The Swarm

Mix it up with The Bee's editorial board.

February 12, 2009
How the spending limit would work

Here is my understanding of how the spending limit or revenue smoother that is headed for the ballot as part of the budget deal would work, including the provisions that were already adopted in the rainy day fund proposal that was part of the September budget:

 --3 percent of revenues would be taken off the top every year and put in the reserve. The governor could waive this requirement until 2011 -- the first year of the next administration.

--One half of this rake, or 1.5 percent of general fund revenues, must stay in the reserve and be used only in bad economic times.

--The other half would be used to "repay" schools the money they are losing in the most recent rounds of budget cuts, until about $9 billion is made up....In effect this means they get a guarantee on top of their guarantee for about 4 or 5 years, depending on how well the economy rebounds. Once the schools get their money back, this portion would go to pay off debt or for infrascructure. The school repayment provision will be in a separate ballot measure, and it is still not clear how the two will be linnked, if at all. It appears that the schools might get this money whether or not the spending limit passes.

--In addition to the 3 percent rake, any revenues over the ten-year trend line would also be put into the reserve.

--Other than the provision mentioned above, money would come out of the reserve only in years in which new tax revenues were insufficient to grow the budget by a combination of population growth and inflation. In those years, only enough money to bring the budget growth up to that level would come out of the reserve.

--If the reserve reached 12.5 percent of the general fund, any additional revenues could be used for one-time purposes, including paying off debt, pre-payment of retiree health benefits and tax rebates.

--If the Legislature or the people raise taxes, the revenue trend line would be adjusted upward so that the new money could be spent immediately, rather than waiting 10 years for the bump to work its way into the trend line. I think the opposite applies after a tax cut.

--The governor would have the authority to cut state operations spending and suspend cost of living increases midyear if a shortfall developed after a budget was adopted.

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About The Swarm

The Swarm is written by members of The Sacramento Bee's editorial board. They meet daily and are separate from the newsroom. Views included here are those of individual writers, and do not necessarily reflect those of a majority of the board or the positions expressed in The Bee's editorials.

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