BILL ANALYSIS Ó
ACA 1 X2
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( Without Reference to File )
ASSEMBLY THIRD READING
ACA 1 X2 (John A. Pérez)
As Amended May 12, 2014
2/3 vote
BUDGET X2 9-0
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|Ayes:|Skinner, Gorell, Bloom, | | |
| |Chávez, Daly, Harkey, | | |
| |Jones-Sawyer, Muratsuchi, | | |
| |Weber | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Makes changes to the state's budget reserve policy.
Specifically, this constitutional amendment :
1) Removes ACA 4 (Gatto), Resolution Chapter 174, Statutes
of 2010, from the 2014 General Election ballot.
2) Doubles the size of the Budget Stabilization Account
(BSA) from 5% of the General Fund (or $8 billion, whichever
is greater) to 10% of the General Fund.
3) Eliminates the current 3% of General Fund revenues
contribution to the BSA.
4) Requires, for fiscal years 2015-16 through 2029-30, half
of the amounts listed below to be deposited into the BSA
and the other half to be appropriated for specified debt
obligations. Beginning in 2030-31 up to 50% of the amounts
may be used for specified debt obligations, with the
balance deposited into the BSA.
a) 1.5% of General Fund revenues.
b) Revenues not required for Proposition 98 of 1988 that
are derived from taxes on Capital Gains that make up more
than 8% of total General Fund revenues. Calculations
regarding capital gains calculations will be "trued-up"
over the following two fiscal years.
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c) Specifies that the transfer of revenue to the BSA would
take place on October 1st.
d) Defines eligible debt obligations as current Proposition
98 settle up, existing General Fund loans that had balances
on January 1, 2014, prior year mandated costs, and unfunded
retirement liabilities.
5) Limits suspensions of transfers into the BSA and
withdrawals from the BSA to the following circumstances:
a) A disaster, as currently defined in Article XII B of the
California Constitution.
b) Insufficient revenues to fund the budget at the level of
the highest previous three years, adjusted for populations
and inflation. The suspension/withdrawal is limited to the
amount needed to reach that level.
c) Restricts the amount of funding that can be transferred
from the BSA to the General Fund to 50% of the BSA's
balance, unless a transfer was made in the prior year.
6) Restricts, once the BSA reaches 10%, the use of any
funds that otherwise would be deposited into the BSA
infrastructure appropriations, including deferred
maintenance.
7) Creates a Proposition 98 Reserve, called the Public
School System Stabilization Account, which would capture
certain revenues derived from taxes Capital Gains and
attributed to Proposition 98 purposes in very specific
circumstances:
a) The state must have repaid and allocated the entire
Proposition 98 Maintenance Factor amount before a transfer
could be made.
b) The state must be in a Test 1 level of Proposition 98
and the transfer can be no more than the difference between
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the Test 1 and Test 2 levels of Proposition 98.
c) The state cannot be accruing Proposition 98 Maintenance
Factor or have suspended Proposition 98 in a year when the
transfer is made.
d) If these conditions are met, Proposition 98's share of
revenues derived from capital gains that are above 8% of
the total General Fund are transferred into the Proposition
98 reserve.
e) These funds would be used to fund Proposition 98 Growth
and Cost of Living Adjustments in years when there is a
decline in Proposition 98.
f) Transferred funds would be considered part of the
Proposition 98 calculation.
8) Requires the Department of Finance to submit five-year
General Fund revenue and expenditure projections as part
the budget submission. This places a current statutory
requirement into the California Constitution.
9) Requires the display of the calculations for this
measure and the overall balance of the BSA in the Budget
Act.
EXISTING LAW : Article XVI of the California Constitution
includes language related to Proposition 58 of 2004 which
established the Budget Stabilization Act and includes and
optional transfer of 3% of overall General Fund revenues, which
can be suspended by the Governor. This language caps the size
of the BSA at 5% of the General Fund (or $8 billion, whichever
is greater).
FISCAL EFFECT : Compared with current Constitutional
requirements, this measure will result in bigger BSA
contributions and debt payment obligations during "boom" years
and smaller contributions during ordinary years. In the 2014-15
May Revision, the Department of Finance provided the following
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estimates of the transfers and debt repayments for the first
three fiscal years that this new measure would be in effect:
----------------------------------------------------------
| Calculation of Rainy Day Amounts at 2014-15 May Revision |
----------------------------------------------------------
|---------------------------------+--------+------+-------|
| |2015-16 |2016-1|2017-18|
| | |7 | |
|---------------------------------+--------+------+-------|
|Annual 1.5% General Fund Revenue | $1,698 | | |
|Transfer | |$1,773 |$1,854 |
|---------------------------------+--------+------+-------|
|Capital Gains Tax Revenue above | $174 | $233 | $341 |
|8% of Total General Fund | | | |
|Revenues | | | |
|---------------------------------+--------+------+-------|
|Total Rainy Day Fund Amount | $1,872 | | $ |
| | |$2,005 |2,195 |
|---------------------------------+--------+------+-------|
| | | | |
|---------------------------------+--------+------+-------|
|Debt Repayment | $936 | | |
| | |$1,003 |$1,097 |
|---------------------------------+--------+------+-------|
|Deposit to Budget Stabilization | $936 | | $ |
|Account | |$1,003 |1,097 |
| | | | |
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COMMENTS : This constitutional amendment responds to two
critical problems that have plagued California's budget for
decades:
1) Revenue Volatility. California's revenue system is
notoriously volatile. This results in large part from
reliance on income tax. While income tax rates are not
dramatically progressive, the incomes of wealthy
Californians do fluctuate and therefore their income taxes
they pay also fluctuate.
2) Inadequate Reserves. Long term forecasts are always
difficult. At times forecasts show balanced budgets as far
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as the eye can see, but reality often proves different.
Without strong reserves, unpredicted economic down turns
have ravished the state budget and caused draconian cuts to
programs and painful middle class tax increases.
This constitutional amendment addresses these problems with the
following:
1) Stabilizes Spending. This constitutional amendment
separates state spending from the rollercoaster of revenue
volatility. This measure takes capital gains revenues that
make up more than 8% of the General Fund - the average for
the last 10 years - off the table rather than being used
for unsustainable permanent tax cuts or ongoing programs.
The spiking revenues (along with 1.5% of overall General
Fund revenues) will be used for debt payments and deposited
into the BSA, to be withdrawn during economic downturns to
avoid program cuts and middle class tax increases.
2) Increases the Reserve. This constitutional amendment
doubles the size of the Constitutional Reserve to 10%,
which will provide increased protection against draconian
cuts to programs and painful middle class tax increases
during economic down turns.
As a constitutional amendment, this measure requires the
approval of the voters to take effect.
Analysis Prepared by : Christian Griffith / BUDGET X2 / (916)
319-2099
FN: 0003482