Gov. Jerry Brown and the Legislature are proposing a rainy-day fund to restrain future lawmakers from spending every taxpayers’ dime that comes to Sacramento in boom times, and eviscerating important programs in bad times.
It’s hard to get too excited about the deal. We’ve heard it before. But though the final language of the newest version is not yet publicly available, the Department of Finance description makes it sound more appealing.
In the latest iteration, probably headed to a statewide vote in November, future legislatures and governors would be expected to squirrel away 1.5 percent of general fund revenue, roughly $1.5 billion each year. Part of the money would go into an emergency fund for when the next downturn comes, and part of it would be used to pay down the billions the state owes in debt.
Both are worthy goals.
Additionally, the state would add to the rainy-day fund and pay down debt using revenue from taxes on capital gains that exceeds 8 percent of the general fund. The state hit that 8 percent mark in six of the past 10 years. It occurs when the stock markets are high and people reap profits from stock sales.
Brown and Democrat and Republican legislative leaders deserve credit for fashioning the latest deal. But they should go easy on the back-patting. This is a sequel to past versions of the rainy-day fund that didn’t end well.
In 2004, when voters still were enamored with him, Gov. Arnold Schwarzenegger pushed for approval of Proposition 58, which promised a rainy-day fund. Voters approved it. But the measure was too easy to evade. Legislatures have suspended it each year since 2007.
In 2009, Schwarzenegger tied another version of the rainy-day fund to extending a tax increase. Voters rejected that measure overwhelmingly.
In 2010, as Schwarzenegger was leaving office, he pushed for another so-called rainy-day fund as part of a final budget deal. The 2010 measure, carried by Assemblyman Mike Gatto, requires a statewide vote.
With Schwarzenegger gone, however, lawmakers have put off the vote. That probably is for the best. The 2010 proposal is complicated and limits the state’s ability to pay down long-term debt.
The state should salt away money in good times, because bad times always return. It also should pay off debt. But the broader issue is one of California’s tax system.
California relies too heavily on income taxes from the richest Californians whose income is most tied to capital gains and, thus, is most volatile. Assuming Brown is re-elected, he and the Legislature should turn their attention on an overhaul of the tax code.
Until that time comes – if it ever does – the rainy-day fund being offered now seems reasonable. If it works as promised, it’d be good for the state and for taxpayers.