Prop 2 is important and a rare opportunity to create a real rainy day fund. It is important to pass this constitutional amendment so we lock in the rainy day fund and help reign in spending — then we can work on changing the cap on school districts next year. Technically they are two separate issues.
Here are reasons why Republicans worked hard to secure Major Reforms for a Real Rainy Day Fund:
This Rainy Day Fund agreement reflects the type of bipartisan compromise that Californians should expect from their elected officials. The Governor set up a good framework to work from and we were determined to make sure this new reserve fund will be there during future economic downturns. It just makes sense to help avoid the tax increases and spending reductions that result from overspending in prosperous years.
There was a previous bi-partisan agreement on a strong rainy day fund as part of the 2010 budget deal, but legislative Democrats refused to allow it to go on the ballot for a vote of the people.
Republicans have long fought for this type of protection for Californians. It guarantees that 1.5 percent of total general fund revenue every year will be transferred into the rainy day account before funding any other programs. In economically robust years, the fund will also receive revenue from capital-gains taxes.
To make sure the Rainy Day Fund cannot be easily raided Republicans were able to secure specific conditions that must be met before any governor can declare a fiscal emergency and access the fund. Revenues would have to dip lower than spending in the previous three years adjusted for population and inflation, and the amount of reserve funds used can only match the shortfall. In other words, if the shortfall is $2 billion, the transfer cannot exceed $2 billion.
Half the money would be deposited into the reserve fund and the other half would be used to pay off debt and cover unfunded long-term costs such as retiree and teacher pensions. This makes sure that the reserve will be built while also providing flexibility to pay down debts and liabilities.
Another important change Republicans required was to ensure the Rainy Day Fund can only be used for economic emergencies and debt repayment, and not as a slush fund for projects like High Speed Rail. Future legislatures and governors cannot use Rainy Day Fund reserves to pay for bond projects.
The ideas we brought into this discussion have significantly improved the reliability of the reserve fund, made it stronger, and will ensure there is actually money in the fund for when it does “rain.” We’re confident the people will agree when they get to vote for it on the November ballot.