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SACRAMENTO—Speaker John A. Pérez and Gov. Edmund G. Brown Jr. on Monday laid out for the Assembly Budget Committee a proposed constitutional amendment for a Rainy Day Fund designed to protect California’s budget from future downturns.

“By putting forward this rainy day fund for consideration by the voters, we can take advantage of this unique opportunity and ensure that our hard-won fiscal stability continues,” said Speaker Pérez (D-Los Angeles) during his testimony. “We cannot afford to fall back into the bad habits of the past where we commit to ongoing spending and tax cuts in good years, and then are forced to pass major cuts and tax increases on the middle class in bad years.”

The Rainy Day Fund proposal is based on the key principle of achieving budget stability by targeting revenue volatility. The proposal would:

  • Put short term spiking Capital Gains revenue into Reserve during boom years or use the revenue to pay down the budget debt and unfunded liabilities.
  • Increase the size of the Rainy Day Fund to from the current 5% to 10% of the General Fund. Once it is full, then funds that would otherwise be deposited are limited to certain one-time purposes.
  • Require that the Governor declare a fiscal emergency and the Legislature pass a statute before funds can be withdrawn or a deposit suspended.
  • Limit withdrawals from the reserve to 50% of the fund balance for the first year (unless a withdrawal was made the previous year) to ensure the Reserve lasts at least two years.
  • Not impact Prop 98 until the entire $7.9 billion maintenance factor is paid off, which will avoid budget cuts to education.

While the current ballot proposal creates a spending cap based on historic revenue performances that may no longer apply to current budget circumstances, this new plan would transfer revenues from Capital Gains that make up more than 6.5% of the General Fund—that are not required to go toward Prop 98—into the Rainy Day Fund. In this way, the proposal encourages stability while protecting K-12 educational funding.

The current Constitutional Reserve under Prop 58 allows the Governor to unilaterally suspend transfers into the fund, making it relatively easy to spend money that ought to go toward budget stabilization. This new proposal would place a legislative check on the Reserve, requiring a legislative statute to withdraw from the reserve as well as a Governor declaration of a fiscal emergency.

This proposal would replace the current standing Prop 58 Constitutional Reserve as well as the ACA 4 ballot measure to be placed before voters in November.

Speaker Pérez Presents Rainy Day Fund Proposal

(Sacramento) – Speaker John A. Pérez (D-Los Angeles) and Gov. Edmund G. Brown Jr. laid out for the Assembly Budget Committee a proposed constitutional amendment for a Rainy Day Fund designed to protect California’s budget from future downturns. “By putting forward this rainy day fund for consideration by the voters, we can take advantage of this unique opportunity and ensure that our hard-won fiscal stability continues,” said Speaker Pérez during his testimony. “We cannot afford to fall back into the bad habits of the past where we commit to ongoing spending and tax cuts in good years, and then are forced to pass major cuts and tax increases on the middle class in bad years.” Here’s more in this Assembly Access video.

Below are links to audio of Speaker Pérez:

Opening remarks from Speaker Pérez at today’s committee hearing. (5:10)

Speaker Pérez says this proposal will replace and improve upon the current proposed rainy day fund. (:14)

Speaker Pérez says this proposal is not perfect but it is the best rainy day fund plan yet. (:17)

Speaker Pérez explains some of the differences between ACA 4 and the current proposal. (:32)

Below are photographs of Speaker Pérez:

{gallery}RainyDayFund{/gallery}

Website of Assembly Speaker John A. Pérez: www.asmdc.org/speaker