Partisanship and logjams are the results that the public has come to expect and frequently sees emanating from Washington and Sacramento. But last week, without rancor and name calling, Gov. Jerry Brown and state legislative leaders were able to reach a bipartisan agreement to create the Rainy Day Fund.
A preliminary budget proposal (Assembly Constitutional Amendment 4) was scheduled to be on November’s ballot. It had originally been part of a 2010 budget deal and was scheduled to be on the November 2012 ballot but was moved to 2014.
But that device was complicated and raised some objections. The major issues with the proposal were that it does not address the volatility of capital gains revenue, does not provide a reserve for schools to help cushion future downturns and constrains the state’s ability to pay down long-term liabilities.
In April, Brown asked legislators to reconsider this proposal and called a special session of the legislature to replace this Rainy Day Fund on the November ballot.
According to the governor’s press office, the current Rainy Day Fund agreement announced on May 8 will provide the following:
• Increase deposits when the state experiences spikes in capital gains revenues, the state’s most volatile tax revenue, and require annual deposits.
• Require supplemental payments to accelerate payoffs of the state’s debts and liabilities.
• Raise the maximum size of the Rainy Day Fund to 10 percent of General Fund revenues.
• Allow transfers to be suspended and withdrawals to be made from the Rainy Day Fund when needed during recessions within prescribed limits.
• Create a Proposition 98 reserve to smooth school spending and avoid future cuts. This reserve for schools makes no changes to the guaranteed level of funding dedicated to schools under Proposition 98. Also, the Proposition 98 reserve would not begin until school funding is fully restored following cuts made during the Great Recession.
Voters enacted the current Rainy Day Fund in 2004 with the passage of Proposition 58, which earmarks 3 percent of annual revenues into the Budget Stabilization Account. The current system has no restriction on when funds can be withdrawn and requires deposits, even in deficit years, unless the law is suspended.