California Proposition 2: Rainy Day Budget Stabilization Fund Act

The Rainy Day Budget Stabilization Fund Act, a ballot proposition on the November 4, 2014 statewide ballot in California as a legislatively-referred constitutional amendment, would force the Legislature to put 3 percent of revenue into the rainy day fund. Budget stabilization or "rainy day" funds allow states to set aside excess revenue for use in times of unexpected revenue shortfall or budget deficit (http://www.taxpolicycenter.org/briefing-book/state-local/fiscal/rainy-day.cfm).

The measure, upon voter approval, would alter the state’s existing requirements for the Budget Stabilization Account (BSA), as established by Proposition 58. The BSA is a rainy day fund. ACA 1 would also establish a Public School System Stabilization Account (PSSSA). This proposition would require annual transfer of state general fund revenues to the budget stabilization account. It would also require half the revenues to be used to repay state debts. Additionally, it would limit the use of remaining funds to emergencies or budget deficits.

Major provisions of this initiative will:
· Transfer 3 percent of General Fund Revenues to the Budget Stabilization Fund;
· Strengthen Rainy Day fund with “unanticipated revenues”;
· Increase size of the Rainy Day fund;
· Provide flexibility in “Bad Budget Years”;
· Limits the use of Reserve Funds;
· Limits the use of excess revenues not deposited into the Rainy Day fund;
· And prohibits the Legislature from raiding the Rainy Day fund.

As for fiscal impact, the Assembly Budget Committee estimates that: “This provision would result in increased funding in the states’ “rainy day” reserve funds. It would also increase state spending on repaying budgetary borrowing and debt, and infrastructure projects. Finally, the additional reserve would reduce the extent of state cash borrowing, allowing for some savings in the short-term cash borrowing costs.” There would be no impact on the current state budget (http://www.caltax.org/members/Rainy_%20Day_Fund_Initiative_Analysis.pdf).

Read more about the Rainy Day Budget Stabilization Fund here: http://ballotpedia.org/California_Proposition_44,_Rainy_Day_Budget_Stabilization_Fund_Act_(2014)