Jerry Brown pushes his plan for state reserve fund

Gov. Jerry Brown's proposal for a rainy-day fund would require a two-thirds vote in the Legislature, where the Democrats no longer have the advantage of a supermajority.
(Cheryl A. Guerrero, Los Angeles Times)

SACRAMENTO — Raising the stakes in his campaign to strengthen California’s finances, Gov. Jerry Brown on Wednesday called a special session of the state Legislature for next week to consider a new plan to save money and pay off state debt, an election-year pitch that he must make to lawmakers without the benefit of a Democratic supermajority.

Brown’s proposal is aimed at cushioning the state against recessions and calming its turbulent fiscal waters. It would require Sacramento to capture spikes in revenue and either save the money to prevent budget cuts during a downturn or pay off debt and cover long-term liabilities such as public pensions.

“We simply must prevent the massive deficits of the last decade, and we can only do that by paying down our debts and creating a solid rainy-day fund,” Brown said in a statement.

California voters approved the creation of a rainy-day fund in 2004, but it has mostly sat empty amid persistent budget crises.


Brown’s move forces lawmakers to address the issue more publicly while burnishing his own credentials as a financial steward for California. It is also his first major test of the new political landscape in the Legislature, where multiple criminal investigations have cost Democrats their two-thirds majority in the state Senate.

The governor needs some GOP support for his measure because it is a constitutional amendment that requires a two-thirds vote for passage, and Democrats are now shy of that threshold. If the proposal passes, it would go before voters in November.

Republicans have wanted a rainy-day fund that functions differently from the one Brown proposes, and the governor risks a political black eye if they don’t go along. But the special session offers Republicans a way to collaborate across the aisle on an issue likely to have broad public appeal.

“There’s a huge opportunity for Republicans to demonstrate they are willing to join us in the interest of long-term stability for this state,” Assembly Speaker John A. Pérez (D-Los Angeles) said in an interview.

The special session convenes April 24, concurrent with the legislative session already under way.

The GOP plan for new reserve-fund rules, which passed with bipartisan support during a 2010 budget standoff, includes spending restrictions that Democrats find objectionable.

That measure is already scheduled for the November ballot. Brown’s plan would replace it.

The leader of the Assembly’s Republicans, Connie Conway of Tulare, warned that the GOP would be wary of any plan that does not sufficiently limit lawmakers’ ability to dip into reserves.

“Republicans will oppose any effort to replace the strict proposal that is already before the voters with a faux rainy-day fund scheme,” Conway said in a statement.

Still, there are signs that Republicans are willing to work with the governor.

Assemblyman Jeff Gorell (R-Camarillo), the top Republican on the Assembly budget committee, said in a statement that “changing circumstances require a new look at the measure.” He added: “Although the devil is in the details, the conversation is going in the right direction.”

Senate Republican leader Bob Huff (R-Diamond Bar), whose caucus members Brown will need to win over for his plan to be successful, also praised the governor’s interest in the issue.

“It’s just common sense for California to put away money during the ‘boom’ years to avoid future tax increases and spending reductions in the ‘bust’ years,” he said in a statement. “However, we are mindful that legislative Democrats have undermined similar efforts in the recent past.”

It’s possible that Brown could face a challenge from his own Democratic Party. Senate leader Darrell Steinberg (D-Sacramento) said there was no need for lawmakers to pass a new reserve plan until later in the year.

“Constitutional Amendments must be done right, not rushed,” he said in a post on Twitter.

Brown’s proposal would create a new budget mechanism that kicks in when there is disproportionately high revenue from capital gains taxes, which can rise and fall sharply with the stock market. The governor and Legislature could then choose whether to save the extra money in the reserve fund or use it to chip away at long-term costs such as public pensions and maintenance projects.

“Both of them are absolutely critical to the state’s future,” said Brown’s finance director, Michael Cohen. “But how you balance them in a particular year is really what elected officials are elected to do.”

The fund could grow to 10% of general-fund spending under Brown’s plan and would be accessible to lawmakers only after the governor declared a financial emergency.

Brown’s latest budget proposal includes $1.6 billion for the reserve fund and $1.6 billion to pay off bonds used to balance the budget during the recession.

Times staff writer Melanie Mason contributed to this report.