California Proposition 44, Rainy Day Budget Stabilization Fund Act (2014)
|Referred by:||California State Legislature|
|Status:||On the ballot|
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).
- 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 PSSA 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
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. This replacement became known as ACA 1, was approved by the legislature and ultimately replaced the old measure on May 16, 2014.
As of June 2014, California has two principle general fund reserve accounts:
- 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 PSSA 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.
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:
- "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
- San Jose Mercury News: "Proposition 44 would impose desperately needed fiscal discipline on lawmakers, and that deserves voter support."
Path to the ballot
- See also: Amending the California Constitution
The timeline for the enactment of ACA 1 was as follows:
- April 16, 2014: Gov. Brown calls for a special session to pass ACA 1
- April 24, 2014: Introduced into the California State Assembly
- April 28, 2014: Introduced by Assembly Budget Committee
- May 15, 2014: Passed the Assembly
- May 15, 2014: Passed the Senate
- May 16, 2014: Filed with California Secretary of State
- California Secretary of State, "ACA 1," accessed June 19, 2014
- California Legislature, "ACA-1 Bill Analysis, accessed June 19, 2014
- Sacramento Bee, "Union-backed measures in Calif. leave governor in jam," September 11, 2011
- The Sacramento Bee, "Governor calls special session on rainy-day fund," April 16, 2014
- Post-Periodical, "State Democrats Vote to Support Ballot Measures," July 14, 2014
- Truthdig, "Why Jerry Brown’s Rainy Day Fund Is a Bad Idea," May 8, 2014
- San Jose Mercury News, "Mercury News editorial: Yes on Proposition 44's rainy day fund," July 25, 2014
- California Legislature, "ACA-1 History," accessed June 19, 2014