SACRAMENTO – 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 The current system has no restriction on when funds can be withdrawn and requires deposits even in deficit years, unless the law is suspended.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. The text of the proclamation is below:
BY THE GOVERNOR OF THE STATE OF CALIFORNIA
WHEREAS, an effective Rainy Day Fund, combined with strong fiscal management, is critical to protect the state from the ill effects of boom-and-bust budget cycles; and
WHEREAS, the state’s existing Rainy Day Fund was established in 2004 but should be strengthened; and
WHEREAS, an existing proposed amendment to the Constitution to alter the state’s Rainy Day Fund is currently scheduled to appear before the state’s voters in November 2014 but does not allow the state to adequately address its debts and liabilities; and
WHEREAS, these extraordinary circumstances require the Legislature of the State of California to be convened in an extraordinary session:
NOW, THEREFORE, I, EDMUND G. BROWN JR., Governor of the State of California, in accordance with Section 3(b) of Article IV of the Constitution of the State of California, hereby convene the Legislature of the State of California to meet in extraordinary session in Sacramento, California, on the 24th day of April, 2014, at a time to be determined, for the following purpose:
To consider and act upon a constitutional amendment to be placed before the state’s voters at the November 2014 election to strengthen the state’s Rainy Day Fund. The Rainy Day Fund should:
a. Increase deposits when the state experiences spikes in capital gains revenues, the state’s most volatile tax revenue.
b. Allow supplemental payments to accelerate the state’s payoff of its debts and liabilities.
c. Create a Proposition 98 reserve to smooth school spending and avoid future cuts.
d. Raise the maximum size of the Rainy Day Fund to 10 percent of General Fund revenues.
e. Limit withdrawals to ensure the state does not overly rely on the fund at the start of a downturn.
I FURTHER DIRECT that as soon as hereafter possible, this Proclamation be filed in the Office of the Secretary of State and that widespread publicity and notice be given of this Proclamation.
IN WITNESS WHEREOF, I have hereunto set my hand and caused the Great Seal of the State of California to be affixed this 16th day of April 2014.
EDMUND G. BROWN JR.,
Governor of California
Secretary of State