It’s a Downpour!

When Governor Arnold Schwarzenegger argued in favor of multiple statewide ballot propositions on the ballot in May, he often referred to the creation of a “rainy day” fund for times the state needed money due to some unforeseen crisis. 

Governor, it’s raining cats and dogs.  And, there is a “rainy day” fund. 

The ballot argument for Proposition 58 in March 2004 concluded with “… join Governor Arnold Schwarzenegger, State Controller Steve Westly, Superintendent of Public Instruction Jack O'Connell, the California Chamber of Commerce, the California Taxpayers' Association, and all 80 members of the California State Assembly—both Republicans and Democrats—and support Proposition 58.”  

Proposition 58, dubbed the “California Balanced Budget Act," was approved overwhelmingly by 71% of California voters.

The Governor, every member of the state Assembly – both Democrats and Republicans, the state’s Taxpayer Association, other elected officials and voters mandated the creation and implementation of both a mandatory balanced budget as well as a “$8 billion reserve” that “could be used to smooth state spending over the course of an economic cycle” in early 2004.

The state’s independent legislative budget analyst determined that the fiscal impact of the approval and implementation of Proposition 58 could have “a variety of fiscal effects, depending on future budget circumstances and future actions taken by Governors and Legislatures.” For about five years, there has existed a requirement that Governor Schwarzenegger and the legislature – both Democrats and Republicans – balance the budget and maintain an $8 billion “rainy day” fund.

Again, according to the ballot argument that the Governor signed, the mandated balanced budget would restrict borrowing money to assure that the state’s credit rating remained strong. However, in March 2009, voters were asked to approve borrowing, among other fiscal tricks, and create a “rainy day” fund that would tide us over in difficult economic times.

It appears that what was supposed to happen in 2004 was recycled by the Governor and the legislature in 2009 to balance a budget that was already required to be balanced.  Further, the Governor and the Legislature argued that a “rainy day” reserve fund of about $12 billion be created while an $8 billion reserve was already supposed to be in place. 

Of course, it’s no surprise that politicians in Sacramento didn’t do what they were told.  However, because the politicians could not agree on a budget for last year and placed the burden of raising taxes and shifting resources onto voters in May, the state is back in the red by more than $24 billion. That means we are back to where we started almost two years ago.

The Proposition 58 mandated balanced budget isn’t balanced and it’s unclear, but appears that the $8 billion “rainy day” fund is only about $4.5 billion.  Now, $4.5 billion is nothing to sneeze at, especially when we are looking into the chasm of a $24.3 billion budget gap.

Whether it is $8 billion or $4.5 billion, it’s called a “rainy day” fund for a reason.  Although the Governor and the legislature created the crisis and it certainly was foreseeable, it is a crisis nevertheless. 

Throw the “rainy day” fund into balancing the budget. Starting at $19.8 billion is a great deal better than $24.3 billion.

In fact, the Governor wants to take about $2 billion away from local governments to fix the hole in the state budget.  Allow local governments to keep their $2 billion and state is still $2.5 billion closer to a balanced budget and a budget agreement.