Rainy-day proposal pulls back from 2010 California budget deal

jmiller@sacbee.comJanuary 9, 2014 

Michael Cohen, director of the California Department of Finance, testifies to the Senate budget committee in 2011.

HECTOR AMEZCUA — Bee file

The proposed rainy-day fund that is a central part of Gov. Jerry Brown's budget plan would scrap some of the provisions in a measure already on the November ballot.

That measure, ACA 4, was part of a 2010 budget deal between Democrats, Republicans and then-Gov. Arnold Schwarzenegger and was originally scheduled to go before voters in 2012. But lawmakers that year moved the initiative to 2014, and unions and some advocates for programs for low-income residents have voiced concerns that the fund as too strict.

Speaking to reporters Thursday, Brown said the details of his proposed rainy-day fund remain to be worked out. But he said it would ease boom-and-bust budget cycles, while providing more flexibility than ACA 4.

"The reason for that rainy day fund is the volatility. With that zig-zag, up and down, in capital gains and spending, the only way to offset that is to have money in reserve, and that's what I intend to do," Brown said.

"The measure will be on the ballot, unless it's changed. And so I think that provides a lot of incentive to come up with some better alternatives," he added.

School and other budget interests reacted cautiously to the governor's proposed reserve.

"What's better, parking money or using it for one-time purposes?" said Dennis Meyers, assistance executive director for governmental relations of the California School Boards Association, one of the members of the influential Education Coalition that includes the California Teachers Association.

"There are just a lot of needs. You just have to weigh those needs versus softening the funding swings," Meyers said.

Replacing ACA 4 on the ballot with Brown's plan would require a two-thirds vote. Democrats have slim two-thirds majorities. Republicans, meanwhile, said they would oppose anything they deem weaker than ACA 4.

"We await details on the proposal announced today. However if it is stronger than Assembly Constitutional Amendment 4 — which will be on the ballot in November - then we'd be happy to take it under consideration," Assembly Republican Leader Connie Conway, R-Tulare, said in a statement.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, who voted for ACA 4 to help end a three-month budget standoff, on Thursday called the measure "flawed, and flawed significantly."

"I think the governor's proposal will undoubtedly be better, but we have to analyze it," Steinberg said.

Under ACA 4, the state would divert money into a rainy-day reserve based on 20 years of historical revenue. The money would be off-limits except after earthquakes and other emergencies and when revenue comes in less than expenses for the previous year.

Brown's proposal includes three main differences from ACA 4:

The proposed reserve would collect capital-gains revenue that exceeds 6.5 percent of the general fund.

It would create a special pot within the reserve for the state's constitutional school-funding guarantee, Prop. 98. "Instead of immediately allocating it to schools, some of that money gets allocated into a reserve, so that when Prop. 98 drops...that money can get allocated from that account," the Department of Finance's Nick Schweizer said.

Lastly, it would allow lawmakers to tap the fund to pay down state debts. "What we've done to date and what we want to continue to do is balance saving money for the future as well as chipping away at all of these huge liabilities," Finance Director Michael Cohen said.

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