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Brown calls special session on Rainy Day Fund

Gov. Jerry Brown on Wednesday called a special session of the Legislature to replace the “Rainy Day Fund” measure on November’s ballot with a dedicated reserve to let the state to pay down its debts and unfunded liabilities.

“We simply must prevent the massive deficits of the last decade and we can only do that by paying down our debts and creating a solid Rainy Day Fund,” Brown said in a news release, which accompanied a proclamation convening the special section next Thursday, April 24.

Voters enacted the current Rainy Day Fund in 2004 by approving Proposition 58, which directs 3 percent of annual revenues into the Budget Stabilization Account. The current system has no restriction on when funds can be withdrawn and requires deposits even in deficit years, unless the law is suspended.

Lawmakers in 2010 approved the proposal on the November 2014 ballot – ACA 4, which would raise the fund’s cap from 5 percent to 10 percent of the General Fund, among other things. But Brown said Wednesday it doesn’t address the volatility of capital gains revenue, doesn’t provide a reserve for schools to help cushion future downturns, and limits California’s ability to pay down long-term liabilities.

Brown in January proposed changes including increasing deposits when the state has spikes in capital gains revenue; allowing supplemental payments to speed up the state’s payoff of its debts and liabilities; limiting withdrawals to ensure the state doesn’t drain too much at the start of a downturn; and creating a Proposition 98 reserve, after school funding is fully restored to pre-recession levels, to smooth school spending and avoid future cuts.

UPDATE @ 11:15 A.M.: Assembly Speaker John Perez calls this “a welcome and helpful development.”

“Assembly Democrats first proposed a permanent rainy day fund last May, and we look forward to working with our Republican and Senate colleagues to build a reliable system that handles short-term revenue spikes differently than ongoing, stable revenue streams,” said Perez, D-Los Angeles. “We need to establish a solid system for saving money in good years, so that we can better weather the bad years. We need a mechanism that not only strengthens our constitutional reserve, but also gets us off the rollercoaster ride of revenue spikes and dips that has caused so much trouble in recent years.”

UPDATE @ 2:02 P.M.: State Senate Republican Leader Bob Huff, R-Brea, says he’s glad Brown is doing this, but doubts whether Democrats share the enthusiasm. “It’s just common sense for California to put away money during the ‘boom’ years to avoid future tax increases and spending reductions in the ‘bust’ years. However, we are mindful that legislative Democrats have undermined similar efforts in the recent past,” he said.

“Despite agreeing to, and voting for, the rainy day reserve fund in Assembly Constitutional Amendment 4 (ACA 4) as part of the 2010-11 budget agreement with Republicans, Senate Pro Tem Steinberg and Assembly Speaker Perez denied Californians the opportunity to vote for it on the ballot in 2012 as promised,” Huff continued. “Now they want to remove it from the 2014 election ballot, preventing the people of California from establishing strong protections against future budget crises. I think today’s announcement is a message to the Democrats that the Governor is serious about doing something.”

The California Chamber of Commerce supports Brown’s move, too. “Adopting an effective Rainy Day Reserve should be the state’s top fiscal policy. California’s budget crises were caused by the Legislature spending one-time revenues for ongoing programs,” said CalChamber President and CEO Allan Zaremberg. “A solid reserve requirement will remove the California budget from the fiscal roller coaster. It is crucial that the Legislature pass a consensus proposal that the Governor can support to get approval by voters in November.”

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Whitman would save millions from her tax cut

Continuing a meme that Democratic gubernatorial nominee Jerry Brown started during the debate last week, his supporters released a memo today estimating that Republican nominee Meg Whitman would see personal savings of between $8.2 million and $41.2 million over a four-year gubernatorial term if she keeps her promise to eliminate the state’s capital gains tax.

Brown had asked Whitman – the billionaire former eBay CEO – during their Oct. 12 debate at Dominican University of California in San Rafael how much her tax plan would benefit her own finances; she didn’t answer, and hasn’t released an estimate since. Today’s memo was prepared and released by California Tax Reform Association Executive Director Lenny Goldberg.

Whitman says eliminating the tax will stimulate investment, leading to job creation. Democrats say it would blow an even bigger hole in the already-shredded state budget while mostly benefiting the very rich, with no guarantee of an economic benefit.

“Meg Whitman has millions to gain, but we have everything else to lose,” California Labor Federation Executive Secretary-Treasurer Art Pulaski told reporters on a conference call.

He said eliminating the capital gains tax would reduce state revenues by $4.5 billion per year, with each dollar lost bringing “a decrease in the quality of life for Californians:” failing schools, reduced college admissions, shortages of police and firefighters, crumbling infrastructure, struggling seniors and disabled, and reduced or no child care, all without creating jobs.

Pulaski and Goldberg repeated their calls for Whitman to release her tax records so estimates such as theirs wouldn’t be necessary.

State Sen. Leland Yee, D-San Francisco, agreed the memo underscores Democrats’ contention that Whitman offers “a one-sided solution to our budget problem – it is to enrich the rich and cut from children and the poor.”

California saw faster economic growth than the rest of the nation from 2000 through 2007 even with the capital gains tax in place, said University of California, Berkeley Economics Professor Michael Reich, while other states such as Texas have outperformed California in recovering from this recession because they weren’t as hard hit by foreclosures.

Whitman’s campaign issued a statement saying leading economists are on her side.

“Having closely studied the issue, Meg Whitman’s proposal to eliminate the capital gains tax in California will spur investment and create jobs. As a whole, Meg’s economic policies of streamlining regulation and implementing targeted tax cuts are crucial in getting our economy moving again and getting Californians back to work,” Hoover Institute Senior Fellow John Taylor – an economic advisor to governors Arnold Schwarzenegger and Pete Wilson, as well as to presidents Gerald Ford and George H.W. Bush – said in the campaign’s statement.

But Reich said California investors have diversified national and international portfolios, and so their reinvestment wouldn’t benefit the Golden State’s economy all that much. He also said millionaires haven’t been leaving California in any measurable way due to taxes, and so it’s unlikely any would return if the tax was eliminated.