California Assembly committee weighs raising rainy day fund cap, broadening deposit rules

The California Assembly Budget Committee on Accountability and Oversight held a public hearing to consider proposals to change the state's Budget Stabilization Account (BSA), commonly called the Rainy Day Fund, including Assemblymember Valencia's ACA 1 and the governor's proposal to raise the BSA cap from 10% to 20% of general fund tax revenue.

The hearing featured witnesses from the Legislative Analyst's Office (LAO), the Department of Finance (DOF), policy groups and labor and taxpayer organizations. Analysts told lawmakers the current constitutional framework (Proposition 2 and the Gann limit, tied to the state appropriations limit) constrains California's ability to save during boom years and that raising the cap and changing deposit rules would materially improve the state's capacity to cover budget shortfalls in future recessions.

Why it matters: California's revenue is unusually volatile and a small share of taxpayers account for a large share of income-tax receipts. LAO modeling presented at the hearing estimated the current rules would let the BSA cover roughly one-third of a modeled set of future shortfalls; the governor's proposal to raise the cap to 20% would raise that coverage to…