Reflecting the bipartisan compromises agreed upon by state legislators last week, the revised 2014-15 budget proposal includes plans to save money for the future while paying off state debt.
In an effort to stabilize California’s finances and gain Republican approval, Gov. Jerry Brown called a special legislative session on the rainy day deal, resulting in several changes from the first plan introduced in January with his 2014-15 Budget.
Ensuring more dependable deposits are made into the reserve fund and placing stricter regulations on when money can be withdrawn, the revised rainy day fund is an “appropriate balance between economic stability and economic growth,” says Senate President pro Tem Darrell Steinberg, who required that some money be used to pay off state debt.
“While we certainly don't wish to return to the past, we cannot stagnate in the present either. Instead of stockpiling money while ignoring looming debt, this smarter approach locks the state into saving and attacks our wall of debt and unfunded liabilities,” said Steinberg. “The result is a healthy, prudent 'three-thirds' balance that repays debt aggressively, leaves room for reinvestment in infrastructure and people, and protects vital services from further cuts in future economic downturns.”
Legislators are expected to vote on the bipartisan agreement this week, before being placed on the November ballot if passed.
Although the state’s current rainy-day fund was established in 2004, it has remained mostly empty amid the state’s persistent budget crises over the last decade. With California’s improving financial climate, the State Controller’s Office says the economy has “treated the state’s finances well so far.”
Assembly Speaker John A. Perez, who is running for State Controller, first proposed a restructured rainy-day fund last year, called the recent bipartisan agreement a “strong example of what is possible when we all work together,” a sentiment echoed by state legislators on both sides of the aisle.
"I am pleased that the Governor and our Democrat colleagues worked with Republicans to satisfy many of the concerns that we had with the Governor's original proposal,” said Assembly Republican Leader Connie Conway in a prepared statement. “It will ensure that money is actually saved, that it cannot be siphoned off to grow government, and that we will have resources to pay down debt and protect core priorities in tough years.”
If passed by voters, the Governor’s office says the deal would: require the state to bank large increases in capital gains revenues, which are the most volatile form of tax income; 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 fund when needed during recessions, within prescribed limits; and create a reserve account for education to smooth school spending and avoid future cuts.
According to data released alongside the Governor’s original $155 billion spending plan in January, California has about $355 billion in long-term liabilities, including $217.8 billion in unfunded pension costs to retired state employees and $64.6 billion in deferred maintenance.
The release of Gov. Brown’s revised 2014-15 budget proposal on Tuesday morning marks the beginning of the annual debate over state spending between the California lawmakers, as the Governor pushes for the highest general fund in state history. Lawmakers have until mid-June to send the governor a balanced budget.