California ’s Budget and Rainy Day Fund

Chris EdwardsCongress is considering passing additional financial aid for state and local governments. I  argued against further aid inthisFox News op ‐​ed. One reason is that many states have built substantialrainy day funds, which will help them balance their budgets even as tax revenues decline. Federal bailouts would undermine incentives to build such useful funds going forward.California has built a  substantial rainy day or reserve fund over the past five years, as shown in the chart below from thisstate report. State residents passed a  referendum in 2014 to create the fund structure, and so kudos to Californiansfor approving Proposition 2  by 69–31. The state is in a  better place today both because the reserve fund can be tapped during the crisis and because contributions to the fund during the boom helped to reduce program growth.California political leaders who supported Proposition 2  should also be commended, including former Governor Jerry Brown. Brown scored poorly on Cato’sReport Cards, butI  did note his support of expanding the rainy day fund.California needs a  larger rainy day fund than most states because its revenue system is so volatile. The system is heavily dependent on highly “progressive” income and capital gains taxes, which aretied to growth in Silicon Valley. The top 1  percent of earners payalmost half of California ’s income and capital gains taxes, which is remarkably lopsided.The California Legislative Analyst ’s Offi...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs