, by executive order, suspend or discontinue the functions or services of state government (discretionary spending reductions) when there are not sufficient revenues available to carry on the functions of the state government. The act relocates the provisions of law allowing the governor to make discretionary spending reductions and requires the governor to promptly notify the joint budget committee (JBC) of the executive order. As soon as practicable after receiving the notification, the JBC shall hold a meeting to discuss the governor's plans for discretionary spending reductions. At the meeting, the governor or the office of state planning and budgeting (OSPB), or both, shall present the executive order to the JBC and the JBC may provide advice regarding discretionary spending reductions.

Under law existing before the passage of the act, the governor is required to formulate and implement a plan to reduce general fund expenditures when the governor's regular quarterly revenue estimate indicates that appropriations from the general fund then in effect either will result in using more than one-half of the required amount of general fund reserve (reserve) or will result in the balance of the reserve dropping to below $1 billion (required spending reductions).

The act adds that required spending reductions can be triggered by an interim revenue estimate that is prepared by the governor, designated as an update to the most recent prior regular quarterly revenue estimate, transmitted to the general assembly, and presented to the JBC. In addition to a revenue estimate indicating that the balance of the reserve will drop to below $1 billion, the act requires spending reductions when a revenue estimate indicates that the state needs to use an amount of the reserve equal to the lesser of 3% of general fund appropriations for the fiscal year or one-half of the required reserve.

Under existing law, the governor promptly notifies the general assembly of a required spending reduction plan. The act requires the JBC to hold a meeting as soon as practicable after receiving the notification. At the meeting, the governor or OSPB, or both, shall present the plan to the JBC and the JBC may provide advice regarding the plan.

APPROVED by Governor August 28, 2025

EFFECTIVE August 28, 2025
(Note: This summary applies to this bill as enacted.)