Will a Rainy Day Fund Plan Help End Boom-Bust Budget Cycles?
With Governor Jerry Brown downplaying the state’s budget surplus by using conservative revenue projections in his revised spending plan, the Legislature’s attention has now turned to preventing the boom and bust budget cycles that triggered our long-term budget challenges.
Some legislators have long advocated for the enactment of a strong rainy day fund reserve to save money in good years to protect core priorities like K-12 and higher education in lean years. A rainy day fund enacted by the Legislature in 2010 as a result of bipartisan budget negotiations is currently scheduled for a vote on the November 2014 ballot.
Recently, Legislative Democrats proposed replacing the bipartisan compromise with an alternative plan backed by the majority party.
With a new rainy day fund proposed, the question arises – which proposal will best stabilize California’s budget priorities in the long term?
The California Budget Fact Check found that:
The plan put forward by Legislative Democrats would limit what revenue could be swept up in a rainy day fund, meaning that fewer dollars would actually be saved over the long run.
Although still short on detail, the new alternative rainy day fund reserve appears to include few limits over how and when the Legislature could spend the reserve in the future, paving the way for any dollars saved to be depleted before an actual fiscal crisis occurs.
In contrast, ACA 4 would provide a stronger limit on future spending growth in addition to providing for a larger reserve for lean budget years.