BILL ANALYSIS �
ACA 1 X2
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Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON BUDGET X2
Nancy Skinner, Chair
ACA 1 X2 (John A. P�rez) - As Amended: May 12, 2014
SUBJECT : State Budget Reserve
SUMMARY : Makes changes to the State's budget reserve policy.
Specifically, this measure :
1) Removes Assembly Constitutional Amendment 4 (Gatto),
Resolution Chapter 174 of the Statutes of 2010, from the
2014 General Election ballot.
2) Doubles the size of the Budget Stabilization Account
(BSA) from five percent of the General Fund (or $8 billion,
whichever is greater) to 10 percent of the General Fund.
3) Eliminates the current three percent of General Fund
revenues contribution to the BSA.
4) For fiscal years 2015-16 through 2029-30, requires 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 percent of the
amounts may be used for specified debt obligations, with
the balance deposited into the BSA.
a. 1.5 percent of General Fund revenues.
b. Revenues not required for Prop 98 that are
derived from taxes on Capital Gains that make up more
than eight percent of total General Fund revenues.
Calculations regarding capital gains calculations will
be "trued-up" over the following two fiscal years.
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
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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 State 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 Budget Stabilization Account to
the General Fund to 50 percent of the BSA's balance,
unless a transfer was made in the prior year.
6) Once the BSA reaches 10 percent, restricts 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 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.
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d. If these conditions are met, Proposition 98's
share of revenues derived from capital gains that are
above 8percent of 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 State Constitution.
9) Requires the display of the calculations for this
measure and the overall balance of the Budget Stabilization
Account in the Budget Act.
EXISTING LAW Article XVI of the State Constitution includes
language related to Proposition 58 which established the Budget
Stabilization Act and includes and optional transfer of 3
percent of overall General Fund revenues, which can be suspended
by the Governor. This language caps the size of the Budget
Stabilization Account at five percent of the General Fund (or $8
billion, whichever is greater).
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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
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 percent General Fund | $ | $ | $ |
|Revenue Transfer | 1,698 |1,773 |1,854 |
| | | | |
|---------------------------------+--------+------+-------|
|Capital Gains Tax Revenue above | $ | $ | $ |
|8 percent of Total General Fund | 174 | | 341 |
|Revenues | |233 | |
|---------------------------------+--------+------+-------|
|Total Rainy Day Fund Amount | $ | $ | $ |
| | 1,872 |2,005 |2,195 |
| | | | |
|---------------------------------+--------+------+-------|
| | | | |
|---------------------------------+--------+------+-------|
|Debt Repayment | $ | $ | $ |
| | 936 |1,003 |1,097 |
| | | | |
|---------------------------------+--------+------+-------|
|Deposit to Budget Stabilization | $ | $ | $ |
|Account | 936 |1,003 |1,097 |
| | | | |
---------------------------------------------------------
COMMENTS : Assembly Constitutional Amendment 1 X2 responds to
two critical problems that have plagued California's budget for
decades:
1. Revenue Volatility. California's revenue system is
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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
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.
ACA 1 X2 addresses these problems with the following:
1. Stabilizes Spending. ACA 1 X2 separates state spending
from the rollercoaster of revenue volatility. This measure
takes capital gains revenues that make up more than eight
percent 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 percent 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. ACA 1 X2 doubles the size of the
Constitutional Reserve to 10 percent, which will provide
increased protection against draconian cuts to programs and
painful middle class tax increases during economic down
turns.
REGISTERED SUPPORT / OPPOSITION :
Support
Governor Jerry Brown
Kern County Superintendent of Schools
California Forward
Opposition
ACA 1 X2
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Riverside County Superintendent of Schools
Analysis Prepared by : Christian Griffith / BUDGET X2 / (916)
319-2099