The California state budget is notoriously prone to boom and bust cycles, a volatility caused largely by the state's tax code. To try to manage that problem, voters in 2004 required Sacramento to set aside money each year in a rainy-day fund for use when times got tough. That fund has been ineffective at best, however, and now voters have another chance to get it right. Proposition 2 on November's ballot would strengthen the current fund while also requiring the state to pay down more of its debts and unfunded liabilities. Although voters should be wary of proposals that would supplant lawmakers' judgments with rigid budget rules, this one deserves their support.
The rainy-day fund created in 2004 through Proposition 58 has two glaring weaknesses. The governor can cancel the required annual contribution for any reason, and lawmakers have too much leeway to withdraw money from the fund instead of making tough choices.
Proposition 2 would make it more difficult to avoid putting money into the fund or to pull money out of it. Unlike the current system, it would tie the amount set aside annually to the level of capital gains tax revenue. The higher the revenue, the more that would be set aside. And for the first 15 years, half of the money being set aside would be used to pay down the state's debt and unfunded liabilities. That sacrifice in the near term would help improve the state's financial health in the long run.
The proposal would create a separate rainy-day fund for public schools to smooth out ups and downs in school funding. Many school districts already have their own reserves, however, and therein lies a problem. At the urging of Gov. Jerry Brown and the state teachers union, the Legislature passed a law this year that would force many districts to slash their reserves if and when the state started collecting money in its new statewide piggy bank for public schools. That's bad policy — local school officials are far better positioned than state voters to decide how much money to keep for contingencies. But that shortcoming doesn't mean voters should defeat Proposition 2. It means lawmakers should repeal the statute that limits local reserves.
The growing California economy has brightened the state's budget but not eliminated its challenges, including deferred investments in infrastructure, growing healthcare costs and underfunded pensions. Proposition 2 would help keep Sacramento from falling into the familiar trap of overspending in flush times while ignoring its debts and other long-term needs. The Times urges a yes vote.