BILL ANALYSIS
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THIRD READING
Bill No: SCA 10
Author: Ashburn
Amended: 10/6/10
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SUBJECT : State Finance: Budget reform
SOURCE : Author
DIGEST : Senate Floor Amendments of 10/6/10 deletes the
previous version of the bill relating to statewide
initiative measures.
This constitutional amendment now strengthens the budget
reserve fund (colloquially referred to as a "rainy day
fund") to be used in economic downturns. In addition to
the three percent of annual revenue designated for deposit
in the fund currently, this measure would deposit
unanticipated revenues into this reserve fund.
ANALYSIS : Specifics of SCA 10:
1. Three Percent Annual Contributions . Amends the existing
constitutional budget reserve provisions, established by
the voters in Proposition 58 of 2004, to do the
following:
A. Limits the suspension of the annual three-percent
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transfer of funding from General Fund to the Budget
Stabilization Fund to truly bad revenue years, or
when revenue estimates are less than that necessary
to support the prior year's expenditures adjusted for
population and inflation.
B. Increases target size of the reserve from 5
percent to 10 percent of General Fund revenue. When
that threshold is met, the annual contribution from
the General Fund to the Budget Stabilization Fund
would not be required.
C. Creates the Supplemental Budget Stabilization
Account, which can only be used to pay for one-time
capital outlay and debt service obligations.
D. Defines that of the three percent of General Fund
contributions to the Budget Stabilization Fund, half
must be transferred to the Supplemental Budget
Stabilization Account each year.
2. Unanticipated Revenues . Requires that certain
unanticipated revenues be transferred to the Budget
Stabilization Fund:
A. Requires the Director of Finance to forecast the
revenue level for the current year and budget year
based upon a linear regression analysis of revenues
over the last twenty years.
B. Defined unanticipated revenues as the lesser of:
(1) Current-year General Fund revenue estimate
minus the current-year revenue forecast based a
20-year revenue regression.
(2) Current-year General Fund resources
estimate (revenue, transfers and prior-year
balances) minus the expenditure forecast of
prior year expenditure grown by population and
inflation.
C. Directs the unanticipated revenues to the Budget
Stabilization Fund except if needed to satisfy
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General Fund obligations for education expenditures
as specified in Section 8 of the constitution,
established by Proposition 98.
3. Use of Reserve Funds . Specifies the use of funding in
the Budget Stabilization Fund. Restricts the transfer
of funds from the Budget Stabilization Fund to the
General Fund. This restriction:
A. Limits the transfer of funds from the Budget
Stabilization Fund to the General Fund to years when:
(1) Total forecast revenues for a fiscal year
are not sufficient to cover the prior year
General Fund expenditures, adjusted for
population and inflation.
(2) An emergency, such as an earthquake,
flood, or volcanic eruption is declared by the
Governor.
B. Limits the amount transferred from the Budget
Stabilization Account to the General Fund to cover
the shortfall, which is defined to be the amount of
revenue needed (above the revenue estimate) to cover
the prior year General Fund expenditures, adjusted
for population and inflation.
C. Further limits the amount of funding that can be
transferred from the Budget Stabilization Fund to the
General Fund to cover a shortfall to be:
(1) No more than fifty percent of the balance
of the fund in the first year a transfer is
made.
(2) No more than fifty percent of the
remaining balance of the Budget Stabilization
Fund if a transfer was made in the previous
year.
(3) If transfers have been made in the
previous years, the amount is limited by the
shortfall.
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(4) This limit does not apply to transfers
made in the event of an emergency.
D. Once the Budget Stabilization Fund exceeds the
10-percent of General Fund revenue, directs
unanticipated revenues to retire outstanding
budgetary obligations in the following order:
(1) 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.
(2) 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.
Existing Law :
Proposition 58 of 2004 added constitutional provisions that
established a rainy day fund, called the Budget
Stabilization Account (BSA). Three percent of annual
General Fund revenues are 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 five percent of General Fund revenues,
whichever is greater. The annual transfer requirement is in
effect whenever the balance falls below the $8 billion or
five percent target.
The annual transfers can be suspended or reduced for a
fiscal year by an executive order issued by the Governor no
later than June 1 of the preceding fiscal year.
Funds in the BSA can be transferred from this account to
the General Fund through a majority vote of the Legislature
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and approval of the Governor. Spending of these monies from
the General Fund could be made for various
purposes-including to cover budget shortfalls-generally
with a two-thirds vote of the Legislature (same as current
law).
Comment
This proposal is similar to Proposition 1A of 2009, which
was rejected by voters in May of 2009.
The major differences between the provisions of this
measure 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 percent,
instead of 10 percent in this measure, 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 are calculated
on a twenty year regression trend in this measure.
4. Proposition 1A was linked to Proposition 1B of 2009, and
was a funding source for that initiative.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
This bill results in increased funding in the state "rainy
day" reserve account. It also increases state spending on
repaying budgetary borrowing and debt, and infrastructure
projects. Finally, the additional reserve reduces the
extent of state cash borrowing, resulting in reduced
external-borrowing costs.
DLW:do 10/6/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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