California appears to be flush with cash. Last November, the Legislative Analyst’s office reported a $14.8 billion surplus for the fiscal year beginning July 1. That was later updated to a projected $20.6 billion, while Governor Newsom’s finance department is predicting a surplus of $21.4 billion.
Unfortunately, that surplus can quickly disappear. During the Great Recession, California faced annual budget deficits over $20 billion, a situation that could be repeated when another economic downturn hits. A recession is inevitable; we just don’t know when it will come.
That’s why I supported Proposition 2 in 2014, which was overwhelmingly approved by voters, to strengthen the state’s Budget Stabilization Account (BSA) also known as the ‘Rainy Day Fund,’ first established by voters under Proposition 58 in 2004. However, Prop. 2 appeared to place a 10% cap on the BSA, meaning that when funds held in reserve reached 10% of the state’s tax revenues, no further monies could be deposited.
Last summer, the Legislative Counsel released a legal opinion stating that funds “voluntarily” placed into the reserve by lawmakers should not be counted against the 10 percent cap. Fortunately, in the Counsel’s opinion, the Legislature may continue to deposit additional money into the BSA above the cap, allowing a realistic reserve to accumulate as a cushion against future economic downturns.
In his new budget, Governor Newsom has announced that he will rely on this legal opinion and include an additional $13.6 billion to build up the BSA and also to pay down some of the state’s accumulated debt.
This was a good decision. We must never return to the days of $20 billion deficits. By building a stronger, more secure Rainy Day Fund, we are taking an important step toward fiscal security and future solvency for the State of California.
* * *
Assembly Republican Leader Marie Waldron, R-Escondido, represents the 75th Assembly District in the California Legislature, which includes the communities of Bonsall, Escondido, Fallbrook, Hidden Meadows, Pala, Palomar Mountain, Pauma Valley, Rainbow, San Marcos, Temecula, Valley Center and Vista.