Prop. 2 aims to secure California’s fiscal future

150 150 Gene Voiland

This article was originally published on the Bakersfield Californian website.

As a businessman, I’ve learned that timing matters. As a Californian, vitally interested and concerned about the future of the state, I see an opportunity that we should seize.

California’s economy is improving. Unemployment is dropping, housing prices have stabilized and state government is generating enough tax revenue that we now have budget surpluses. Gov. Jerry Brown and the Legislature have been using this opportunity to pay down the huge debt created by the recession that ended five years ago.

California’s tax revenues are heavily reliant on a very volatile source — the state income tax. This results in unsustainably high collections in economic good times, and relatively low collections in bad times. The problem is exacerbated when the Legislature creates new programs during good times, which then can’t be supported in normal or bad times.

That brings us to Proposition 2 — the so-called Rainy Day Budget Stabilization Fund Act that forces our state government to set aside revenue use only when we really need it.

The governor and the Legislature agreed this year by a near unanimous vote to put Prop. 2 on the November ballot.

To understand this broad support beyond just government levels, most California newspapers, of all political leanings, are endorsing Prop. 2. The California League of Cities, the California State Association of Counties, and the California Chamber of Commerce are also in favor. To be fair, a few education groups are against it because they fear that passing Prop. 2 might limit the budget reserves that local schools can hold. Most believe the fears are overblown and are unlikely to occur.

Prop. 2 on the November ballot accomplishes three things:

  1. It requires the state to set aside unusual one-time revenue from capital gains. In some years that could be as much as $4 billion.
  2. It builds a bigger reserve to stabilize spending by saving 1.5 percent of all general fund revenues. The reserve could eventually build to 10 percent of the budget ($11 billion at today’s budget level).
  3. It requires debt payment — something the state cannot keep putting off.

At California Forward, a government reform organization, we’ve been working on this issue since we were founded seven years ago. This is an important issue because it is difficult, if not impossible, to make informed decisions about any public policy if there isn’t a predictable source of revenue. While there will still be booms and busts, various studies have forecast that less drastic cuts will have to be made than in past downturns if Prop. 2 is passed.

We don’t know how severe the next recession is going to be, but unfortunately we know there be one. The Prop. 2 reserve will be strong enough to support major state programs in all but the worst economic downturn. A California Forward analysis finds that if the state had 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 the multibillion deficits of the Great Recession in half.

Prop. 2 makes sense. It is a unique opportunity at an opportune time for our state government to make smart decisions about saving money.

Proposition 2 is good policy and deserves voters’ support — both for today and for California’s future.

Gene Voiland is a Bakersfield business and civic leader who serves on the California Forward Leadership Council.


Gene Voiland

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