Opinion: Gov. Brown patches leaks in his original rainy-day fund plan

That didn’t take long.

Two weeks after calling the Legislature into a special session, Gov. Jerry Brown announced an agreement Thursday with top Democrats and Republicans in both chambers on a new rainy-day fund proposal to take to voters in November. This version addresses the glaring weakness in Brown’s earlier proposal, while also doing more to promote a culture of saving in Sacramento year-in and year-out.

Voters established a rainy-day fund through Proposition 58 in 2004 that required lawmakers to put 3% of the state’s projected revenue into a Budget Stabilization Account. But the measure gave the governor so much leeway -- to either stiff the account or withdraw from it in lieu of making tough choices -- that the fund did little to actually, you know, stabilize the budget.

Brown’s original proposal would have created a bigger fund, which would have been fed by surges in the state’s capital gains tax revenue. Any time capital gains taxes amounted to more than 6.5% of the state’s projected revenue, all of those excess dollars would have either gone into the larger fund or been used to pay down existing state debt and reduce unfunded pension liabilities. If capital gains taxes amounted to less than 6.5% of projected revenue, the fund would have received nothing that year.

But the proposal would have left Proposition 58’s rules largely intact for when the state could avoid paying into the fund or withdraw from it. In other words, the account would have suffered from the same sort of neglect and leakage that the current iteration does.

The new proposal would set more specific, objective criteria for the conditions under which a governor could contribute less to or withdraw from the fund, giving it more protection against Sacramento’s voracious appetite for cash. It also would limit withdrawals to no more than half of the fund in the first year of a recession, while also barring the fund from being used to go beyond the highest spending level reached in the previous three years. Finally, it would have let no more than half of the dollars that were supposed to be saved in the fund to be used to pay down liabilities.

It also would tinker with the way the fund is financed, combining the stabilizing effect of Brown’s original proposal with the savings discipline that Proposition 58 was supposed to apply. Each year the state would have to contribute 1.5% of its revenue to the fund -- a smaller but more enforceable version of what Proposition 58 demanded. In addition, when capital gains taxes were projected to exceed 8% of the state’s revenue, the surplus would flow into the rainy-day fund.

It’s not surprising that Republican leaders signed on. They are eager for a more effective savings mechanism than the current Budget Stabilization Account. And while Democrats have historically balked at rainy-day funds, the current leaders served during the last boom-and-bust cycle and wanted to protect state programs from another round of devastating cuts.

Brown’s proposal also offers Democrats a way to mitigate the volatility of state revenues without addressing its root cause, which is the sharply progressive income tax that covers so much of the cost of schools, courts and other government programs. Nor does the proposal act as a spending cap, something else Democrats abhor. It’s just a brake on the rate of growth -- at least until the rainy-day fund reached 10% of the state’s general fund, at which point the state would use all of the money it would otherwise have saved to build infrastructure or pay down liabilities.

One other factor pushing Democrats to embrace Brown’s proposal is the rainy-day fund ballot measure already slated for a vote in November. That proposal -- Assembly Constitutional Amendment 4, the last vestige of an ugly 2010 budget deal with then-Gov. Arnold Schwarzenegger -- would cap growth based on a complex formula tied to historical spending levels. The new measure, which may start moving through the Legislature next week, would replace ACA 4, saving Democrats from having to either postpone it again or explain to their constituents why they shouldn’t vote for it.