Governor’s rainy day budget reserve proposal gets first hearing
Speaker wants ACA1-X2 passed before budget
Published: April 30, 2014
The governor’s proposal for a strengthened rainy day fund was presented to the Assembly Budget Committee in a special legislative session convened for the purpose. Assembly Speaker John A. Pérez and Gov. Jerry Brown reviewed the goals of
Assembly Constitutional Amendment 1 of the second extraordinary session to a packed hearing room late on April 28.
The governor’s proposal, contained in the Speaker’s ACA 1 of the second extraordinary session, would establish a general fund reserve and a separate Proposition 98 reserve. The measure would replace ACA 4, the budget reserve rainy day fund proposal passed in 2010 and currently scheduled for the November 2014 ballot.
Committee members on both sides of the aisle made positive comments about the governor’s proposal and the leadership of the governor and speaker in this initial overview of the legislation. At least two members, including Assembly Budget Subcommittee 2 Chair Al Muratsuchi, also commented on the need to look at tax reform, but acknowledged that would a longer-term process.
Budget Committee Chair Nancy Skinner noted that she welcomes the opportunity to do a thorough review of the proposal, and ensure it does not constrain the Legislature’s ability to budget.
In concluding remarks, Gov. Brown acknowledged that the proposal is a conceptual puzzle, one in which lawmakers are trying to restrain themselves but wanting to retain some flexibility. This may portend one of the issues for further consideration as the proposal moves through the Legislature.
Speaker Perez noted in his closing that he looked forward to working with members to refine the proposal, but that it needs to be concluded before the Legislature passes the next budget.
Separately, Senate pro Tem Darrell Steinberg was quoted as cautioning against rushing consideration. Another element in the mix is that Republican votes will be needed to get the measure, which requires a two-thirds vote in both houses, through the Legislature.
On the same day as the hearing, the Legislative Analyst's Office issued a report comparing and analyzing the two budget reserve proposals: the governor’s ACA1-X2 and ACA 4.
The report states the LAO’s opinion that revenue volatility presents a key challenge for state budgeting and the state has a poor track record of setting aside reserves when times are good to help balance the budget during later economic downturns. Further, designing another budgetary formula for the constitution involves implementation issues that the Legislature needs to consider.
The LAO lays out a summary of the governor’s proposal including the creation of the Proposition 98 reserve: it could grow to a maximum of 10 percent of the Proposition 98 guarantee. Funding only would be deposited in the Proposition 98 reserve if (1) Test 1 is operative, (2) total school funding has been increased for enrollment growth and the higher of two cost-of-living factors, and (3) maintenance factor created before 2014-15 has been retired. The LAO concludes that deposits into the Proposition 98 reserve would be unlikely under this proposal.
See the LAO’s analysis here.