California's Rainy Day Fund Is Ready For Its Coronavirus Close-Up
By THE RAINY DAY FUND, as told to JOE MATHEWS
I’m ready for my close-up, Ms. Gerwig!
OK, as a budget fund without acting credits, I shouldn’t expect Greta Gerwig to put me in her next film—even if both she and I are Sacramento natives. But the time is coming—quite quickly—when I, California’s humble Rainy Day Fund, will stand at the center of our state’s civic stage, and my fellow Californians will finally have to pay me the attention I deserve.
Oh, and look, what do we have here? The coronavirus and a monster stock market crash! Do I smell recession and huge drops in state revenues? Because that’s my cue!
My role is to be the adult fund in the room, holding onto my cash instead of spending it constantly. I have to be stable because you Californians are so volatile. Your incomes, your business receipts, and your investment earnings go up like rockets and down like, mmm, bad rockets, which then open up giant holes in the state budget. It’s my job to plug those holes.
But I must confess to being nervous about the hole-plugging, because I’ve never done this before.
Like so Much Else in California, I’m Governed by Formulas
Yes, Prop 58 created me in 2004, but in that decade, I was so empty that the state couldn’t tap me when the Great Recession hit. In 2014, voters enhanced me via Prop 2, and ever since, I’ve been filling up with money.
But I’ve never had my funds drawn down in an economic downturn. I’ve been sitting on the shelf so long—like an old soup can or a two-term vice president—that no one knows if I can prevent teacher layoffs, shore up Medi-Cal, or fund pandemic response when I’m really needed.
In fact, few people really know how I really work. For one thing, while I’m called the Rainy Day Fund, I actually encompass more than one account. Most of my billions are the Budget Stabilization Account, but I also have a few billion in the Special Fund for Economic Uncertainties, the Safety Net Reserve, and the Public School System Stabilization Account.
Like so much else in California, I’m governed by formulas. The gist: I get 1.5 percent of the state’s general revenues each year, as well as some extra capital gains taxes.
My success at storing money has really surprised the state. The original estimate was that I would be small, gathering maybe $1 billion a year. But I’ve grown at three times that rate, making me as swole and buff as Schwarzenegger was before he went into politics. Today I’m worth around $20 billion.
Related Story: Coronavirus Could Take Big Bite out of California Budget
I Am Not Going to Be Ignored
How’d I get so big? Governor Brown and Governor Newsom put more money into me than required. They had their reasons. First, when you make a deposit into me, it’s easier to balance the budget, because of the way the budget formulas are written. Second, governors love the fact that the legislature has little power to access my funds. For the state to get my money, the governor has to declare an emergency. So the bigger I am, the more leverage a governor has over the legislature!
Even if the recession is tiny, the rules for tapping my dollars are arcane and untested. If revenues collapse $20 billion over a coronavirus cliff this year, my rules suggest that only half my money—$10 billion maybe—could be tapped to fill the hole right away.
One reason I’m writing this is to manage expectations, and warn you that I can’t handle an economic crisis alone. I need the help of Californians, who should start making recession plans right now right now. My presence, I hope, will remind you of obligations from which California can’t run.
To quote my favorite movie, Fatal Attraction, I am not going to be ignored.
About the Author
Joe Mathews writes the Connecting California column for Zócalo Public Square.