CA Democrats pitch ‘rainy day fund’ expansion. GOP warns more spending to follow
Legislative Democrats on Wednesday pitched changes to a California budget reserve fund that would allow the state to set aside more money during times of flush revenues and use the savings to pay off more types of debt.
The fund, known as the Budget Stabilization Account is one of several state accounts that hold savings. The latest measure would modify rules for the account, also known as the “rainy day fund.” But Republicans warn the proposal could undercut the reserve’s purpose.
The proposal needs two-thirds approval by both the Senate and Assembly Thursday to eligible to appear in front of voters in November.
“When we build and maintain strong budget reserves during periods of economic growth that helps protect Californians from sudden reductions in essential services and reduces the need for drastic corrective action,” said Assemblymember Jesse Gabriel, D-Encino, who authored the measure, during a budget hearing Wednesday.
The plan would continue mandatory deposits into the fund up to 20% of the state’s general fund taxes, increased from the 10% mark it is currently. It would also expand what the reserves could be used for, including to chip away at more than $20 billion in unemployment insurance debt owed to the federal government.
Under a proposal from Gov. Gavin Newsom, the state would have about $15 billion in the savings account in the upcoming fiscal year. Negotiations around the budget are ongoing.
Gabriel and other Democrats Wednesday pitched the plan as a responsible way to plan for the state’s future. But that future has headwinds.
California is seeing a revenue surge due in large part to gains in the stock market driven by enthusiasm over artificial intelligence. At the same time, the state’s spending keeps growing quickly as well, alarming the Legislative Analyst’s Office, which advises the Legislature on fiscal matters. It has warned that the state could face a deficit as high as $100 billion in the event of a downturn similar to the dot‑com bust.
Republicans during the hearing warned that the changes pitched Wednesday could be used as a way for the state to spend even more money down the road.
“I fear that this will not be used as a true reserve but as a slush fund,” said Assemblymember Tom Lackey, R-Palmdale. In past years, when the state had a large amount of reserves, he said legislators did not have an appetite to add more money into the fund, but instead looked to draw from the reserves.
“It’s really hard for me to believe that this is really rooted in trying to be fiscally accountable,” Lackey said.
Gabriel told Lackey that he hoped the two would have a chance to sit and talk through his skepticism. Though Democrats will be able to push the measure onto the November ballot without needing Republican votes.
