CTA Bides Time To Eliminate Rainy Day Reserve

Loren Kaye
President of the California Foundation for Commerce and Education

Sponsors of an extension of the Proposition 30 top income tax rates amended their ballot initiative this week, slightly parting the curtain on the skirmishes yet to come.

Recently I wrote of a clever provision buried in the original proposal. Sponsors aim to continue the tax hikes on the upper incomes for another dozen years. But they also slipped in a clause prohibiting the deposit of any revenues from these taxes into the new rainy day reserve. In other words, the Legislature can spend all the money from billions in new taxes as if those revenues are locked in stone and never subject to the business cycle.

The upshot would be to undermine the newly-adopted budget cushion, notably touted by Governor Brown in 2014, and risk deep spending cuts or even higher taxes when the state suffers its next, inevitable downturn.

The newly-amended version of the measure tweaks this provision – clarifying that it would not take effect until 2019, the year the Proposition 30 taxes would have otherwise expired. Without that change, the measure would likely have been interpreted to prohibit deposit of surplus revenues from the current Prop 30 taxes into the rainy day reserve.

Why make this change? The answer may be just two words: Governor Brown. Undermining the rainy day reserve as early as 2016 might have brought down his wrath on the ballot proposal (the Governor has not yet stated a position on the measure). Poking the Governor in the nose is usually bad politics. Proponents – mainly the California Teachers Association – might also calculate the Governor may be less motivated to defend his rainy day reserve if the blade is shivved after he leaves office in 2019.

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