For all the publicity and hand-wringing about the volatility of the state’s income stream, California has but two rainy day reserve accounts — neither of which is particularly effective.
The first is a “Fund for Economic Uncertainties,” which, as stated in the California constitution, requires that the state have a “prudent” reserve in an amount that is “reasonable and necessary” — as determined by the state Legislature.
But given the pliability of the terms “reasonable and necessary,” the fund has failed to serve as the safety net its creators envisioned.
The second is the Budget Stabilization Account as created by Proposition 58 in 2004, when then-Gov. Arnold Schwarzenegger persuaded Californians that the best way to address the state’s staggering budget deficits was to put a healthy chunk of it on a credit card and then create a lock-box rainy day fund to assure the state is never in the same fix again.
It was a sound idea. The problem is there were too many ways to unlock the box and to ignore it.
California deposited funds into the Budget Stabilization Account in 2006 and 2007. But it did little to help the state weather the financial disaster that was the Great Recession — and it hasn’t seen a dime since. Right now, it has a zero balance.
Proposition 2 on the Nov. 4 ballot seeks to fix that.
Proposed by Gov. Jerry Brown and adopted by the state Legislature without a dissenting vote, Proposition 2 would amend the state constitution to require the state to regularly transfer general fund revenues into the Budget Stabilization Account. Specifically, it also would require that for the next 15 years, the state would spend at least 0.75 percent of general fund revenues — now equal to roughly $800 million — each year in paying down its debts, including unfunded obligations for pension and retiree health benefits.
State lawmakers still could put less money into the account or take money out, but to do so, it would first require the governor to declare a budget emergency, which only could be called when general fund revenues drop significantly or in the event of a natural disaster.
Critics of the measure focus particularly on one aspect of the proposition, which would set the maximum budget reserves school districts could keep in future years. The cap would be 6 percent.
We, too, would prefer the state leave local districts alone to manage their own reserve accounts. But the idea is that local districts wouldn’t need to set aside as much for emergencies because the proposition also mandates that the state create a new reserve for schools and community colleges, an account that would be fed in years when capital gains revenues are particularly strong.
California still needs to reform its dysfunctional tax system. But Proposition 2 would go far in helping the state pay down existing debt, brace itself against the highs and lows of a revenue stream tied too closely to capital gains and provide a cushion against future spending cuts. Moreover, it would force state lawmakers to be better stewards of taxpayer funds.
Given all that, The Press Democrat recommends a yes vote on Proposition 2.