Budget: Proposition 2 already having positive impact

150 150 Christopher Nelson

A mere two months after voters approved the Rainy Day Fund Stabilization Act, Governor Brown’s budget proposal reveals Proposition 2 is already having a positive impact on California’s long-term fiscal health. 

Unveiled Friday morning in Sacramento, Brown’s budget shows Proposition 2 is working just the way CA Fwd believed it would when we successfully campaigned for its passage: capturing temporary spikes in revenue, paying down debt, and strengthening the state’s rainy day fund. 

The spending plan uses $2.4 billion in one-time revenue captured under Proposition 2 to strengthen the state’s reserve fund and accelerate paying down California’s “wall of debt”. Half would be deposited in the state’s rainy day fund while the other half would be spent paying off loans and past liabilities, including reimbursing local governments.

The budget deposits $1.2 billion captured by Proposition 2 into the state’s rainy day fund, bolstering California’s financial future by stabilizing spending during times of economic uncertainty. 

By January 2016, California will have set aside $2.8 billion in the reserve which can be used to offset devastating cuts to education, public safety, and vital safety net programs during the next inevitable economic downturn. A robust rainy day fund ensures the state can maintain a strong safety net when Californians need it most. 

SIDEBAR: Listen to Fred Silva, Senior Fiscal Policy Advisor for CA Fwd, discuss the budget on a KQED panel:

There are those out there who claim that it would be more prudent to spend on programs now and that stashing one-time spikes in revenue ignores the the state’s immediate needs.

But paying down the debt kills two birds with one stone by relieving an obligation of the state (that it may or may not pay interest on) on and freeing up that money in the next cycle to be put toward something else entirely. If you have a large credit card bill, you likely have a set amount budgeted toward paying that down. Once you’re at zero, that money is freed up. It’s the same principle.

Money can be put toward paying down special fund debt created by borrowing from the last recession. Because special funds are used to run various state programs, this likely affects every single Californian. This can go to any safety services, whether they’re home supportive, health services 

There was also a small anti Prop 2 campaign claiming the measure would deprive schools of needed funding, however repayment of Prop 98 deferments, money that will go directly to schools, is also something will happen via Prop 2.  

A CA Fwd analysis finds that if the state had this type of rainy day fund in place over the last 15 years, the reserve would have avoided the budgetary impacts of the dot.com bust and would have cut in half the multi-billion deficits of the Great Recession. A strong Rainy Day Fund isn’t budgetary kevlar; it won’t prevent any and all cuts to programs and services, but like a bulletproof vest to a police officer, it’s protection the state is always better off with than without.

(Images: Tax Credit/Flickr)


Christopher Nelson

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