Sacramento, California - Governor Edmund G. Brown Jr. today called a special session of the Legislature to replace the Rainy Day Fund on the November ballot with a dedicated reserve that would allow the state to 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 Governor Brown.
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.
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 most recent 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.
Voters enacted the current Rainy Day Fund in 2004 with the passage of Proposition 58, which directs 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 The current system has no restriction on when funds can be withdrawn and requires deposits even in deficit years, unless the law is suspended.
The Governor issued the proclamation convening a special session for April 24, 2014.