California Proposition 2, Rainy Day Budget Stabilization Fund Act (2014)

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Proposition 2
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Type:Constitutional amendment
Constitution:California Constitution
Referred by:California State Legislature
Topic:State budgets
Status:On the ballot
2014 propositions
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June 3
Proposition 41Approveda
Proposition 42Approveda
November 4
Proposition 1
Proposition 2
Proposition 45
Proposition 46
Proposition 47
Proposition 48
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Ballot titlesFiscal impact
Local measures
The California Proposition 2, the Rainy Day Budget Stabilization Fund Act (Assembly Constitutional Amendment 1), ballot proposition is on the November 4, 2014 ballot in California as a legislatively-referred constitutional amendment. The measure was formerly known as Proposition 44.[1]

The measure, upon voter approval, would alter the state’s existing requirements for the Budget Stabilization Account (BSA), as established by Proposition 58. The BSA is a rainy day fund. ACA 1 would also establish a Public School System Stabilization Account (PSSSA).[2][3]

If approved by voters, ACA 1 would:[2][3]

  • Require the director of finance to submit estimates of general fund revenues and expenditures for the ensuing fiscal year and the three fiscal years thereafter within ten days following the submission of proposed adjustments to the governor’s budget.
  • Require the controller to deposit annually into the BSA: (A) 1.5 percent of general fund revenues and (B) an amount equal to revenues derived from capital gains-related taxes in situations where such tax revenues are in excess of eight percent of general fund revenues. Deposits to the BSA would begin by no later than October 1, 2015. Deposits would be made until the BSA balance reaches an amount equal to 10 percent of general fund revenues.
  • Require that from the 2015-2016 fiscal year until the 2029-2030 fiscal year, 50 percent of the revenues that would have otherwise been deposited into the BSA must be used to pay for fiscal obligations, such as budgetary loans and unfunded state-level pensions plans. Starting with the 2030-2031 fiscal year, up to 50 percent of revenues that would have otherwise been deposited into the BSA may be used to pay specified fiscal obligations.
  • Permit the legislature to suspend or reduce deposits to the BSA and withdraw for appropriation from the BSA upon the governor declaring a budget emergency.
  • Create a distinct budget stabilization fund known as the “Proposition 98 Reserve” or Public School System Stabilization Account (PSSSA). The PSSSA would be funded by a transfer of capital gains-related tax revenues in excess of eight percent of general fund revenues. Funds would be appropriated from the PSSSA when state support for K-14 education exceeds the allocation of general fund revenues, allocated property taxes and other available resources.

Text of measure

See also: Ballot titles, summaries and fiscal statements for California's 2014 ballot propositions

Ballot title:[4]

State Budget. Budget Stabilization Account. Legislative Constitutional Amendment.

Official summary:

The long-form summary reads:[4]

  • Requires annual transfer of 1.5% of general fund revenues to state budget stabilization account.
  • Requires additional transfer of personal capital gains tax revenues exceeding 8% of general fund revenues to budget stabilization account and, under certain conditions, a dedicated K–14 school reserve fund.
  • Requires that half the budget stabilization account revenues be used to repay state debts and unfunded liabilities.
  • Allows limited use of funds in case of emergency or if there is a state budget deficit.
  • Caps budget stabilization account at 10% of general fund revenues, directs remainder to infrastructure.[5]

Fiscal impact statement:[4]

(Note: The fiscal impact statement for a California ballot initiative authorized for circulation is jointly prepared by the state's Legislative Analyst and its Director of Finance.)

  • Some existing state debts would be paid down faster, resulting in long-term savings for the state.
  • Changes in the level of state budget reserves, which would depend on the economy and future decisions by the Governor and the Legislature.
  • Reserves kept by some school districts would be smaller.[5]

Constitutional changes

See also: Article IV and Article XVI of the California Constitution

ACA 1 would amend Section 12.5 of Article IV and Sections 20-22 of Article XVI of the California Constitution.[2]

The amendment’s full text can be read here.

Background

History

The amendment was originally slated for the June 5, 2012, ballot. However, Senate Bill 202, which was enacted on October 7, 2011, moved the amendment to the 2014 ballot.[6]

On April 16, 2014, Gov. Jerry Brown (D) called on a special session of the California Legislature to replace the ballot measure with a different one that also creates a rainy day fund.[7] This replacement became known as ACA 1, was approved by the legislature and ultimately replaced the old measure on May 16, 2014.

Reserves

As of June 2014, California has two principle general fund reserve accounts:[3]

  • Special Fund for Economic Uncertainties (SFEU): The California Constitution, specifically Section 5.5 of Article XIII B, requires a “prudent” reserve fund in an amount determined as “reasonable and necessary” by the legislature. This general fund reserve has become known as the Special Fund for Economic Uncertainties.
  • Budget Stabilization Account (BSA): Proposition 58, passed in 2004, established a Budget Stabilization Account. Proposition 58 requires that three percent of estimated general fund revenues be transferred into the BSA. Transfers are required until the stabilization account reaches eight billion dollars or five percent of general fund revenues, whichever is greater. When Economic Recovery Bonds are outstanding, fifty percent of the annual transfers to the stabilization account are to be used for paying off the bonds. Transfers from the BSA to the General Fund may occur with a majority vote of the legislature and approval of the governor. Also, an executive order can suspend or reduce transfers to the BSA. California deposited funds into the BSA in 2006-7 and 2007-8, but hasn’t since. The BSA currently has a zero balance.

ACA 1 would also create a distinct budget stabilization fund known as the “Proposition 98 Reserve” or Public School System Stabilization Account (PSSSA). The PSSSA would be funded by a transfer of capital gains-related tax revenues in excess of eight percent of general fund revenues. Funds would be appropriated from the PSSSA when state support for K-14 education exceeds the allocation of general fund revenues, allocated property taxes and other available resources.

Support

Supporters

Arguments

Gov. Jerry Brown (D), Rep. John Perez (D-53) and Allan Zaremberg, President of the California Chamber of Commerce, wrote the argument in favor found in the state’s official voter information guide:

VOTE YES ON PROPOSITION 2 TO CREATE A RAINY DAY FUND THAT PROTECTS TAXPAYERS AND SCHOOLS.

Proposition 2 establishes a STRONG RAINY DAY FUND in the State Constitution that will force the Legislature and the Governor to save money when times are good, PAY DOWN DEBTS and PROTECT SCHOOLS from devastating cuts. Both Democrats and Republicans support Proposition 2.

By forcing the state to save money, Proposition 2 WILL REQUIRE POLITICIANS TO LIVE WITHIN THEIR MEANS AND PROTECT AGAINST UNNECESSARY TAX INCREASES. In good times, money will be placed in a constitutionally-protected reserve and used to pay down debt. In bad times, the Rainy Day Fund can be used to protect schools, public safety and other vital services.

California needs Proposition 2 because it prevents the state from spending more than it can afford. Only three years ago, California faced a $26 billion budget deficit that required the Legislature to make painful cuts and voters to approve temporary tax increases. PROPOSITION 2 WILL MAKE SURE THAT WE DON'T REPEAT THIS CYCLE OF BOOM AND BUST BUDGETING.

VOTING YES ON PROPOSITION 2 WILL:

  • Stabilize the state's budget by ensuring temporary revenues are set aside and not committed to ongoing spending we can't afford.
  • Accelerate the state's debt payments.
  • Create an education reserve to avoid future cuts to schools.

CREDIT RATING AGENCIES AND NEWSPAPERS SUPPORT A STRONG RAINY DAY FUND.

SAN FRANCISCO CHRONICLE: The Rainy Day Fund is the “prudent course.”
STANDARD AND POOR'S: The Rainy Day Fund marks "another step in California's ongoing journey toward a more sustainable fiscal structure."
LOS ANGELES TIMES: The Rainy Day Fund "does more to promote a culture of savings in Sacramento."
MOODY'S: The Rainy Day Fund helps the state "cushion its finances from economic downturns."
FRESNO BEE: The Rainy Day Fund will "protect taxpayers against catastrophic budget deficits."
SACRAMENTO BEE: The Rainy Day Fund is "an important step toward fiscal discipline."

VOTE YES ON PROPOSITION 2 AND PROTECT CALIFORNIA'S BALANCED BUDGET! [5]

—Gov. Jerry Brown, Rep. John Perez and Allan Zaremberg[9]

Opposition

California 2014 NoOnProp2.jpeg

2 Bad For Kids, a project of Educate Our State, is currently the only registered campaign committee against Proposition 2.[10]

Opponents

Arguments

2 Bad For Kids, a campaign against the initiative, developed a list of arguments on their webpage. They said, "If you care about fiscal responsibility, kids and public education, vote NO ON PROP 2." The following is a selection of their arguments:

Why has Educate Our State come out in opposition to Proposition 2?

We could not escape from the fact that Proposition 2 and its connected statutory triggers were both unfair and fiscally irresponsible towards schools. When we realized no one in the political fray was willing to take on the Governor, who is backing Proposition 2, since he has a reputation for fiscal austerity and seems pretty sure to be reelected, we realized it was the job of parent volunteers to take the lead. Unlike politicians, lobbyists, and other special interests, we have nothing to lose.

This is a perfect example of why children always come last in Sacramento (lest we forget, we are 51st by a LARGE margin in student-teacher, student-counselor AND student-librarian ratios, not to mention at or near the bottom in the nation in per pupil funding - yes even AFTER Proposition 30). Children have no lobby, and no money. And they cannot vote. They need us to be our voice. Do you want to give children a voice? Vote NO on Prop 2, for starters.

Why does Educate Our State say Proposition 2 is unfair and fiscally irresponsible?

Proposition 2 breeches the minimum guarantee Californians made to our schoolchildren – a guarantee that the Governor and the Legislature assured schools would protect them. Remember, the state diverts BILLIONS of local school property taxes that are allocated to public education each year -- $8.4 billion this year alone -- to pay its debts.

Now the State is saying it won’t necessarily replace those funds. That’s unfair. As if that were not already devastating to schools, the Legislature decided to require local school districts to spend all but three weeks of their savings the minute the state saves a nickel. It did this without public comment or LAO analysis. We see this as unfair to schools and schoolchildren and extraordinarily fiscally irresponsible.

Why should I care about this?
Over 100 years ago, California voters said that our first priority would be funding public education (California Constitution Article XIV Section 8).

Over 25 years ago, California voters said that we would spend at least the proportion of state revenues on schools and community colleges that we had in 1986-87, roughly 40% (Proposition 98).

We have never seen a poll (or heard a politician) say that education is a low priority for Californians – and yet the state is trying now, having cut schools’ share of local property taxes down to 33%, to cut public education’s share of State’s income taxes below 40%!

Time and time again we see money taken FROM schools, while pretending to be helping schools. Why? In part, we believe, because children cannot vote and they do not have expensive lobbyists representing their interests. Sacramento has a lot more to gain with rhetoric than results for public education.

Put kids first. Vote NO on Prop 2. Show Sacramento you don't buy the rhetoric. We are at the bottom of the nation in public education - what's the excuse? [5]

2 Bad For Kids, [12]

Ellen Brown (G) of the Public Banking Institute called the amendment a "catastrophic bust" and argued for a state-owned bank in lieu of the proposed fund. She argued the following:[13]

  • "But a rainy day fund takes money off the table, setting aside funds we need now to reverse the damage done by Wall Street’s last collapse. The brutal cuts of 2008 and 2009 shrank the middle class and gave California the highest poverty rate in the country."
  • "Having a state-owned bank can substitute for a rainy day fund. Banks don’t need rainy day funds, because they have cheap credit lines with other banks. Today those credit lines are at the extremely low Fed funds rate of 0.25%. A state with its own bank can take advantage of this nearly-interest-free credit line not only for emergencies but to cut its long-term financing costs in half."
  • "Rather than setting aside our hard-earned surplus to pay the piper on demand, we could be using it to create the credit necessary to establish our own economic independence. California is the ninth largest economy in the world, and the world looks to us for creative leadership. “As goes California, so goes the nation.” We can lead the states down the path of debt peonage, or we can be a model for establishing state economic sovereignty."

Media editorial positions

See also: Endorsements of California ballot measures, 2014

Support

  • San Jose Mercury News: "Proposition 44 [Proposition 1] would impose desperately needed fiscal discipline on lawmakers, and that deserves voter support."[14]

Path to the ballot

See also: Amending the California Constitution

The timeline for the enactment of ACA 1 was as follows:[15]

Similar measures

See also

External links

Basic information

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Opposition

References