April 24,
2008

Corona
Chamber Supports Governor's Proposed Budget Rainy Day
Fund
The
Corona Chamber of Commerce supports Governor
Schwarzenegger's proposed Budget Stabilization Act. This
Act will establish a Revenue Stabilization Fund (RSF),
which is simply a savings account for excess revenues
taken in by the state each year.
This
proposal is important to you because it
will limit future budget
deficits from impacting Corona and our region from drastic
cuts in important services such as education and
transportation funding.
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Key
Points of this Call to Action
1. End Fluctuating tax
revenue and auto-pilot spending, which dictates
approximately 90 percent of state expenditures. This
process has, created more than a decade of unpredictable
and unstable budget cycles, which benefit no one.
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2. Establish a Revenue Stabilization Fund, basically a
savings account for years when state tax revenues are
above a reasonable, long-term average rate of growth.
This fund will be used to even out funding for the state
budget in years when revenues are below average.
3. Keep us from living above our means by triggering
reductions in state spending of between two and five
percent if a year-end budget deficit is predicted.
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Background
"California’s economy
continues to grow, in spite of the current housing
downturn, and the state continues to enjoy overall job
growth," stated Cynthia Schneider, Chair of the Corona
Chamber's Legislative Action Committee. "However,
California still faces a projected $14 billion budget
gap that necessitates across-the-board-cuts. Something
needs to be done and the Governor's Revenue
Stabilization Fund is the right idea at the right time,"
continued Schneider.
California’s budget problem is chronic, and driven by
two factors: The state historically spends all the money
it takes in during years of high revenue growth, leading
to unsustainable spending levels in the long run.
California has not slowed spending growth fast enough.
Automatic formulas will increase spending in FY 2007-08
by 7.3 percent, unless we take action now. Each month
California spends $600 million more than the state takes
in.
The majority of spending in the budget is set on
auto-pilot. Currently about 90 percent of the budget is
tied up with contracts and statutory requirements.
“Excess revenues” are defined as state tax revenues
above a reasonable, long-term average rate of growth.
The state Department of Finance will calculate and
release this revenue projection two times each year: in
January and May. This amendment will require that the
state deposit excess revenues into the RSF. The RSF will
make these savings automatic—thus ensuring that
California does not again fall into the trap of spending
all its revenues in prosperous times.
In years when tax revenues
are below average and California cannot meet its
spending obligations, the state will transfer the
difference from the RSF into the General Fund. Transfers
will only take place when revenue grows at a rate below
the long-term average. The state cannot transfer funds
just to avoid deficits.
The Budget Stabilization Act will allow California to
reduce spending when necessary. Right now, California
doesn’t have this flexibility. Once the Governor signs
the budget, spending is locked in unless the Governor
declares a fiscal state of emergency and calls a special
session. Under this Act, automatic reductions in state
spending will be triggered by the Governor if the
Department of Finance predicts a year-end budget
deficit.
The Department of Finance
will calculate and release this projection three times
each year: in November, January and June. If a deficit
is predicted, state agencies must reduce their spending
by either two percent or five percent, depending on the
deficit’s projected size. If the deficit is projected at
one percent or less, agencies will reduce spending by
two percent. If the deficit is projected at greater than
one percent, agencies will reduce spending by five
percent.
This amendment requires that the legislature enact a
statute specifying how the state will reduce spending by
two and five percent to meet Budget Stabilization Act
requirements as soon as a deficit is projected.
If the legislature does not specify the reductions—or if
their reductions are insufficient—the amendment allows
the Governor to waive state law and regulations in order
to achieve the savings needed to bring California's
budget into balance. Debt service, contracts and other
constitutionally-protected payments are exempt.
Spending changes enacted by the Budget Stabilization Act
remain in effect until a new budget or other statutory
change is enacted by the legislature. Tax increases,
urgency measures and most General Fund appropriations
will still have to be enacted by two thirds majorities
in both houses of the legislature.
Governor Schwarzenegger campaigned and was elected on
the promise of greater fiscal stability and and
reforming workers’ compensation. The spending limit was
not included in the final proposition package that went
before California voters.
Click here to take action on this issue.
Click here
for more information from the Office of the Governor.
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