BILL ANALYSIS
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ASSEMBLY THIRD READING
ACA 4 (Gatto, Niello, Ashburn)
As Amended October 7, 2010
2/3 vote. Urgency
SUMMARY : This Constitutional Amendment, which is called the
"Budget Stabilization Act," creates a reserve fund (colloquially
referred to as a "rainy day fund") to be used in economic
downturns. Annually 3% of General Fund (GF) revenue would be
deposited in this fund. In addition this provision would
deposit unanticipated increases in revenues into this reserve
fund, and defines the process for calculation how unanticipated
revenue would be determined. Specifically, this Constitutional
Amendment :
1)Amends the existing Constitution budget reserve provision,
renamed the Budget Stabilization Fund, established by the
voters in Proposition 58 of 2004 and incorporates the
following changes:
a) Limits the suspend of the annual 3% transfer of funding
from GF to the Budget Stabilization Fund to years in which
funding in which the GF is receiving funding from the
Budget Stabilization Fund;
b) Increases the threshold, from 5% to 10% of overall GF,
which must be achieved before the contribution from the GF
to the Budget Stabilization Fund cease;
c) Creates the Supplemental Budget Stabilization Account,
which can only be used to pay for one-time capital outlay
and debt service obligations; and,
d) Defines that of the three percent of GF contributions to
the Budget Stabilization Fund, 1.5 percent must be
transferred to the Supplemental Budget Stabilization
Account each year.
2)Requires that certain unanticipated revenues be transferred to
the Budget Stabilization Fund.
a) Defined unanticipated revenues as the lesser of:
i) Forecasted current year GF revenues exceeding the
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forecasted budget year GF revenue; and,
ii) Estimated budget year GF revenue exceeding
the forecasted GF defined in a).
a) Stipulates the uses of unanticipated revenues will be
transferred to the Budget Stabilization Fund except if
needed to satisfy GF obligations for education expenditures
as stipulated in Section 8 of the constitution, established
by Proposition 98.
1)Specifies the use of funding in the Budget Stabilization Fund.
Restricts the transfer of funds from the Budget Stabilization
Fund to the GF. This restriction:
a) Limits the transfer of funding from the Budget
Stabilization Fund to the GF to years when total forecasted
revenues for a fiscal year are not sufficient to cover the
prior year GF expenditures when adjusted for population and
inflation and/or when an emergency is declared by the
Governor.
b) Limits the amount transferred from the Budget
Stabilization Account to the GF to cover the shortfall,
which is defined to be the difference between total
forecasted revenues for a fiscal year are not sufficient to
cover the prior year GF expenditures, adjusted for
population and inflation.
c) Further limits the amount of funding that can be
transferred from the Budget Stabilization Fund to the GF to
cover a shortfall to be:
i) No more than 50% of the balance of the fund in the
first year a transfer is made;
ii) No more than 50% of the remaining balance of the
Budget Stabilization Fund if a transfer was made in the
previous year;
iii) If transfers have been made in the previous years,
than it is limited by the shortfall; and,
iv) This limit does not apply to transfers made in the
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event of an emergency.
d) Allows, once the Budget Stabilization Funds equals 10%
of GF revenues, any unanticipated revenue to retire
outstanding budgetary obligations. These obligations are
prioritized in the following way:
i) First use of these funds would be for outstanding
obligations for local government payments, articulated in
Article XIII (Proposition 1A), transportation funding
(Proposition 42) obligations, and bond indebtedness; and,
ii) Any remaining funds could be used for one time
expenditures, unfunded liabilities-including pension
liabilities, transferred to the Budget Stabilization
Fund, or returned to taxpayers on a one-time basis.
e) Allows borrowing from the Budget Stabilization Fund
within a fiscal year for cash management purposes.
4)Requires that the Director of Finance forecast the revenue
amount for the budget year based upon a linear regression
analysis of revenues over the last twenty years. This Article
also requires current year revenues to be estimated based upon
as similar methodology. The forecast is adjusted to reflect
changes to the revenue levels that occurred due to policy
changes, such as increased revenue that from a tax increase.
5)Urgency Clause. Declares this bill take effect immediately as
an urgency statute.
EXISTING LAW : Proposition 58 of 2004 contains provisions that
established a rainy day fund. The proposal requires that a
special reserve-called the Budget Stabilization Account (BSA)-be
established in the state's GF. Three percent of annual GF
revenues are be transferred by the State Controller into the
account no later than September 30 of each fiscal year until the
balance in the account reaches $8 billion or 5% of GF revenues,
whichever is greater. The annual transfer requirement is in
effect whenever the balance falls below the $8 billion or 5%
target.
The annual transfers could be suspended or reduced for a fiscal
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year by an executive order issued by the Governor no later than
June 1 of the preceding fiscal year.
Funds in the BSA could be transferred from this account to the
GF through a majority vote of the Legislature and approval of
the Governor. Spending of these monies from the GF could be
made for various purposes-including covering budget
shortfalls-generally with a two-thirds vote of the Legislature
(same as current law).
FISCAL EFFECT : This provision would result in increased funding
in the state "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 short-term cash borrowing costs.
COMMENTS : This provision is very similar to Proposition 1A of
2009, which was rejected by voters in May of 2009. The major
differences between the provisions of this amendment and
Proposition 1A are:
1)Proposition 1A did not restrict the amount of funding that
could be withdrawn from the Budget Stabilization Fund in one
year.
2)The Budget Stabilization Fund had to reach 12.5%, instead of
10% in this amendment, before the transfer to the fund would
cease and any additional funds could be used for one-time
purposes.
3)The anticipated revenues trend line was calculated on a ten
year regression in Proposition 1A and is calculated on a
twenty year regression trend in this amendment.
4)Proposition 1A was linked to Proposition 1B of 2009, and was a
funding source for that initiative.
Analysis Prepared by: Christian Griffith / BUDGET / (916)
319-2099
FN: 0007220
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