An obscure state fund, the Pooled Money Investment Fund, has taken center stage in California’s political theater with a proposal by Gov. Jerry Brown to borrow from the fund to help pay down the state’s massive public employee health care and pension debt. This is not the first time that this fund found its way from the back pages of the budget into the spotlight. Thirty-seven years ago the Pooled Money Investment Fund had a role in the debate over a California ballot measure supporting the main characters Howard Jarvis, Jesse Unruh, and, yes, a governor named Jerry Brown.
In his May revised budget, Gov. Brown proposed making a $6 billion payment against the pension debt by borrowing from the Pooled Money Investment Fund. That account holds money designated for state and local governments that has yet to be paid out. The idea behind Brown’s plan is that by investing the money in the state pension system, the money will grow at a faster rate than the interest it currently gathers thus reducing future state contributions to the retirement fund.
The gamble is that no hiccups in the financial landscape will leave the pooled money account short without the state’s ability to pay it back.
This stash of cash was the focus of attention in the 1980 campaign to pass Proposition 9, a ballot initiative intended to cut the state income tax in half. Prop 13 proponent Howard Jarvis was the measure’s author. An ally of Jarvis, searching through the state budget prior to the advent of the easily accessible Internet data, found this “surplus” fund. He brought it to Jarvis’s attention. Jarvis declared the state was sitting on a $9 billion surplus and could afford the Prop 9 tax cut. (Compare that figure to the fund today that has reached $50 billion at times.)
Jarvis challenged Gov. Jerry Brown to prove the state-held account was not surplus funds.
Instead, that role of explaining the fund fell to state Treasurer Jesse Unruh, a friend of Jarvis. Unruh talked to the tax crusader and sent his top lieutenant to visit Jarvis’s office and explain details of the Pooled Money account.
While admitting that $2.4 billion was available for General Fund purposes, the Treasurer’s office explained that most of the funds were being held in reserve but were earmarked for specific purposes such as to pay off bonds, Cal-Vet home loans, transportation funds and many other purposes.
The charge that the state was sitting on a large surplus only a couple of years after Treasurer Unruh admitted during the Proposition 13 campaign that the state had an “obscene surplus” in General Fund money grabbed headlines and attention. But as the Treasurer’s office clarified the nature of the Pooled Money Investment Fund the situation died away. In the end, voters defeated Proposition 9.
Perhaps this Pooled Money Investment Fund will take another turn in the spotlight three decades hence. And, if tradition holds, the governor will be Jerry Brown.