By Adam Ashton
February 01, 2018 – 12:01 AM

California’s swelling budget reserves are approaching a point where the state by law can’t save any more money ‑ but don’t expect a tax rebate.

The state is quickly filling up its so-called rainy day fund, the budget stabilization account voters created in 2014 when they passed an initiative that forced lawmakers to save money in flush years. Gov. Jerry Brown’s budget proposal puts the state on pace to fill it with $13.5 billion by July 1, 2019, but the milestone could come even sooner.

By law, the fund can only hold 10 percent of the state’s projected general fund revenue as a hedge against the cuts that would come in a recession. Any additional revenue has to be spent on infrastructure.

If the revenue keeps pouring in, Legislative Analyst Mac Taylor told senators earlier this month they’ll have a lot of options. The money “will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do.”

But, in one of those only-in-California budget formulas, filling the rainy day fund presents a different kind of problem for legislators.

If they want to use the windfall of today’s booming economy for other priorities, like paying down debt, they’d have to actually spend money before filling the rainy day fund. Otherwise, the additional revenue would have to be spent on infrastructure like roads and prison repairs.

That’s right, California lawmakers might have to spend money to save it.

Here are some of the ideas they’re floating now to make the most of the surplus:

Give it back

Sen. Jim Nielsen, R-Tehama, remembers the one “glorious time” in the 1980s when California saw a spike in state tax revenue and delivered rebates to taxpayers.

Technically, that could happen again, but don’t hold your breath.

A 1979 ballot initiative that became known as the Gann limit compels state government to return money to taxpayers if state spending exceeds certain thresholds.

Last year, the Legislative Analyst’s Office warned that rising revenue put the Gann limit within reach for the first time in decades. Brown’s office disagreed, and you didn’t get that check.

Nielsen, the top Republican on the Senate Budget Committee, said he’d advocate for some kind of rebate even though he knows it’s unlikely.

“Am I confident about the prospect? No, the temptation to spend money is vastly too great.”

Save even more

Lawmakers from both parties back Brown’s pledge to fill the rainy day fund. They’re thankful that the extra money buys them some insurance if a recession hits and cripples state tax revenue.

California’s state budget is especially vulnerable to recessions because its collection of personal income tax leans heavily on high-earners whose income from capital gains can nose dive in a downturn.

But some wonder whether a rainy day fund that holds 10 percent of one year’s revenue is enough. Past recessions, for example, have slashed revenues by 20 percent. Brown’s own budget suggested that a recession could take a $20 billion bite out of the general fund in its first year.

That history has some lawmakers suggesting that the state might need a bigger savings account. They’d have to put an initiative before voters to raise the cap.

“We can say with certainty (a recession) will come. It’s wise to remember that our state revenue is extremely volatile,” said Assemblyman Jay Obernolte, R-Hesperia, the senior Republican on the Assembly Budget Committee.

Other choices, Taylor told lawmakers in January, include setting aside more money in the state’s emergency fund – the account that pays for unexpected disasters like wildfires – or prepaying known expenses to relieve pressure later.

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