(photo credit: Theophilos Papadopoulos)
It’s time for California to pay its debts and save money.
Those were the thoughts of California Governor Edmund G. Brown Jr. today as he called a special session of the Legislature on April 24th to replace the Rainy Day Fund (ACA 4) on the November ballot with a dedicated reserve that would allow the state pay down its debts and unfunded liabilities.
“We simply must prevent the massive deficits of the last decade and we can only do that by paying down our debts and creating a solid Rainy Day Fund,” said Gov. Brown.
Momentum for creating a viable rainy day fund has been building all year.
“After years of budget cutting, both parties realize that if we were managing our revenue better, the cuts we made wouldn’t have had to have been so deep,” said Jim Mayer, president and CEO of California Forward. The organization has been talking about how to resolve California’s fiscal instability since it was formed in 2007.
Here’s a video blog with Mayer from February 27 of this year discussing the importance of the government better managing its revenues in our volatile economy.
In January, Governor Brown proposed changes to the Rainy Day Fund to stabilize the state’s finances during swings in capital gains revenues and to provide greater protection for schools from the kind of deep reductions that were the result of the Great Recession. Specifically, the Governor proposes the following changes to the fund:
Increase deposits when the state experiences spikes in capital gains revenues, the state’s most volatile tax revenue;
Allow supplemental payments to accelerate the state’s payoff of its debts and liabilities;
Raise the maximum size of the Rainy Day Fund to 10 percent of General Fund revenues;
Limit withdrawals to ensure the state does not overly rely on the fund at the start of a downturn;
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. In addition, the Proposition 98 reserve would not begin until school funding is fully restored following cuts made during the Great Recession.
In 2010, the Legislature approved the proposal on the November 2014 ballot – ACA 4 – for the consideration of the voters. However, that proposal 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.