Following Governor Brown's proclamation convening a special session of the Legislature, Department of Finance Director Michael Cohen held a briefing to discuss details of the proposal to strengthen the Rainy Day Fund.
In January, Governor Brown proposed changes to the Rainy Day Fund to stabilize the state's finances during swings in capital gains revenues, and to provide greater protection for schools from the kind of deep reductions that were the result of the most recent recession. Specifically, the Governor proposes the following changes to the fund:
- Increase deposits when the state experiences spikes in capital gains revenues, the state's most volatile tax revenue.
- Allow supplemental payments to accelerate the state's payoff of its debts and liabilities.
- Raise the maximum size of the Rainy Day Fund to 10 percent of General Fund revenues.
- Limit withdrawals to ensure the state does not overly rely on the fund at the start of a downturn.
- Create a Proposition 98 reserve to smooth school spending and avoid future cuts. This reserve for schools makes no changes to the guaranteed level of funding dedicated to schools under Proposition 98. In addition, the Proposition 98 reserve would not begin until school funding is fully restored following cuts made during the Great Recession.