California Gov. Jerry Brown (D) will ask the state legislature next week to take up changes to a measure that could help the state save billions of dollars for the next recession.
Brown called the special session to make changes to a proposed constitutional amendment that would divert some excess tax revenues to a rainy day account. Brown wants California to save more money when capital gains tax revenue spikes; recent stock market gains and initial public offerings from California-based companies like Facebook and Twitter have sent those revenues soaring, but there’s no guarantee those gains will continue.
Brown’s proposal would also raise the maximum size of the rainy day fund to 10 percent of general fund revenues. This year, the state budget office estimated it would take in about $104 billion in general fund revenue. California would also be able to pay off its debts faster, and it would create a separate account to save money specifically earmarked for schools.
The proposed changes come after a recession that hit California particularly hard. Revenue plummeted, and the state had to cut tens of billions of dollars from social programs and education. Brown has cautioned that the current boom — especially from stock market gains — cannot last.
And he’s fighting his own legislature in the process. Democrats wanted to spend much of the surplus on restoring cuts made during the last recession and on creating a new universal pre-kindergarten program that would have cost about $2 billion per year. Brown has said he doesn’t want to start new programs that would then have to be cut, or force cuts elsewhere in the budget, if the market takes a dive.
“I think that kind of ping pong budgeting — where first you ping, and then you pong — makes no sense. And not only do I think it makes any sense, the vast majority of Californians don’t think it makes any sense,” Brown said in a January interview with The Washington Post. “It’s cruel budgeting to propose a spending program and then have to finance it two or three years from now by cutting somebody else’s program.”
Voters are already set to weigh in on a constitutional amendment that would increase the size of the rainy day fund. In 2010, the legislature and then-Gov. Arnold Schwarzenegger (R) scheduled the vote as part of a budget agreement. The proposal would divert 3 percent of annual revenue into the fund.
Brown also wants the legislature to limit withdrawals from the rainy day account. California legislators drew heavily on the rainy day fund even before the recession formally began. By fiscal 2007, California only held $6.9 billion in reserve; by fiscal 2009, when the recession technically ended, the reserve was $5.9 billion in the red. As of fiscal 2013, it had just $872 million on the books — only enough to keep state government operating for three days.
“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,” Brown said in a statement Wednesday.
But making the changes won’t be an easy task. Three Democratic state senators have been suspended amid criminal investigations, meaning Democrats no longer have a super majority capable of flexing its muscles without Republican support. Brown’s proposal will require a two-thirds majority to make changes to the proposed constitutional amendment.
Even with the super majority, Brown clashed with legislators. State Senate President Darrell Steinberg (D), one of the most vocal proponents of the universal pre-kindergarten program, said in a statement the special session would allow for a discussion about balancing needed savings with restoring spending on programs that had been cut.
“It is clear that there is need for a strategic and policy discussion, which accounts for the economic arguments of paying down debt aggressively and investments in long-term approaches that reduce the fiscal and human cost of the educational achievement gap, high rates of criminal recidivism, and unemployment,” Steinberg said.