Gov. Jerry Brown’s proposed budget contains no provision for a reserve. Without a financial cushion, some say, California may be more vulnerable to drops in revenue.
By Chris Megerian, Los Angeles Times
April 28, 2013, 4:14 p.m.
SACRAMENTO — Arnold Schwarzenegger persuaded voters nine years ago that if they let him borrow money to cover the budget deficit, California’s financial woes would end for good. A key part of his plan was a new rainy-day fund to insulate the state from further crisis.
“It will be a whole new ball game,” Schwarzenegger said. “Trust me.”
But California was roiled by financial turmoil for years afterward, and today the reserve is empty. With more than $5 billion in bonds left to repay, Gov. Jerry Brown apparently plans to leave it that way.
The reserve was created without a firm requirement to fill it, and Brown’s proposed budget contains no allocation for the fund. Without a financial cushion, some experts say, California is more vulnerable than many other states to drops in revenue that can lead to social-services cuts or pink slips for teachers.
Sacramento relies heavily on income taxes paid by the wealthy — revenue that lags in every downturn and can be subject to swings in the stock market — and California has not fully recovered from the recession.
“We’re still in an uncertain economy,” said Tracy Gordon, a fellow at the Brookings Institution, a Washington think tank. “In a state like California, where things can change very quickly, it’s a good idea to be cautious.”
Plenty of other states are playing it safer. Maryland’s rainy-day fund has grown since the recession, and Democratic Gov. Martin O’Malley hopes it will protect the state as federal spending is cut during Washington’s budget standoff.
Ohio has replenished its reserve, and Republican Gov. John Kasich wants to boost it further. New York added to its fund last year while wrestling with deficits and now has $1.3 billion socked away.
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