Brown, Legislature Reach Deal on Rainy Day Fund

Few things have been as contentious in California budget circles over the past decade or more than whether lawmakers need new restrictions on how much money they can spend in any given year. After all, aren't they supposed to be mindful stewards of taxpayer dollars without extra rules?

Yes, sure. But today Gov. Jerry Brown announced an agreement with both Republicans and Democrats in the Legislature to place a new — ostensibly better — version of a formal budget reserve on the November ballot.

Brown rolled out his own ideas for a rainy day fund with his budget in January, and called a special legislative session on the issue a few weeks ago. And all of these efforts were aimed at crafting a plan that would replace an existing rainy day measure on the November ballot, one crafted in a controversial budget deal with Gov. Arnold Schwarzenegger in 2010.

The new plan uses Brown's idea of skimming off capital gains tax revenues that are considered abnormally high. Whereas the governor wanted to set aside any of these volatile revenues that are more than 6.5 percent above the state's general fund revenues, legislative sources say the compromise plan would start stashing away only capital gains dollars that are 8 percent above general fund tax dollars.

That may not seem like a big deal, but here's why it is: It allows more money, potentially billions of dollars, to be spent in each annual state budget. And that was a key demand of some legislative Democrats and Democrat-aligned interest groups, who all felt Brown's proposal was too stringent.

The new proposal would also allow more of the reserve fund cash to be used to pay off state government debt. Capitol watchers had suggested Brown's plan might require money to be put in the proverbial piggy bank even when huge unfunded liabilities of the state were growing. The proposal also retains a requirement in Brown's earlier plan that would cap the rainy day fund at 10 percent of the state's general fund revenue in any given year.

The key question now is whether there are the votes in the Legislature to make all this happen. Keep in mind that it takes a supermajority of both the Assembly and Senate to place a state constitutional amendment on the ballot.

For starters, that raises the question of whether Republicans will sign on. Historically, GOP legislators in Sacramento have wanted more than just a strict reserve fund; They've wanted an actual cap on annual state spending levels. Their last, perhaps best, chance at a spending cap evaporated in the fall of 2003, when the newly elected Schwarzenegger cut a deal with Democrats to place a pretty mild rainy day fund on the ballot — one voters approved in March 2004 as Proposition 58.

Republicans generally liked the existing ballot measure's reserve fund requirements, and will have to get something in the details of this purported deal that has teeth in it. But then that endangers the support of liberal Democrats in the Legislature, who would prefer to have very few restrictions on funding a state government that — they argue — has been underfunded for much of the past decade.

One person, in particular, who probably had extra motivation to resolve the gentle-but-real disagreements over a rainy day budget reserve: Assembly Speaker John Pérez, D-Los Angeles.

Pérez will hand over the reins of power next week, and is locked in a Democrat-versus-Democrat battle for state controller on the June 3 ballot. A plan for more fiscal prudence could no doubt help him in that political campaign.