California is collecting so much of your money it can’t save it all

California’s swelling budget reserves are approaching a point where the state by law can’t save any more money ‑ but don’t expect a tax rebate.

The state is quickly filling up its so-called rainy day fund, the budget stabilization account voters created in 2014 when they passed an initiative that forced lawmakers to save money in flush years. Gov. Jerry Brown’s budget proposal puts the state on pace to fill it with $13.5 billion by July 1, 2019, but the milestone could come even sooner.

By law, the fund can only hold 10 percent of the state’s projected general fund revenue as a hedge against the cuts that would come in a recession. Any additional revenue has to be spent on infrastructure.

If the revenue keeps pouring in, Legislative Analyst Mac Taylor told senators earlier this month they’ll have a lot of options. The money “will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do.”

But, in one of those only-in-California budget formulas, filling the rainy day fund presents a different kind of problem for legislators. …

Click here to read the full article from the Sacramento Bee

Ballot Initiative Amended to Target State Rainy Day Fund

Sponsors of an extension of the Proposition 30 top income tax rates amended their ballot initiative this week, slightly parting the curtain on the skirmishes yet to come.

Recently I wrote of a clever provision buried in the original proposal. Sponsors aim to continue the tax hikes on the upper incomes for another dozen years. But they also slipped in a clause prohibiting the deposit of any revenues from these taxes into the new rainy day reserve. In other words, the Legislature can spend all the money from billions in new taxes as if those revenues are locked in stone and never subject to the business cycle.

The upshot would be to undermine the newly-adopted budget cushion, notably touted by Gov. Brown in 2014, and risk deep spending cuts or even higher taxes when the state suffers its next, inevitable downturn.

The newly-amended version of the measure tweaks this provision – clarifying that it would not take effect until 2019, the year the Proposition 30 taxes would have otherwise expired. Without that change, the measure would likely have been interpreted to prohibit deposit of surplus revenues from the current Prop. 30 taxes into the rainy day reserve.

Why make this change? The answer may be just two words: Gov. Brown. Undermining the rainy day reserve as early as 2016 might have brought down his wrath on the ballot proposal (the governor has not yet stated a position on the measure). Poking the governor in the nose is usually bad politics. Proponents – mainly the California Teachers Association – might also calculate the governor may be less motivated to defend his rainy day reserve if the blade is shivved after he leaves office in 2019.

Originally published by Fox and Hounds Daily

resident of the California Foundation for Commerce and Education