Election-year politics prompts deal on California rainy-day fund

Politicians have been yakking about the need for a “rainy-day fund” in Sacramento for years. Now they’re close to creating one. And everyone is happy.

They’re all winners.

Gov. Jerry Brown can run as a fiscal tightwad against token Republican opposition while promoting his rainy-day proposal that will be on the November ballot with him.

Likewise, outgoing Assembly Speaker John A. Pérez (D-Los Angeles) can campaign for state controller in the June 3 primary bragging about being the legislative author of the plan.

Termed-out Senate leader Darrell Steinberg (D-Sacramento) gets to avoid being tagged as an obstructionist by compromising quickly on the legislation after dragging his feet.

Republicans can say, “See, we are relevant after all” and will claim credit for helping to rein in tax-and-spend Democrats.

Who knows? Taxpayers may even benefit if this forces a smidgen of fiscal discipline in the state Capitol.

Please pardon the cynicism.

I’m not even sure why they call it a rainy-day fund. Is it because money is captured during a revenue downpour and saved for a drought? Or is it because the dollars are collected during economic good times and piggy-banked until stormy weather damages the tax machine?

It’s not clear. The politicians are constantly mixing metaphors.

Bottom line: It’s probably a good idea to squirrel away some money, even if it’s a measly amount.

But — like New Year’s resolutions — state politicians have been rolling out forced savings schemes for decades with sorry results.

During Brown’s first stint as governor, in 1979, voters overwhelmingly approved a spending limit at the height of the anti-tax rebellion. But the cap later was obliterated by another ballot measure.

In 2004, new Gov. Arnold Schwarzenegger sweet-talked the Legislature and voters into approving a rainy-day reserve — along with $15 billion in reckless borrowing — and promised to “tear up the credit card and throw it away.” But little money was ever stashed. And the credit card was maxed out many times over.

The best opportunity for real spending controls and a meaningful rainy-day reserve came in 2009. Schwarzenegger and the Legislature put a fiscal discipline measure on the ballot but foolishly linked it to extending a tax increase. Conservatives railed against the taxes, and liberals denounced the spending restraints. Voters overwhelmingly rejected the proposal.

The next year, Schwarzenegger and the lawmakers agreed on another rainy-day reserve to break a summer-long budget deadlock. It was supposed to go on the 2012 ballot. But Democrats and the spending lobby — especially labor — hated the measure. So a bill was passed to delay the public vote until this year, and Brown signed it.

And that’s what prompted the latest rainy-day scampering. Democrats planned to pass another bill delaying the ballot vote until 2016. Brown threatened to veto their bill, however, if Democrats didn’t compromise on an alternative. And Republicans eagerly jumped into the game because their support was needed to attain the required two-thirds vote.

The compromise was unexpectedly announced last week after shuttle diplomacy led by Brown. The governor never met with Steinberg and Pérez together. The two legislative leaders just don’t get along.

Actually, Pérez has been advocating a rainy-day fund for a year. And Brown ultimately proposed what essentially was Pérez’s plan, targeting the most roller-coaster state revenue: capital gains. He suggested stashing any capital gains receipts that exceeded 6.5% of total general fund revenue. Then it could be used only for debt retirement or in future emergencies.

But capital gains fluctuate wildly between times of boom and bust. Steinberg and Republicans demanded there be a more dependable revenue stream flowing into the fund.

That was OK with Brown and the speaker. They just wanted a deal. And, unlike Steinberg, they especially didn’t want the rainy-day effort to get bogged down in the budget bargaining that’s about to begin.

“Our ground rule,” a Brown advisor told me, “was no side deal with anyone. And there wasn’t.”

The final compromise: 1.5% of all general fund revenue would be salted away. Currently, that would amount to roughly $1.5 billion.

But only capital gains revenue that exceeded 8% of the general fund would be set aside. That currently would be around $1.7 billion. In some past years, however, it would have been zilch.

The squirreled funds would be split between two purposes: half going into the rainy-day fund and half being used to pay down debt, including unfunded pension liabilities.

Steinberg says he pounded “a stake in the ground” to require that some money be used for debt payment. That’s so more of the general fund could be preserved for regular spending programs, such as his proposal to lower the kindergarten age.

Republicans insisted language be included to ensure that none of the debt-payment money could be spent on the governor’s proposed bullet train.

The rainy-day kitty could grow to 10% of the general fund.

This probably is all fine. But, as I’ve previously written, it’s merely treating the symptoms of revenue volatility that throws budgets way off balance in tough times. The politicians should be curing the disease by broadening the tax base and relying less on the richest 1%, who pay half the state income tax. They should also lower the sales tax rate and extend it to services. Have a much more stable tax stream.

That certainly wouldn’t preclude socking money away or paying down debt.

But this latest plan is better than nothing. That is, until some future legislative geniuses inevitably punch a big hole in the rainy-day bucket. And the Capitol is again submerged in red ink.

george.skelton@latimes.com