EVERYBODY. LET'S CALL THIS
HEARING TO ORDER. WELCOME TO THE
ASSEMBLY BUDGET COMMITTEE. WE
ARE GOING TO GET STARTED HERE AS
TODAY AS AN INFORMATIONAL
HEARING ONLY. BUT WE ARE GOING
TO DISCUSS A VERY IMPORTANT AND
TIMELY TOPIC, WHICH IS OUR
BUDGET RESERVES. AND I WOULD
ARGUE THAT THIS IS PERHAPS THE
MOST IMPORTANT CONVERSATION THAT
WE ARE GOING TO HAVE THIS YEAR
AND IN THE COMING YEARS, WHICH
IS FOUNDATIONAL TO OUR ABILITY
TO SERVE THE PEOPLE OF THE STATE
OF CALIFORNIA, TO DELIVER FOR
THE PEOPLE OF THE STATE OF
CALIFORNIA, TO VERY PRUDENTLY
AND IN A WISE WAY, MANAGE OUR
RESOURCES. SO THAT WE CAN DO ALL
OF THE GOOD THINGS IN THE BUDGET
THAT WE NEED TO DO FOR THE
PEOPLE THAT WE SERVE. AND
OBVIOUSLY, RESERVES HAVE BEEN AN
IMPORTANT TOOL TO ALLOW US TO
WEATHER STORMS AND HOPEFULLY
WILL BE A TOOL THAT WILL ALLOW
US TO WEATHER FUTURE STORMS. AND
I ALSO HOPE THAT TODAY'S
CONVERSATION IS ONE THAT IS
GOING TO TRANSCEND POLITICAL
IDEOLOGY. THIS IS ABOUT
RESPONSIBLE GOVERNMENT. THIS IS
ABOUT MAKING SURE THAT WE ARE
SITUATED FOR CHALLENGES THAT MAY
COME UP IN THE FUTURE. AND AS OF
I HAVE SAID TO MANY OF OUR
COLLEAGUES, AS WE HAVE DISCUSSED
THIS TOPIC, THAT I THAT BEING
ABLE TO SUCCESSFULLY AND
PRUDENTLY AND THOUGHTFULLY
MANAGE THE VOLATILITY THAT WE
FACE HERE IN THE STATE OF
CALIFORNIA, BEING ABLE TO PLAN
FOR THAT IS A GIFT THAT WE COULD
LEAVE TO OUR KIDS, A GIFT THAT
WE COULD LEAVE TO THE NEXT
GENERATION. SO TODAY WE'LL BE
THE BEGINNING OF WHAT I EXPECT
TO BE SEVERAL CONVERSATIONS
ABOUT HOW WE CAN BEST DO THAT. I
THINK IT'S IMPORTANT THAT WE
TAKE THE TIME TO REALLY
UNDERSTAND THESE ISSUES AND GET
IT RIGHT, AND THEN POTENTIALLY
CONSIDER POLICY PROPOSALS AROUND
THIS ISSUE IN COMING YEARS. SO
WITH US TODAY, ARE SOME, SOME,
SOME EXPERTS WHO ARE GOING TO
HELP US DIVE DEEP ON THIS ISSUE
AND THINK ABOUT IT. WE'RE GOING
TO DO TWO PANELS. THE FIRST FROM
THE LIO, WHO'S GOING TO HELP US
TO UNDER GIVE US AN OVERVIEW OF
STATE RESERVES JUST TO
UNDERSTAND MECHANICALLY AND
TECHNICALLY WHAT WE'RE TALKING
ABOUT. AND THEN WE HAVE, SOME
THOUGHT LEADERS HERE WITH US WHO
ARE GOING TO HELP US THINK ABOUT
A COUPLE OF DIFFERENT IDEAS FOR
HOW WE MIGHT BE ABLE TO IMPROVE
OUR USE OF RESERVES OR MAYBE
MAKE MODIFICATIONS. AND SO I
EXPECT THIS TO BE HOPEFULLY A AN
IMPORTANT AND INFORMATIVE AND
THOUGHT PROVOKING CONVERSATION.
SO WITH THAT, LET ME THANK ALL
OF THE MEMBERS WHO ARE HERE AND
LET ME TURN IT OVER TO VICE
CHAIR FLORA FOR ANY OPENING
COMMENTS. OKAY. WE'RE GOOD.
OKAY, WELL, WITH THAT THEN WE
WILL WE WILL DIVE RIGHT IN AND,
ALLOW ME TO INVITE ANN
HOLLINGSHEAD FROM THE
LEGISLATIVE ANALYST'S OFFICE
WHO'S GOING TO PROVIDE A BRIEF
OVERVIEW OF OUR CURRENT RESERVES
AND HOW THEY WORK. THANK YOU FOR
JOINING US. THANK YOU, MR.
CHAIR. AND MEMBERS. AND
HOLLINGSHEAD, WITH THE
LEGISLATIVE ANALYST'S OFFICE.
YES. AS THE CHARITY MENTIONED,
I'M GOING TO START WITH AN
OVERVIEW OF THE STATE'S RESERVE
SYSTEM WITH A PARTICULAR FOCUS
ON THE BUDGET STABILIZATION
ACCOUNT, WHICH IS THE STATE'S
CONSTITUTIONAL RAINY DAY FUND.
YOU SHOULD ALSO ALREADY HAVE A
HANDOUT IN FRONT OF YOU, AND
I'LL BE SPEAKING FROM THAT,
OKAY. SO TURNING TO THE FIRST
PAGE. THIS PROVIDES AN OVERVIEW
OF THE RESERVES THAT THE STATE
HAS AND HOW THEY WORK. SO
STARTING WITH THE SPECIAL FUND
FOR ECONOMIC UNCERTAINTIES, THIS
IS THE STATE'S MAIN
DISCRETIONARY RESERVE. AND IT
ALSO IS FUNCTIONALLY THE STATE'S
ENDING FUND BALANCE. SO THIS
MEANS THAT UNANTICIPATED
REVENUES CAN BENEFIT THIS FUND.
AND UNANTICIPATED EXPENDITURES
ARE GOING TO CAUSE THE FUND TO
GO NEGATIVE. SO THIS MEANS THAT
THE ACTUAL BALANCE IN THE FUND
CAN VARY VERY FAIRLY
SIGNIFICANTLY FROM YEAR TO YEAR,
BUT ON AN ENACTED BASIS, THE
CONSTITUTION REQUIRES THE SFU TO
BE SET AT A BALANCE THAT IS
ABOVE $0, ESSENTIALLY. NEXT IS
THE BUDGET STABILIZATION
ACCOUNT, WHICH IS THE STATE'S
CONSTITUTIONAL GENERAL PURPOSE
RESERVE ACCOUNT, ALSO KNOWN AS
THE RAINY DAY FUND.
CONSTITUTIONAL DEPOSITS INTO AND
WITHDRAWALS FROM THE BSA ARE
GOVERNED BY THE RULES OF
PROPOSITION TWO, WHICH WAS
PASSED BY VOTERS IN 2014. THERE
IS ALSO, YOU CAN THINK OF KIND
OF A DISCRETIONARY PORTION OF
THE BSA IN ADDITION TO THE
CONSTITUTIONAL PORTION, AND
THAT'S BECAUSE THE LEGISLATURE
HAS ELECTED TO PUT ADDITIONAL
MONEY INTO THE BSA, TWICE
BEFORE. AND THIS MONEY IS NOT
GOVERNED BY THE RULES OF THE
CONSTITUTION. I'M GOING TO GET
INTO CONSTITUTIONAL DEPOSITS IN
GREATER DETAIL IN A MOMENT, BUT
JUST STARTING WITH WITHDRAWALS,
JUST VERY BRIEFLY, BECAUSE SOME
OF THESE RULES ARE A LITTLE BIT
TECHNICAL, HAPPY TO GET INTO
MORE OF A MINUTIA IF IT'S
HELPFUL. SO THE WITHDRAWAL RULES
ARE GOVERNED BY BUDGET EMERGENCY
RULES, THIS MEANS THAT A BUDGET
EMERGENCY MUST BE FIRST DECLARED
BY THE GOVERNOR IN ORDER FOR THE
LEGISLATURE TO USE FUNDS IN THE
BSA, AND THE GOVERNOR CAN
DECLARE A BUDGET EMERGENCY IN
ONE OF TWO CASES, EITHER IN
RESPONSE TO A NATURAL DISASTER
OR BECAUSE OF A FISCAL
EMERGENCY. THERE'S ALSO A
MAXIMUM LEVEL FOR THE BSA. IT'S
SET AT 10% OF GENERAL FUND
TAXES. SO THE BALANCE IN THE BSA
HAS INCREASED OVER TIME RELATIVE
TO 2014, WHEN PROPOSITION TWO
WAS PASSED, AND THE
CONSTITUTIONAL PORTION REACHED
10% OF GENERAL FUND TAXES. A
TOTAL BALANCE OF ABOUT 12% ON
TWO DIFFERENT OCCASIONS. ONCE IN
2020 AND ONCE IN 2223. PART OF
THAT BALANCE WAS USED TO COVER
THIS YEAR'S BUDGET PROBLEM, AND
THE BALANCE NOW STANDS AT ABOUT
18 BILLION, TOUCHING JUST VERY
BRIEFLY ON SOME OTHER RESERVES
THAT THE STATE HAS. THERE IS THE
PUBLIC SCHOOL SYSTEM
STABILIZATION ACCOUNT, ALSO
KNOWN AS THE PROP 98 RESERVE.
THIS IS A RESERVE THAT IS
DEDICATED SPECIFICALLY TO
SCHOOLS AND COMMUNITY COLLEGES,
AND CAN ONLY BE USED FOR THAT
PURPOSE. CONSTITUTIONAL DEPOSITS
AND WITHDRAWALS FROM THIS FUND
ARE ALSO GOVERNED BY THE RULES
OF PROPOSITION TWO, AND MOST OF
THE $8 BILLION BALANCE IN THAT
FUND WAS USED IN THIS YEAR'S
BUDGET. THERE'S A SAFETY NET
RESERVE, WHICH IS A STATUTORY
RESERVE THAT WAS ESTABLISHED FOR
MEDI-CAL AND CALWORKS, THIS
RESERVE IS AVAILABLE TO FUND
THOSE PROGRAMS DURING A DOWNTURN
OR A REVENUE DOWNTURN. THE
ENTIRE $900 MILLION BALANCE WAS
USED IN THIS YEAR'S BUDGET. AND
THEN FINALLY, THE BUDGET DEFICIT
STABILIZATION ACCOUNT, WHICH IS
A STATUTORY RESERVE THAT WAS
ESTABLISHED IN 2018. AND IT WAS
ONLY BRIEFLY FUNDED. TURNING TO
THE NEXT PAGE. I'M GOING TO
TALK, IN SOME DETAIL ABOUT HOW
PROPOSITION TWO WORKS. ONE THING
TO NOTE, AND PROPOSITION TWO IS
WHAT GOVERNS THE DEPOSITS INTO
THE BSA. ONE THING TO NOTE THAT
IS THAT PROPOSITION TWO COVERS
BOTH RESERVE DEPOSITS AND DEBT
PAYMENTS. SO TALKING ABOUT THE
FORMULAS INEVITABLY MEANS THAT I
HAVE TO TALK ABOUT BOTH. BUT
I'LL OBVIOUSLY FOCUS ON THE BSA
IN PARTICULAR. THESE, THESE
FORMULAS CAN BE SOMEWHAT
COMPLICATED, HONESTLY, FROM YEAR
TO YEAR BASIS. BUT IF YOU REALLY
JUST THINK ABOUT THEM FROM A
HIGH LEVEL, THEY MAKE A LOT OF
INTUITIVE SENSE. SO ESSENTIALLY
WHAT WE'RE DOING IS WE'RE TAKING
TWO AMOUNTS THAT ARE DEPOSITED
EACH YEAR INTO THE RESERVE. ONE
IS A BASE AMOUNT. THIS IS A
STEADY PERCENTAGE OF GENERAL
FUND TAXES OR REVENUES THAT IS
DEPOSITED EACH YEAR. AND THEN
ONE IS EXCESS CAPITAL GAINS. SO
CAPITAL GAINS REVENUES ARE
REVENUES THAT ARE LEVIED ON THE
SALE OF ASSETS LIKE STOCKS AND
REAL ESTATE SALES. AND THEY CAN
BE EXTREMELY VOLATILE. SO THE
IDEA IS THAT WE'RE GOING TO SET
ASIDE PEAKS OR SURGES IN THOSE
REVENUES WHEN THEY OCCUR. AND
THEN THOSE ARE GOING TO BE
AVAILABLE TO SPEND DURING A
DOWNTURN. SO JUST WALKING
THROUGH THE FIGURE KIND OF
BRIEFLY, THE BASE AMOUNT IS
SHOWN AT THE TOP OF THE FIGURE.
IT'S 1.5% OF GENERAL FUND
REVENUES. AND THAT'S SPLIT 5050
BETWEEN DEBT AND RESERVES.
PRETTY SIMPLE. EXCESS CAPITAL
GAINS. SO FOR THIS ONE WE TAKE
8% OF OVERALL GENERAL FUND
TAXES. THAT'S SORT OF A
THRESHOLD AMOUNT. THAT THRESHOLD
AMOUNT IS COMPARED AT THE BUDGET
ACT TO THE TOTAL AMOUNT OF
CAPITAL GAINS REVENUES THAT THE
STATE IS ANTICIPATING TO COLLECT
OVER THE NEXT YEAR. THAT IS
SPLIT 5050 BETWEEN DEBT AND
RESERVES. BUT THE CHALLENGE HERE
IS THAT, OF COURSE, ANTICIPATING
CAPITAL GAINS REVENUES MEANS
SAYING SOMETHING ABOUT WHAT'S
GOING TO HAPPEN IN THE STOCK
MARKET OVER THE NEXT 12 MONTHS.
AND THAT'S VERY DIFFICULT TO DO.
SO THE STATE REVISITS THIS
DEPOSIT TWICE, ONCE IN EACH
SUBSEQUENT BUDGET ACT. AND THESE
ARE CALLED TRUE UPS. AND
ESSENTIALLY THE STATE RE LOOKS
AT OKAY, HOW MUCH CAPITAL GAINS
REVENUES ARE WE ACTUALLY
COLLECTING. AND THEN IF THERE'S
MORE THAN ANTICIPATED, 100% OF
THAT GOES TO RESERVES. IF
THERE'S LESS THAN ANTICIPATED,
THEN ALL OF THAT MONEY WOULD
COME OUT OF RESERVES UP TO THE
AMOUNT OF THE INITIAL DEPOSIT.
THERE IS ONE TECHNICAL,
ADJUSTMENT HERE FOR THE
PROPOSITION 98 INCREMENT THAT
I'M HAPPY TO GET INTO, BUT IT
REALLY DOES GET INTO THE WEEDS,
SO IN CONCLUSION, AS YOU CAN SEE
ALSO FROM AN AGENDA FIGURE THAT
WAS PASSED AROUND, THE STATE
REALLY HAS BEEN ABLE TO
SUCCESSFULLY BUILD RESERVES
SINCE 2014 WHEN PROPOSITION TWO
WAS PASSED. AND THIS IS THE
RESULT, REALLY, OF BOTH THE BASE
AMOUNT AND CAPITAL EXCESS
CAPITAL GAINS WORKING IN TANDEM.
SO THE STATE HAS BEEN NEAR OR AT
THE MAXIMUM TWICE IN PREVIOUS
YEARS. AND HAS A PRETTY HEALTHY
RESERVE AVAILABLE FOR BUDGET
PROBLEMS. THIS YEAR. WITH THAT,
HAPPY TO TAKE QUESTIONS. THANK
YOU VERY MUCH. DO WE HAVE, WE'RE
GOING TO GET, AS I MENTIONED
BEFORE, FOR THOSE OF US, FOR
THOSE WHO ARE HERE, WE'RE GOING
TO GET INTO MORE CONVERSATIONS
ABOUT THINKING ABOUT HOW WE
MIGHT MAKE ADJUSTMENTS. BUT JUST
FROM A TECHNICAL PERSPECTIVE, DO
WE HAVE ANY QUESTIONS FOR THE
LEGISLATIVE ANALYST'S OFFICE? SO
LET'S GO. ASSEMBLY MEMBER
QUIRK-SILVA AND THEN ASSEMBLY
MEMBER MURATSUCHI JUST REALLY
QUICKLY. SORRY. JUST REALLY
QUICKLY ON YOUR BSA, YOU SAY
THAT THERE IS 17.6 BILLION IN
THE RAINY DAY FUND. IS THAT,
CURRENT AS OF NOW, OR IS THAT,
SUBTRACTING WHAT WE ALREADY TOOK
OUT FROM THIS LAST BUDGET, THAT
DOES SUBTRACT WHAT WE ALREADY
TOOK OUT FROM THE LAST BUDGET,
THE ONE LIKE, LITTLE TECHNICAL
ASTERISKS. I'LL PUT ON THAT IS
IT'S TECHNICALLY WHAT WE
ANTICIPATE WILL BE AT THE FUND
AT THE END OF THE 24, 25 FISCAL
YEAR. BUT YOU CAN THINK OF IT AS
LIKE THE LIVE AMOUNT THAT'S
AVAILABLE FOR NEXT YEAR'S
BUDGET. OKAY. THANK YOU. I WAS
JUST CURIOUS, UNDER PROPOSITION
TWO. WHY? THERE WAS, IN ADDITION
TO THE, THE BSA, THERE WAS
SPECIFICALLY A, A SUB RESERVE
FUND CREATED FOR THE PUBLIC
SCHOOL STABILIZATION ACCOUNT.
YEAH. I MEAN, I THINK SO WHEN
YOU THINK ABOUT THE STATE
BUDGET, SORT OF
INFRASTRUCTURALLY, THAT'S NOT A
WORD, BUT, THE STATE BUDGET
INFRASTRUCTURE, YOU CAN THINK OF
IT AS TWO SEPARATE BUDGETS,
RIGHT? THERE'S 40% ESSENTIALLY,
THAT'S GOVERNED BY THE RULES OF
PROPOSITION 98 DEDICATED TO
SCHOOLS AND COMMUNITY COLLEGES.
AND THEN 60% OF THE REST OF THE
BUDGET. THAT'S FOR EVERYTHING
ELSE. SO WHEN YOU THINK ABOUT IT
THAT WAY, THE BSA AND OTHER
RESERVES REALLY ARE DEDICATED
SPECIFICALLY TO THE OTHER SIDE
OF THE BUDGET, THE 60% THEY CAN
BE USED FOR SCHOOLS. BUT
GENERALLY WHAT WE WOULD KEEP
THOSE THINGS SEPARATELY. SO THEN
THE PROPOSITION 98 RESERVE IS
SORT OF FOR SPECIFICALLY THE 40%
OF THE BUDGET. THANK YOU. THANK
YOU. ASSEMBLY MEMBER LACKEY.
YEAH. THANK YOU CHAIR. ACCORDING
TO, LEDGE COUNCIL, THE 10% IN
PROP TWO IS NOT JUST A CAP. IT'S
NOT REALLY A CAP, BUT A TRIGGER.
BY WHICH MANDATORY RESERVE
DEPOSITS ARE NO LONGER REQUIRED.
VOLUNTARY DEPOSITS ARE STILL
AUTHORIZED AND WOULD HAVE
ACTUALLY LIMITED STRINGS
ATTACHED FOR USE. SO WHY DIDN'T
WE PRIORITIZE DEPOSITS WHEN WE
HAD SURPLUSES? YES. SO THAT'S
RIGHT. THE MAXIMUM LEVEL REALLY
DOES ONLY APPLY TO THE
CONSTITUTIONAL SHARE OF THE BSA.
AND IT IS, A, A THRESHOLD AFTER
WHICH INFRASTRUCTURE SPENDING IS
REQUIRED. SO SOMETIMES WE REFER
TO IT AS A MAXIMUM, SOMETIMES WE
REFER TO IT AS AS A THRESHOLD.
BUT YES, YOU'RE RIGHT, THERE IS
NO CAP ON THE DISCRETIONARY
SHARE OF THE BSA. ALL RIGHT.
WELL, THANK YOU FOR THAT. MY
FINAL QUESTION IS HOW WOULD YOU
PROPOSE STRENGTHENING RESERVES
WHILE ENSURING THAT WE RETURN
SURPLUS REVENUES TO OUR
TAXPAYERS? I'M JUST GOING TO
JUMP IN HERE. WE'RE GOING TO DO
ALL OF THOSE QUESTIONS. IF I IF
YOU DON'T MIND. ASSEMBLY MEMBER,
AFTERWARDS. BUT THIS IS JUST IF
PEOPLE HAVE WANT TO ASK
TECHNICAL QUESTIONS ABOUT HOW
THE RESERVE SYSTEM OPERATES, BUT
IT'S AN EXCELLENT IT'S AN
EXCELLENT QUESTION. SO LET'S SO
LET'S GET TO IT, I THINK, MR.
ALVAREZ, YOU HAVE A QUESTION.
YEAH. JUST A QUICK QUESTION ON
THE BUDGET DEFICIT STABILIZATION
ACCOUNT, DOES THAT STILL EXIST,
YES, IT DOES STILL EXIST IN THE
STATE TREASURY. OKAY. AND SO, IF
THE LEGISLATURE WANTED TO
DEPOSIT ADDITIONAL RESERVES,
THAT WOULD BE ONE OPTION,
BECAUSE YOU COULD AS YOU JUST
DISCUSSED, YOU COULD DO IT IN
THE BSA AS WELL. ABSOLUTELY.
BOTH OF THOSE ARE OPTIONS. OKAY.
AND I HAD SEEN AND NOW I DON'T
KNOW WHERE THERE WAS A GRAPH
THAT THE RESERVE LEVELS, IN
TERMS OF PERCENTAGE WISE TO THE
QUESTION AGAIN, EARLIER OF WE
THERE WERE A COUPLE OF YEARS
WHEN IT WAS ABOVE 10% IN
RESERVES IN THE BSA, RIGHT?
YEAH. SO IT IS A LITTLE BIT
COMPLICATED, BUT, IT, IT SPEAKS
TO HAVING BOTH THE
CONSTITUTIONAL SHARE AND THE
DISCRETIONARY SHARE IN THE BSA.
SO THE CONSTITUTIONAL AMOUNT IS
CAPPED AT 10%, BUT THE
DISCRETIONARY AMOUNT, THE AMOUNT
THAT THE LEGISLATURE HAS ELECTED
TO PUT INTO THE BSA SEPARATELY
HAS NO LIMIT. AND SO THE
LEGISLATURE AND THE STATE HAVE
PUT MORE THAN 10% INTO THE
RESERVE IN THE PAST BECAUSE OF
THAT. BUT PRIOR TO ME BEING
HERE, THERE WERE A COUPLE OF
YEARS OF LARGE SURPLUSES AND
THERE WAS SOME CONVERSATION. AND
I'D LIKE TO GET SOME CLARITY
THAT WE ACTUALLY COULDN'T PUT
MORE INTO RESERVE. AND THAT WAS
MORE HAVING TO DO WITH, I THINK
GANN LIMIT, NOT PROP TWO IS CAN
YOU MAYBE BRIEFLY EXPLAIN THERE
ISN'T A CAP, BUT THERE SORT OF
IS A CAP. YEAH. SO, IT'S A
LITTLE BIT COMPLICATED, BUT THE
STATE APPROPRIATIONS LIMIT IS A
LIMIT THAT WAS SET BY VOTERS IN
1979. AND IT ESSENTIALLY LIMITS
HOW MUCH STATE GOVERNMENT CAN
GROW OVER TIME, RESERVE DEPOSITS
UNDER THE CONSTITUTION, UNDER
THE STATE APPROPRIATIONS LIMIT.
PROPOSITION FOUR DO COUNT TOWARD
APPROPRIATIONS IN THE YEAR THAT
THE DEPOSIT IS MADE. SO BECAUSE
THE STATE FACED PRETTY
SIGNIFICANT SEL CONSTRAINTS,
STATE APPROPRIATIONS LIMIT
CONSTRAINTS IN THOSE YEARS THAT
WE HAD VERY SIGNIFICANT
SURPLUSES, IT MADE IT MORE
DIFFICULT, ARGUABLY, FOR THE
STATE TO BE ABLE TO PUT MONEY
INTO RESERVES BECAUSE IT WOULD
HAVE HAD TO COUNT TOWARD THE
STATE APPROPRIATIONS LIMIT, AND
IT WOULDN'T HAVE BEEN ONE OF THE
ALLOWABLE USES OF THE OF THE
EXCESS FUNDS, ESSENTIALLY UNDER
SAL, SO WHILE TO CHANGE THAT IS
TO GO BACK AND GET A
CONSTITUTIONAL AMENDMENT. THAT'S
CORRECT. THANK YOU. THANKS WE
HAVE ANY ADDITIONAL QUESTIONS
FROM MEMBERS? YES, PLEASE. MR. I
CAN JUST CLARIFY YOUR EARLIER
COMMENT. SO YOU SAID THAT THE
PROP 98 RESERVE HAS BEEN,
FUNCTIONALLY THE RESERVE FOR THE
PROP 98, THE 40%. SO BUT WHAT IF
WE, WE DEPLETED THE PROP 98
RESERVE THIS YEAR, CORRECT?
WELL, THE CONSTITUTIONAL SHARE
OF THE PROP 98 RESERVE WAS USED
ENTIRELY TO SUPPORT SPENDING
THIS YEAR. HOWEVER, THE
LEGISLATURE ALSO ELECTED TO PUT
AN ADDITIONAL DISCRETIONARY
AMOUNT IN THE PROPOSITION 98
RESERVE. SO THAT AMOUNT REMAINS.
IT'S I THINK IT'S ABOUT $2
BILLION A LITTLE BIT LESS. OKAY.
BUT IF OUR, BUDGET CHALLENGES
CONTINUE AND IN ORDER TO AVOID
CUTS TO OUR SCHOOLS MOVING
FORWARD THAT EXCEED THAT 2
BILLION IN THE DISCRETIONARY
RESERVE, ARE THERE ANY
RESTRICTIONS WITHIN THE
PROVISIONS OF PROPOSITION TWO
TO, TAKE MONEY FROM THE BSA TO
COVER, ANY PROP 98 SHORTFALLS?
YEAH NO, THAT WOULD BE ALLOWABLE
UNDER THE CONSTITUTION.
EXCELLENT. THANK YOU VERY MUCH,
THANK YOU VERY MUCH, TO OUR VERY
CAPABLE WITNESS FROM THE
LEGISLATIVE ANALYST'S OFFICE,
WE'RE NOW GOING TO MOVE TO OUR
SECOND PANEL, WHERE WE'RE GOING
TO INVITE A NUMBER OF ADDITIONAL
FOLKS TO JOIN HER, INCLUDING
JASON SISNEY. OUR BUDGET
DIRECTOR FOR SPEAKER RIVAS BRIAN
BRENNAN FROM THE 21ST CENTURY
ALLIANCE. SCOTT GRAVES FROM THE
CALIFORNIA BUDGET AND POLICY
CENTER, AND LISA MISHKINSKY,
FROM THE DEPARTMENT OF FINANCE.
AND I'M SURE THAT I GOT THAT
LAST NAME WRONG. SO MY APOLOGIES.
AND WHY DON'T WE KICK IT OFF,
JUST IN THE ORDER THAT WE HAVE
IT HERE ON THE PAPER WITH MR.
SISNEY. HELLO. JASON. SISNEY.
SPEAKER RIVAS BUDGET DIRECTOR,
THE REASON I'M HERE IS A LOT FOR
HISTORICAL PERSPECTIVE,
PROPOSITION TWO WAS ORIGINATED
HERE IN THE ASSEMBLY, IT WAS
AUTHORED BY SPEAKER PEREZ, IT
WAS HEARD IN THIS COMMITTEE IN
APRIL 2014 WITH, SPEAKER PEREZ
AND GOVERNOR BROWN PRESENTING
THE BILL, SO WE DON'T OFTEN HAVE
GOVERNORS UP HERE BEFORE THIS
COMMITTEE, BUT IT DID THEN, AND
IT PASSED WITH ZERO NO VOTES IN
BOTH HOUSES AND WENT TO THE
VOTERS AND WAS APPROVED, THAT
MEASURE WAS IN DEVELOPMENT
ESSENTIALLY FOR ABOUT FIVE
YEARS. THERE WERE SEVERAL,
SEVERAL VERSIONS OF IT THAT WENT
INTO PRINT. THERE WAS ACTUALLY
AN EARLIER VERSION OF A
CONSTITUTIONAL AMENDMENT THAT
WAS PASSED AND THEN PULLED BACK
AND MODIFIED AS A PART OF THE
PROP TWO PROCESS. AND IT WAS IT
WAS DEFINITELY A WORK THAT
ORIGINATED FROM THE BUDGET
CRISIS OF, OF THE GREAT
RECESSION, RESERVES HAVE
HISTORICALLY BEEN UNPOPULAR, AND
THAT SHAPED THE DEBATE ON PROP
TWO. PROGRESSIVES WERE VERY
CONCERNED THAT PUTTING MORE
MONEY IN RESERVES WOULD HALT THE
RESTORATION OF PROGRAMS AFTER
THE GREAT RECESSION, WOULD TAKE
MONEY OFF THE TABLE FOR
EXPANDING PROGRAMS, AND
HISTORICALLY, RESERVES HAVE ALSO
BEEN UNPOPULAR AMONG MANY
CONSERVATIVES. THE GANN LIMIT
SPECIFICALLY SOUGHT TO LIMIT,
STATE AND LOCAL GOVERNMENTS
ACCUMULATING RESERVES, AND THAT
ORIGINATED FROM THE 1970S, WHERE
THE STATE HAD WHAT THE FORMER
TREASURER, JESSE UNRUH, CALLED
AN OBSCENE SURPLUS UNDER
GOVERNOR BROWN. AND IT'S ONE OF
THE FACTORS THAT WENT INTO THE
PASSAGE OF PROP 13 AND THE GANN
LIMIT. SO RESERVES HAVE
HISTORICALLY BEEN UNPOPULAR. BUT
COMING OUT OF THE GREAT
RECESSION, THERE WAS RECOGNITION
THAT GIVEN THE BUDGET CHALLENGES
THE STATE FACED, THERE WAS A
NEED TO DO THAT. AND ALSO,
BETWEEN THE TIME PROP 13 PASSED
AND THE GREAT RECESSION, THE
STATE'S REVENUE SYSTEM BECAME
MUCH MORE VOLATILE, MUCH MORE
DEPENDENT ON INCOME TAXES AND ON
INCOME TAXES PAID BY HIGH INCOME
INDIVIDUALS. OVER THE LAST
DECADE, PROP TWO HAS BEEN
SUCCESSFUL AT BUILDING RESERVES,
THOUGH THAT HAS BEEN IN AN
ENVIRONMENT WHERE THE ECONOMY
HAS BEEN STEADILY GROWING. THE
STOCK MARKET'S BEEN GROWING, OUR
TECH INDUSTRY HAS BEEN GROWING,
AND HIGH INCOME INDIVIDUALS HAVE
BEEN DOING DISPROPORTIONATELY
WELL. AND SO ONE OF THE THINGS
TO CONSIDER, AS YOU THINK, OVER
THE COMING MONTHS ABOUT
REFORMING OUR RESERVES IS THAT
THE NEXT DECADE MIGHT NOT BE
LIKE THE LAST DECADE. WE MIGHT
NOT HAVE AS MUCH TAX REVENUE
COMING FROM THOSE HIGH INCOME
INDIVIDUALS AS AS WE HAVE. AND
THAT IS THAT IS SOMETHING TO
KEEP IN MIND. ONE OF THE KEY
QUESTIONS IS, SHOULD THE MAXIMUM
SIZE OF THE RAINY DAY FUND, BE
INCREASED? IT'S ABSOLUTELY RIGHT
THAT MORE CAN BE PUT INTO
DISCRETIONARY DEPOSITS. THOUGH
WHEN PROP TWO WAS WRITTEN, THERE
WASN'T A LOT OF THOUGHT GIVEN TO
DISCRETIONARY DEPOSITS BECAUSE
WE DIDN'T REALLY HAVE ANY MONEY
AT THAT TIME TO SET ASIDE IN
RESERVES. SO THAT WAS A THAT WAS
A PROBLEM THAT WASN'T REALLY
ANTICIPATED. SO MAKING IT CLEAR
HOW DISCRETIONARY DEPOSITS WORK
AS A PART OF THE SYSTEM IS ONE
THING TO CONSIDER. IF YOU GO
BACK TO THE VOTERS TO REFORM
RESERVES, AND YOU'LL ALSO WANT
TO CONSIDER WHETHER THE ANNUAL
DEPOSITS TO THE RAINY DAY FUND,
WHICH ARE SET AS ANNE WAS
TALKING ABOUT, WHETHER THOSE
SHOULD BE, INCREASED, ANOTHER
ISSUE IS WHETHER IT SHOULD BE
HARDER OR EASIER TO DECLARE A
BUDGET EMERGENCY AND WITHDRAW
FUNDS FROM THE BSA. THERE ARE
RULES THAT ARE THERE THIS YEAR
THAT THAT ARE THERE NOW. THEY
ALLOWED THE STATE TO WITHDRAW
FUNDS FROM THE RAINY DAY FUND.
THIS YEAR, AND ARE EXPECTED TO
ALLOW THE WITHDRAWAL FROM OF
FUNDS NEXT YEAR, WE ARE NOT
CURRENTLY IN A RECESSION, AND
SOME PEOPLE FEEL THAT THE RULES
WERE TOO EASY THIS YEAR AND
THAT'S SOMETHING TO CONSIDER AS
WELL. WE TALKED ABOUT THE GANN
LIMIT AND THE GANN LIMIT IS
REALLY ONE OF THE KEY REASONS
THAT THERE'S BEEN DISCUSSION IN
THE LAST THREE YEARS OF GOING
BACK TO VOTERS IN 2022, WHEN THE
STATE WAS UP AGAINST THE STATE
APPROPRIATIONS LIMIT. IT
BASICALLY PUSHED THE LEGISLATURE
AT THAT TIME TO PROVIDE TAX
REBATES AND TO PUT FUNDS INTO
INFRASTRUCTURE. BOTH OF THOSE
ARE THINGS THAT THE GANN LIMIT
ALLOWS, BUT THE GANN LIMIT DOES
LIMIT DISCRETIONARY DEPOSITS TO
RESERVES. AND SO THAT WAS
SOMETHING THAT WAS VERY HARD FOR
LAWMAKERS AND THE GOVERNOR TO DO
IN THOSE SURPLUSES, SIMPLY
BECAUSE THOSE CONSTITUTIONAL
FORMULAS DIDN'T ALLOW IT. AND SO
THAT'S A KEY REASON TO THINK
ABOUT GOING BACK TO THE VOTERS.
AND I THINK THAT THE OTHER THING
IS THAT, TALKED ABOUT THE
MECHANISM, THE REVENUE, THE
PERCENTAGE OF REVENUES, THE
EXCESS CAPITAL GAINS, WE'VE HAD
A LOT OF THOSE CAPITAL GAINS IN
THE LAST DECADE, BUT WE MIGHT
NOT IN THE FUTURE. AND IN LIGHT
OF THAT, ONE THING TO THINK, IF
THE LEGISLATURE GOES BACK TO
VOTERS IS WHETHER OR NOT THE
FORMULAS FOR DETERMINING HOW
MUCH GOES INTO THE RAINY DAY
FUND EVERY YEAR SHOULD BE
CHANGED INTO SOMETHING DIFFERENT.
THE GOVERNOR, ALONGSIDE ALL OF
THIS, HAS BEEN HAS PROPOSED A
STATUTORY MEASURE FOR A
TEMPORARY SURPLUS HOLDING
ACCOUNT. IT'S TECHNICALLY A
RESERVE, BUT REALLY IT'S
FUNCTIONALLY, A WAY TO DELAY
SPENDING SURPLUSES IN THE FUTURE
IF TO TRY TO MAKE SURE THAT
THOSE SURPLUSES ARE REALLY
THERE, TO TRY TO DEAL WITH THE
PROBLEMS WE HAD WITH 2022, WHERE
THE SURPLUSES WERE
OVERESTIMATED. SO THAT'S A
STATUTORY ISSUE. AND IN EFFECT,
THE LEGISLATURE WOULD BE
EXPRESSING THE INTENT IN THE
FUTURE TO NOT COMMIT ALL OF
THOSE, SURPLUS FUNDS AT ONCE,
BUT RATHER WAIT A YEAR OR MORE
TO MAKE SURE THAT THAT THEY'RE
THERE IN CLOSING AND IN MY
COMMENTS, I DO JUST WANT TO
POINT OUT THAT THE NOT ONLY DOES
THE STATE HAVE SIGNIFICANT
RESERVES NOW, IN OUR GENERAL
FUND, THE RAINY DAY FUND, BUT IN
THE LAST DECADE, CALIFORNIA HAS
REALLY HAD A NEW ETHIC OF
BUDGETING, SUCH THAT AS OF LAST
MONTH, THERE IS WELL OVER $100
BILLION OF AVAILABLE FUNDS IN
THE STATE TREASURY, MOSTLY
SPECIAL FUND BALANCES, BUT ALSO
THE RAINY DAY AND THE OTHER
RESERVE BALANCES THAT WE HAVE,
IN THE DAYS OF THE GREAT
RECESSION, WE HAD TO BORROW
MONEY JUST TO KEEP THAT AT A
MINIMAL 2 OR $3 BILLION. WE ARE
NOW WELL OVER $100 BILLION OF
AVAILABLE FUNDS IN THE STATE
TREASURY. THAT DOESN'T COUNT THE
FUNDS THAT ARE COMMITTED, WHICH
ARE EVEN, EVEN MORE COMMITTED
AND OBLIGATED. THESE ARE FUNDS
THAT, THAT IN SOME CASES HAVE
BEEN BUDGETED, BUT THEY HAVEN'T
BEEN SPENT YET. AND I DO THINK
THAT THINKING ABOUT HOW TO
MANAGE THAT MONEY OVER THE LONG
TERM IS, IS A VERY IMPORTANT
PART OF THE DISCUSSION. IT'S
SOMETHING THAT THE BUDGET
COMMITTEE WILL WANT TO THINK
ABOUT IN FUTURE YEARS. AND A LOT
OF THAT HAS TO DO WITH MAKING
SURE THAT DEPARTMENTS SPEND
APPROPRIATED MONEY PROMPTLY AND
EFFECTIVELY, BUT THERE'S A LOT
OF MONEY THERE. AND AS THE STATE
THINKS ABOUT GROWING ITS GENERAL
FUND RESERVES, IT IT ALSO NEEDS
TO THINK ABOUT THAT BIG PICTURE
OF ALL OF THE OTHER CASH THAT,
THAT IS AVAILABLE. SO THANK YOU.
THANK YOU VERY MUCH. MR. SISNEY.
THOUGHT PROVOKING AS ALWAYS. WE
WILL NOW GO BACK TO THE,
LEGISLATIVE ANALYST'S OFFICE,
YOU KNOW, WE APPRECIATE YOUR
YOUR OVERVIEW. I THINK NOW IS
THE OPPORTUNITY, AS WE HAVE A
DISCUSSION ABOUT HOW MIGHT WE
IMPROVE OUR RESERVES, HOW MIGHT
WE TWEAK THEM, WHAT PROPOSALS
MIGHT WE CONSIDER TO STRENGTHEN
AND IMPROVE THEM, AND WOULD NOW,
YOU KNOW, APPRECIATE YOUR
PERSPECTIVE ON THAT AS WELL?
YES. THANK YOU. MR. CHAIR, SO ON
THE THIRD PAGE OF THE HANDOUT
THAT I ALREADY SPOKE FROM, WE
HAVE THREE QUESTIONS FOR
CONSIDERATION FOR THE
LEGISLATURE, AS YOU'RE
CONSIDERING, YOU KNOW,
EVALUATING THE STATE'S OVERALL
RESERVE SITUATION AND POSSIBLY
CONSIDERING MAKING CHANGES TO
IT. SO THE FIRST ONE IS WHY DOES
THE STATE HAVE RESERVES TO BEGIN
WITH? AND WE OFFER THIS QUESTION
MAINLY FOR CONTEXT. THE REASON
IS THAT A LOT OF DECISIONS ABOUT
RESERVES, YOU KNOW, HOW BIG THEY
SHOULD BE, WHEN THEY SHOULD,
WHEN RESERVES SHOULD BE SET
ASIDE, HOW THEY SHOULD BE USED.
ULTIMATELY INVOLVE A LOT OF
SUBJECTIVE DECISIONS, A LOT OF
JUDGMENT CALLS. AND SO STARTING
WITH THE SPECIFIC GOAL HERE CAN
REALLY HELP CLARIFY AND FRAME
THOSE CHOICES. SO FOR EXAMPLE,
SOMETHING THAT MIGHT SOUND GOOD
ON ITS FACE IS FOR THE RESERVE
TO BE BIG ENOUGH TO AVOID BUDGET
CUTS ENTIRELY IN ANY SIZE OF
RECESSION. BUT THIS WOULD
INVOLVE A RESERVE THAT IS
ABSOLUTELY MASSIVE, TENS OF
BILLIONS OF DOLLARS, IF NOT OVER
100 BILLION. AND SO THAT'S NOT
ONLY SORT OF PROHIBITIVE FROM A
POLICY PERSPECTIVE, BUT WOULD
ALSO INVOLVE PRETTY SERIOUS
DOWNFALLS. SO THE GOAL MAY BE
SOMETHING MORE MODEST, LIKE TO
AVOID CERTAIN KINDS OF BUDGET
CUTS ONGOING CUTS TO PROGRAMS,
FOR EXAMPLE, CUTS TO THE STATE'S
CORE SERVICE LEVEL. BUT IF
THAT'S THE CASE, RESERVES MIGHT
NOT NEED TO BE AS LARGE STILL
POSSIBLY LARGER THAN THEY ARE
TODAY. BUT IT WOULD ALSO MEAN
THAT THE STATE WOULD STILL NEED
TO MAKE SOME DIFFICULT DECISIONS
IN A RECESSION. FOR EXAMPLE,
RAISING REVENUES OR REDUCING
SPENDING. SO THIS IS BASICALLY
THIS SORT OF BASIC DYNAMIC IS
HOW WE WOULD ENCOURAGE THE
LEGISLATURE TO THINK ABOUT
RESERVES. THIS LEADS TO THE
SECOND TWO QUESTIONS. SHOULD THE
LEGISLATURE RAISE THE MAXIMUM
LEVEL OF THE BSA, AND THEN
SHOULD OTHER CHANGES TO RESERVES
BE MADE, SO STARTING WITH THE
BSA MAXIMUM, AS I ALREADY NOTED,
THE CONSTITUTIONAL MAXIMUM IS
10% ONLY ON THE CONSTITUTIONAL
PORTION OF THE BSA. AND WHEN WE
GO BACK AND LOOK AT PREVIOUS
RECESSIONS, THE ONES, FOR
EXAMPLE, BEFORE THE PANDEMIC,
EARLY 1990S DOTCOM BUST, GREAT
RECESSION AND YOU ADD UP THE
TOTAL REVENUE LOSSES ACROSS
THOSE. THERE'S DIFFERENT WAYS TO
DO IT. IT'S A LITTLE BIT
COMPLICATED. BUT ON AVERAGE WHAT
YOU SEE IS THOSE TOTAL GENERAL
FUND REVENUE LOSSES ARE CLOSER
TO 50% THAN 10%. NOW THIS IS OF
COURSE A MUCH LARGER NUMBER. BUT
AS WE NOTED, YOU MIGHT NOT WANT
TO SAVE FULLY THAT AMOUNT
BECAUSE THE GOAL MAY NOT BE TO
ONLY USE RESERVES TO GET THROUGH
THE BUDGET PROBLEM, STILL,
THAT'S OF COURSE, STANDS IN
STARK CONTRAST TO THE 10%, AND
MAY SUGGEST THAT THE LEGISLATURE
HAS REASON TO WANT TO RAISE THE
CAP IF THE CAP WERE RAISED. THIS
LEADS TO THE THIRD QUESTION
ABOUT OTHER, OTHER POTENTIAL
CHANGES THAT COULD BE MADE. IT
WOULD ALMOST CERTAINLY
NECESSITATE CHANGES TO THE RULES,
BECAUSE YOU SIMPLY WOULDN'T BE
ABLE TO SAVE A SIGNIFICANTLY
HIGHER AMOUNT WITH THE EXISTING
RULES. IF YOU RAISE TO, SAY, 20%
OR 25%, YOU'D STILL PROBABLY
ONLY REACH JUST ABOVE 10%, THAT
COULD SUGGEST THAT THE
LEGISLATURE COULD MAKE SIMPLE
CHANGES TO THE RESERVE RULES IN
ORDER TO REACH THAT HIGHER
THRESHOLD. YOU KNOW, RAISING THE
BASE AMOUNT, LOWERING THE
CAPITAL GAINS THRESHOLD, AND OF
COURSE, THOSE ARE DOABLE, BUT WE
WOULD SUGGEST THAT THERE MAY BE
ALSO REASONS TO REVISIT THE
RULES MORE FUNDAMENTALLY THAN
THOSE SIMPLE CHANGES. AND WE SAY
THIS FOR TWO REASONS. SO THE
FIRST ONE IS THAT OVER THE LAST
DECADE, THE STATE HAS REALLY
SEEN ALMOST LIKE A PERFECT STORM
OF CONDITIONS, TO HAVE THE RULES
BE SUCCESSFUL. AND AS SUCCESSFUL
AS THEY HAVE BEEN, WE SAW A VERY
LONG ECONOMIC EXPANSION. BETWEEN
2014 AND 2020. WE SAW LOW
INTEREST RATE ENVIRONMENT THAT
RESULTED IN SIGNIFICANT GROWTH
IN ASSET MARKETS AND CAPITAL
GAINS REVENUES. AND TOGETHER,
THOSE TWO FACTORS ARE
ESSENTIALLY WHAT ALLOWED THE
STATE TO HIT OR NEARLY HIT THE
LIMIT. I'M SORRY, THE MAXIMUM IN
2020 AND THEN 20, 22, 23. BUT
THOSE CONDITIONS MAY NOT
CONTINUE TO EXIST FOREVER. THE
NEXT DECADE MIGHT NOT LOOK LIKE
THE LAST DECADE, AND SO THAT MAY
SPEAK TO THE STATE'S NEED TO
REVISIT THE RULES IN ORDER TO
ENSURE THAT THE RESERVE CAN
CONTINUE TO BE SUCCESSFUL. THE
OTHER ISSUE, THE SECOND ISSUE,
IS THAT CAPITAL GAINS, AS MR.
SISNEY ALREADY NOTED, ARE NOT
THE ONLY SOURCE OF VOLATILITY
FOR THE STATE'S REVENUE SYSTEM,
AND THIS HAS BEEN INCREASINGLY
TRUE OVER THE LAST DECADE. WE'VE
SEEN, PARTICULARLY IN RECENT
YEARS, ABOVE AVERAGE VOLATILITY
IN THE CORPORATION TAX, IN
BUSINESS INCOME TO PERSONAL TO
INDIVIDUALS, AS WELL AS EVEN
WITHHOLDING. SO THIS SUGGESTS
THAT MAYBE A BROADER LOOK AT THE
TYPES OF VOLATILITY THAT THE
STATE IS TRYING TO CAPTURE COULD
BE WARRANTED. OF COURSE, ALL OF
THESE THINGS INVOLVE TRADE OFFS,
AND THEY REQUIRE, YOU KNOW, SOME
DECISION MAKING. BUT WE DO THINK
THAT THERE ARE SOME REASONS TO
THINK, TO REBUILD OR TO CHANGE
THE SYSTEM IN ORDER TO HELP THE
STATE CONTINUE TO BUILD RESERVES
IN AS SUCCESSFULLY AS IT HAS
BEEN DOING. THANK YOU. THANK YOU
VERY MUCH. AND I THINK ONE THING
THAT STICKS OUT TO ME ABOUT MR.
CHESNEY'S HISTORICAL PERSPECTIVE
HERE, ON THE FACT THAT IT TOOK
FIVE YEARS TO DEVELOP
PROPOSITION TWO, IN WHICH YOU'VE
SAID ABOUT THE TRADE OFFS TO
THINK ABOUT HERE IS IT IS
IMPORTANT TO ME THAT WE TAKE THE
TIME TO ASK THESE QUESTIONS AND
DO THE BALANCING AND GET IT
RIGHT, THAT IF PARTICULARLY IF
WE'RE GOING TO DO AN AMENDMENT
TO OUR STATE CONSTITUTION OR GO
BACK TO THE VOTERS TO DO THIS IN
THE RIGHT WAY, IN A THOUGHTFUL
WAY IS AN IMPORTANT THING. AND
SO TO HELP US THINK ABOUT THAT
MORE FULLY, WE HAVE WE'RE VERY
DELIGHTED TO HAVE BRIAN BRENNAN
FROM THE 21ST CENTURY ALLIANCE.
THANK YOU. CHAIR GABRIEL BRIAN
BRENNAN, 21ST CENTURY ALLIANCE.
I WANTED TO PROVIDE A LITTLE BIT
OF CONTEXT FOR THIS DISCUSSION
AND THIS QUESTION OF WHY WE NEED
A BUDGET RESERVE. AND AS WE
THINK ABOUT HOW BIG THAT IT
NEEDS TO BE, I PROVIDED THESE
SLIDES THAT YOU SHOULD HAVE IN
FRONT OF YOU, SO I'M JUST GOING
TO WALK. I'M GOING TO WALK
THROUGH THESE VERY QUICKLY, THE
CONTEXT FOR OUR DISCUSSION, MANY
TO A LARGE EXTENT, IS AROUND THE
US BUSINESS CYCLE AND WHAT THAT
LOOKS LIKE. SLIDE ONE CAPTURES
THAT YOU HAVE A COPY OF THIS.
THERE WE GO. SLIDE ONE CAPTURES
THAT THAT BUSINESS CYCLE. AND
ESSENTIALLY THE STORY HERE IS
RECESSIONS HAPPEN AND THERE ARE
THERE ARE PART OF THE WORLD THAT
WE LIVE IN. AND THE PART OF THE
WORLD THAT YOU LIVE IN AND THAT
THAT THEY ARE, SOMETHING THAT WE
NEED TO PLAN FOR OVER TIME. YOU
CAN SEE THAT THE, THE AVERAGE
DURATION IN BETWEEN RECESSIONS
IS ABOUT 7 OR 8 YEARS. IF YOU GO
BACK TO 1945, THAT GAP HAS BEEN
LONGER IN THE LAST 20 YEARS OR
SO. BUT IF YOU MOVE TO SLIDE
TWO, YOU CAN SEE THAT THAT IN
RECENT DECADES THE IMPACTS HAVE
BEEN SIGNIFICANT. THE GREAT
RECESSION OBVIOUSLY WAS AN
OUTLIER, HAD HAD ENORMOUS IMPACT
ON OUR FISCAL WELL-BEING. BUT
EVEN GOING BACK TO THE EARLY 90S
AND EARLY 80S, THOSE RECESSIONS
HAD A SIGNIFICANT IMPACT ON THE
STATE'S FISCAL WELL-BEING AND
CRITICALLY, OVER MULTIPLE YEARS.
THESE ARE NOT SINGLE YEAR
ACTIVITIES. I KNOW YOU ALL ARE
AT THE BUSINESS END OF THIS, BUT
IT'S WORTH KEEPING IN MIND THAT
THAT THESE ARE MULTI-YEAR
PROBLEMS. IF WE MOVE TO THE NEXT
SLIDE, THIS IS THE STORY AGAIN
THAT YOU ALL ARE LIVING RIGHT
NOW. CALIFORNIA HAS A VERY
VOLATILE TAX STRUCTURE. IT'S
ACTUALLY THE FOURTH MOST
VOLATILE IN THE NATION. THE
THREE STATES THAT ARE AHEAD OF
IT GET A HUGE AMOUNT OF THEIR
REVENUE FROM FOSSIL FUELS
ALASKA, NORTH DAKOTA, WYOMING,
CALIFORNIA IS DIFFERENT, AS YOU
KNOW. AND THE NEXT SLIDE SHOWS
ONE COMPONENT OF THAT, CAPITAL
GAINS. WE'VE DONE VERY WELL OVER
THE LAST DECADE OR SO IN TERMS
OF CAPITAL GAINS. WE'RE WE'RE
ESSENTIALLY AS A STATE PLAYING
THE MARKET. AND WE'RE DOING
REALLY WELL AT IT. THE OTHER
PIECE OF THIS ON THE NEXT SLIDE
IS AROUND IPOS. THE IMPACT OF
IPOS IS VERY DIFFICULT TO PIN
DOWN, THESE DATA ARE ACTUALLY AT
THE US NATIONAL LEVEL, BUT THE
DYNAMICS ARE LARGELY THE SAME.
IN CALIFORNIA. WE HAD A BIG
SPIKE IN 21. THOSE WERE LARGELY
DRIVEN BY THE SPAC PHENOMENON.
THESE ARE NUMBERS OF IPOS TOO.
SO THEY DON'T CAPTURE THE SIZE
OF THEM. AND THAT'S A HUGE ISSUE
AS WELL. IN 2012, FOR INSTANCE,
FACEBOOK IPO'D. AND EVEN AFTER
THE FACT, IT WAS VERY HARD TO
IDENTIFY THE IMPACT ON THE STATE
BUDGET. LÀ BALLPARKED A LITTLE
OVER $2 BILLION, BUT IT WAS
ESTIMATED THAT APPROXIMATELY ONE
FIFTH OF THE INCREASE IN
PERSONAL INCOME TAXES THAT YEAR,
2012, WERE DUE TO JUST THAT
SINGLE IPO. SO THESE ARE THE
TYPES OF FACTORS THAT WILL
INFLUENCE HOW THE BUDGET IS
DOING. IF WE GO TO THE NEXT
SLIDE, WE CAN ALSO SEE THAT
THERE'S A REGIONAL COMPONENT TO
THIS DISPROPORTIONATELY OUR
PERSONAL INCOME TAX COME FROM
TWO REGIONS OF THE STATE. THE
BAY AREA AND THE SOUTH COAST. SO
LÀ AND PARTS OF ORANGE COUNTY,
SO THAT WE KNOW THAT AND THAT'S
A FUNCTION OF OUR ECONOMY AND
THE WAY THAT IT'S DISTRIBUTED.
BUT THAT CAN INTERACT WITH OTHER
FACTORS AS WELL. ON THE NEXT
SLIDE, WE HAVE A GRAPHIC THAT
I'VE ALWAYS FOUND SUPER
INTERESTING, AND IT JUXTAPOSES
THE UNHEALTHY AIR QUALITY DAYS
IN CITIES ACROSS THE NATION
BETWEEN 2016 AND 2020 VERSUS
2009 AND 2013. ESSENTIALLY, THIS
IS A STORY WE ALL LIVED THROUGH
BECAUSE WE ALL HAD TO BREATHE
THAT SMOKE. BUT BUT IT REALLY
UNDERSCORES HOW EXTERNALITIES,
EXOGENOUS, EXOGENOUS, EXOGENOUS
PARDON ME, SHOCKS CAN HAVE AN
IMPACT BEYOND OUR STATE'S FISCAL
STRUCTURE. AND THIS OBVIOUSLY
CAN INCLUDE PANDEMICS. IT
INCLUDES CHANGES IN TECHNOLOGY
THAT ALLOW PEOPLE TO WORK IN
DIFFERENT PLACES. AND THIS
DYNAMIC WHERE WE HAD UNHEALTHY
AIR QUALITY BETWEEN BETWEEN 2016
AND 2020, PROBABLY PLAYED A ROLE
IN THE NEXT GRAPHIC, WHICH IS,
SHOWS MIGRATION FROM CALIFORNIA.
THAT'S BEEN ONGOING. AND WE KNOW
ABOUT THAT. CERTAINLY AT THE LOW
INCOME, MODERATE INCOME LEVELS
FOR MANY REASONS THAT YOU ALL
KNOW VERY WELL, THAT SHIFTED IN
ABOUT 2017, 2018 TO ALSO INCLUDE
HIGH INCOME INDIVIDUALS. AND
THAT'S FOLKS MAKING OVER
$200,000 A YEAR FUNCTION OF MANY
DIFFERENT THINGS FOR SURE, BUT
IT'S AGAIN, ONE OF THOSE FACTORS
THAT WE HAVE TO CONSIDER GIVEN
OUR TAX STRUCTURE. THE LAST TWO
SLIDES, I JUST WANTED TO PUT OUR
CURRENT GENERAL FUND IN
COMPARATIVE PERSPECTIVE. SO THIS
GRAPHIC SHOWS THE NUMBER OF
GENERAL FUND SPENDING DAYS IN
THE CURRENT RESERVE THAT WE HAVE
IN CALIFORNIA. AS YOU CAN SEE,
CALIFORNIA ACTUALLY HAS A PRETTY
STRONG POLICY ON THIS. THE PEW
RESEARCH CENTER LOOKS AT THIS
STATE ACROSS STATES AT MANY
DIFFERENT LEVELS, AND HAS REALLY
GOOD THINGS TO SAY ABOUT
CALIFORNIA'S CURRENT STRUCTURE.
THAT SAID, IF WE GO TO THE NEXT
SLIDE AND CONSIDER DAYS OF
GENERAL FUND SPENDING,
CONDITIONED BY STATE VOLATILITY,
CALIFORNIA SHIFTS FROM JUST ON
THE CUSP OF THE TOP QUARTILE TO
JUST ON THE CUSP OF THE BOTTOM
QUARTILE. AND THAT REALLY IS THE
ISSUE. I THINK THAT THAT WE NEED
TO CONSIDER HERE IS AS WE TALK
ABOUT THE SIZE OF THE GENERAL
FUND, WE HAVE TO DO IT
CONDITIONED BY THE STATE'S
VOLATILITY, AND WITH THAT, I
WILL I WILL CLOSE THANK YOU.
THANK YOU VERY MUCH, WE WILL NOW
TURN TO SCOTT GRAVES FROM THE
CALIFORNIA BUDGET AND POLICY
CENTER. MR. CHAIR AND MEMBERS,
GOOD AFTERNOON. MY NAME IS SCOTT
GRAVES ON THE BUDGET, DIRECTOR
AT THE CALIFORNIA BUDGET AND
POLICY CENTER. WE'RE A NONPROFIT
RESEARCH AND ANALYSIS
ORGANIZATION THAT WORKS TO
IMPROVE PUBLIC POLICIES FOR
FAMILIES WITH LOW INCOMES AND
COMMUNITIES OF COLOR IN
CALIFORNIA. WE APPRECIATE THIS
OPPORTUNITY TO SHARE OUR
THOUGHTS ON THE STATE'S RESERVE
POLICIES AND PERHAPS ADD A
COUPLE OF NEW PERSPECTIVES TO
THE MIX AS PART OF THESE VERY
BRIEF, PREPARED REMARKS. HEADING
INTO THE CONVERSATION, I KNOW
YOU'D ALL LIKE TO HAVE. SO LET
ME START BY GROUNDING MY REMARKS
IN A CORE VALUE. THE BUDGET
CENTER BELIEVES THAT ALL
CALIFORNIANS DESERVE THE DIGNITY
AND SUPPORT TO LEAD THRIVING
LIVES AND CLEARLY, STATE BUDGET
CHOICES ARE CRUCIAL TO MAKING
THAT VISION A REALITY. SO WHILE
WE AGREE THAT IT'S CRITICAL TO
PREPARE FOR A RAINY DAY, WE ALSO
STRONGLY BELIEVE THAT BUILDING
RESERVES MUST BE BALANCED WITH
MAKING ONGOING PROGRESS TOWARD A
CALIFORNIA FOR ALL. CALIFORNIANS
ARE LOOKING TO STATE LEADERS TO
ADDRESS SKYROCKETING HOUSING
COSTS, THE NEED FOR AFFORDABLE
CHILD CARE, AND MANY OTHER
CHALLENGES THAT WE FACE.
STRENGTHENING THE STATE'S
RESERVES SHOULD NOT COME AT THE
EXPENSE OF ADDRESSING THESE
CHALLENGES, AND HELPING
CALIFORNIANS. NOW, THERE'S SOME
GOOD NEWS. THE GOOD NEWS IS THAT
BOLSTERING RESERVES AND BUILDING
AN EQUITABLE STATE DO NOT HAVE
TO BE AT ODDS. IN FACT,
CALIFORNIA'S CURRENT RESERVE
STRATEGY, IN OUR ESTIMATION, IS
A HUGE SUCCESS, THANKS LARGELY
TO PROP TWO, WHICH, AS YOU KNOW
AND JUST HEARD, ORIGINATED IN
THE ASSEMBLY A DECADE AGO. THE
BILLIONS OF DOLLARS SET ASIDE
OVER THE LAST DECADE HELPED
CALIFORNIA TO ADDRESS A LARGE
BUDGET SHORTFALL THIS YEAR,
WHILE SUSTAINING INVESTMENTS IN
CRITICAL SERVICES AND STILL
LEAVING A LOT OF FUNDS IN
RESERVE FOR THE NEAR FUTURE.
PROP TWO ALSO HAS HELPED
CALIFORNIA TO MANAGE REVENUE
VOLATILITY. UPS AND DOWNS ARE A
NORMAL PART OF A PROGRESSIVE TAX
SYSTEM. CALIFORNIA WAS WELL
PREPARED TO MANAGE THE REVENUE
SWINGS COMING OUT OF THE
PANDEMIC, BECAUSE SO MUCH
FUNDING HAD BEEN SET ASIDE TO
SMOOTH OVER THE HIGHS AND LOWS
OF OUR STATE'S TAX SYSTEM. SO
WITH THAT BACKGROUND, HOW CAN
STATE LEADERS ADJUST RESERVE
POLICIES WHILE ALSO ENSURING
THAT SUFFICIENT RESOURCES ARE
AVAILABLE TO MAKE PROGRESS
TOWARD A CALIFORNIA FOR ALL?
HERE, I WANT TO MAKE FIVE POINTS
BEFORE CONCLUDING THE FIRST IS
AN OVERARCHING CONSIDERATION TO
KEEP IN MIND THAT THE KINDS OF
EVENTS THAT CAUSE EXTREMELY
LARGE REVENUE SWINGS, LIKE WE
SAW COMING OUT OF THE PANDEMIC,
ARE RELATIVELY RARE, SO IT'S
CRITICAL TO AVOID OVERCORRECTING
BY CREATING EXCESSIVELY RIGID
SAVINGS REQUIREMENTS IN RESPONSE
TO EXTRAORDINARY CIRCUMSTANCES.
FOR EXAMPLE, SIGNIFICANTLY
RAISING THE CAP FOR THE RAINY
DAY FUND COULD TIP THE BALANCE
TOO FAR IN THE DIRECTION OF
SAVING, LEAVING LESS REVENUE TO
MEET THE IMMEDIATE NEEDS OF
CALIFORNIANS. THIS WOULD MAKE IT
HARDER TO ADDRESS POVERTY AND
INEQUALITY, AND TO CREATE AN
EQUITABLE CALIFORNIA, WHERE
EVERYONE CAN SHARE IN THE
STATE'S PROSPERITY. MY SECOND
POINT WE DO THINK IT MAKES SENSE
FOR LEADERS TO BE CAUTIOUS WHEN
A VERY LARGE BUDGET SURPLUS IS
PROJECTED, IT'S REASONABLE TO
DELAY ALLOCATING SOME PROJECTED
REVENUE, ESPECIALLY WHEN THERE'S
A HIGH RISK THAT A SURPLUS MIGHT
NOT FULLY MATERIALIZE. BUT ANY
CHANGE IN THIS DIRECTION SHOULD
AVOID CREATING. HERE'S THIS WORD
AGAIN RIGID REQUIREMENTS THAT
PREVENT POLICYMAKERS. YOU ALL
FROM MAKING PROGRESS ON MEETING
THE PRESSING NEEDS OF
CALIFORNIANS. THIRD POINT
RESERVE DEPOSITS SHOULD BE
EXCLUDED FROM THE STATE
APPROPRIATIONS LIMIT. ALSO KNOWN
AS THE GANN LIMIT. THE GANN
LIMIT, NONSENSICALLY COUNTS
RESERVE DEPOSITS AS SPENDING
TOWARD THE SPENDING CAP. THIS
MAKES IT HARDER TO SET ASIDE
MORE REVENUE IN YEARS WHEN THE
GANN LIMIT IS A FACTOR IN STATE
BUDGETING, VOTERS SHOULD BE
ASKED TO FIX THIS GLITCH AS PART
OF ANY EFFORT TO REVISE THE
STATE'S RESERVE POLICIES. FOURTH
POINT, IF WE'RE GOING TO AMEND
THE STATE CONSTITUTION TO CHANGE
RESERVE POLICIES, AND HERE'S A
NEW ONE FOR YOU, WE THINK IT'S
ALSO IMPORTANT TO REVISIT THE
DEBT, PAY DOWN RULES PUT IN
PLACE BY PROPOSITION TWO.
CURRENTLY HALF OF EACH YEAR IS
REQUIRED GENERAL FUND TRANSFER
GOES TOWARD PAYING DOWN CERTAIN
STATE DEBTS. THAT'S A
REQUIREMENT THAT REMAINS IN
PLACE UNTIL 2030. INCREDIBLY,
THESE DEBT PAYMENTS CAN'T BE
SUSPENDED OR REDUCED FOR ANY
REASON, EVEN IF THE STATE FACES
A SEVERE BUDGET SHORTFALL LIKE
WE DID THIS YEAR, VOTERS COULD
BE ASKED TO AMEND THE
CONSTITUTION SO THAT THESE DEBT
PAYMENTS COULD BE PAUSED OR
REDUCED DURING TOUGH BUDGET
YEARS. THIS WOULD STRENGTHEN
BUDGET RESILIENCY AND COMPLEMENT
THE RAINY DAY FUND BY FREEING UP
RESOURCES TO CLOSE BUDGET
SHORTFALLS AND PROTECT VITAL
SERVICES. LAST POINT, WE THINK
THAT A PORTION OF THE EXCESS
CAPITAL GAINS REVENUES THAT PROP
TWO REQUIRES TO BE SET ASIDE
SHOULD BE USED TO REDUCE
CALIFORNIA'S EXTREME INEQUALITY.
THE GAP BETWEEN RICH AND POOR IN
CALIFORNIA IS WIDER THAN IN MOST
OTHER STATES, AND A MAJORITY OF
CALIFORNIANS, ACCORDING TO A
RECENT PIC POLL. THINK MORE
SHOULD BE DONE TO ADDRESS THIS
GAP. STATE LEADERS CAN START BY
REQUIRING SOME OF THESE
SO-CALLED EXCESS CAPITAL GAINS
REVENUES TO BE DIRECTED TOWARD
ONE TIME INVESTMENTS THAT WOULD
ALLOW MORE CALIFORNIANS TO SHARE
IN OUR STATE'S WEALTH. NOW,
LET'S KEEP IN MIND THAT CAPITAL
GAINS ARE AMONG THE MOST
UNEQUALLY DISTRIBUTED SOURCES OF
PERSONAL INCOME. THEY ACCRUE
DISPROPORTIONATELY TO HIGH
INCOME HOUSEHOLDS AND MORE
GENERALLY, TO WHITE HOUSEHOLDS,
A REFLECTION OF STRUCTURAL
BARRIERS THAT PRIVILEGE WHITE
FAMILIES AND BLOCK FAMILIES OF
COLOR FROM WEALTH BUILDING
OPPORTUNITIES. MEANWHILE,
DISPROPORTIONATE SHARES OF BLACK
AND LATINX CALIFORNIANS LIVE IN
POVERTY DUE TO THESE SAME
FACTORS. SO EXPLICITLY USING A
PORTION OF EXCESS CAPITAL GAINS
REVENUE TO REDUCE RACIALIZED
POVERTY AND INEQUALITY WOULD
BOLSTER EXISTING EFFORTS TO
CREATE A CALIFORNIA WHERE
EVERYONE CAN BE HEALTHY AND
THRIVE. LET ME SUM UP WE AGREE
THAT IT'S CRUCIAL TO RESPONSIBLY
MANAGE CALIFORNIA'S REVENUE UPS
AND DOWNS AND SET ASIDE
SUBSTANTIAL FUNDS FOR A RAINY
DAY. BUT WE ALSO STRONGLY
BELIEVE THAT ANY EFFORT TO
REVISE THE STATE'S RESERVE
POLICIES MUST BE BALANCED WITH
MEETING CALIFORNIANS NEEDS AND
MAKING PROGRESS TOWARD A
CALIFORNIA THAT IS TRULY FOR
ALL. THANK YOU, AND I LOOK
FORWARD TO THE CONVERSATION.
THANK YOU VERY MUCH FOR THAT
THOUGHT PROVOKING TESTIMONY. WE
WILL NOW TURN TO OUR FINAL
WITNESS, AND I WILL AGAIN
APOLOGIZE IN ADVANCE. THIS IS,
LISA MROZINSKI FROM THE
DEPARTMENT OF FINANCE. VERY
GOOD. GOOD AFTERNOON. LISA
MROZINSKI WITH THE DEPARTMENT OF
FINANCE. I DO NOT HAVE A FORMAL
PRESENTATION FOR YOU TODAY, BUT
I'M HERE TO ANSWER ANY QUESTIONS
YOU MIGHT HAVE FOR THE
ADMINISTRATION. THANK YOU.
EXCELLENT. WITH THAT, WE WILL
BRING IT BACK TO MEMBERS OF THE
COMMITTEE FOR QUESTIONS,
COMMENTS. AND I WILL DEFER FIRST
TO, MR. LACKEY, IF YOU'D LIKE TO
GO SINCE I, SINCE I CUT YOU OFF
BEFORE, IF YOU WANT TO KICK US
OFF, SIR. YEAH. IT'S JUST BACK
TO MY ORIGINAL QUESTION HERE.
I'VE GOT TOO MUCH DOCUMENTATION
HERE, NONETHELESS. I MEAN, WE
WERE TALKING ABOUT. I'M SORRY IF
YOU CAN HEAR ME NOW. HOW DID YOU
PROPOSE. AND THIS IS FOR YOU
AGAIN, HOW DO YOU PROPOSE
STRENGTHENING RESERVES WHILE
ENSURING THAT WE RETURN SURPLUS
REVENUE TO OUR TAXPAYERS? YEAH
I'LL BE HONEST THAT IT'S AN
ISSUE THAT WE'RE WORKING ON AT
THE MOMENT AS AN OFFICE AND
HAPPY TO FOLLOW UP IN THE COMING
MONTHS WITH MORE, YOU KNOW, I
THINK CLEARLY WE THINK THAT
THERE IS CERTAINLY MERIT TO THE
IDEA TO RAISING THE BSA
THRESHOLD. ABOVE 10% GIVEN, YOU
KNOW, KIND OF THE REASONS THAT I
OUTLINED EARLIER. AND IF THAT
WERE THE CASE, THEN WE THINK,
YOU KNOW, SORT OF CORRESPONDING
CHANGES WOULD POSSIBLY BE
NECESSARY EITHER, YOU KNOW,
SIMPLE CHANGES TO CHANGE THE
EXISTING RULES TO ESSENTIALLY
ALLOW THE STATE TO SAVE MORE
OVER TIME OR MORE FUNDAMENTAL
CHANGES COULD BE CONSIDERED GOOD
ENOUGH. THANK YOU. LET'S GO.
ASSEMBLY MEMBER ALVAREZ AND THEN
ASSEMBLY MEMBER WARD. THANK YOU,
THANK YOU ALL, FOR YOUR FOR YOUR
PRESENTATION. I THINK I START
OFF BY MAKING A COMMENT, JUST
GENERAL COMMENT THAT I THINK,
AND I MADE SIMILAR STATEMENTS
WHEN WE VOTED ON THE BUDGET,
THIS YEAR, WHICH IS, IT WAS A
DIFFICULT TASK AT HAND GIVEN
WHERE WE WERE CERTAINLY HAVING
THE RESERVES WAS HELPFUL, BUT
ULTIMATELY, IN A COUPLE OF YOU,
I'M REALLY PLEASED ACTUALLY
COVERED THIS IN YOUR
PRESENTATION. THE LAO AND THE
21ST CENTURY ALLIANCE. THIS IS
AN ISSUE ABOUT VOLATILITY. AND
WE CAN TALK ABOUT RESERVES ALL
DAY LONG AND CREATE RESERVE
POLICIES. BUT IF THE VOLATILITY
CONTINUES TO EXIST IN
CALIFORNIA, WHERE WE HAVE THIS,
ONE YEAR IS VERY, VERY GOOD WITH
SURPLUSES AND ANOTHER YEAR WE GO
INTO A DEFICIT, THAT DOESN'T
ALLOW US TO INVEST IN THE WAYS
THAT I THINK WE ALL WANT TO
INVEST IN OUR COMMUNITIES, WHICH
IS MORE CONSISTENT. AND I THINK
THAT'S REALLY THE MOST IMPORTANT
CRITICAL ISSUE WE SHOULD
PROBABLY ADDRESS AS WE GO
FORWARD. CERTAINLY WE SHOULD
TALK ABOUT RESERVES AND WE
SHOULD HAVE A RAINY DAY FUND.
THOSE ARE ALL GOOD, GOOD THINGS
TO DO THAT WE SHOULD DO. BUT WE
SHOULD TALK ABOUT, AS PART OF
THAT AND WHATEVER DECISION WE
ULTIMATELY MAKE, WE SHOULD BE
TALKING ABOUT, THE SPIKES IN
REVENUE AND THE DECLINE IN
REVENUE THAT HAPPEN WITH THE
CYCLES THAT, THAT OCCUR IN, IN,
IN OUR ECONOMY. AND SO I WAS
PLEASED TO HEAR ABOUT THAT. AND
I'LL ASK A FEW QUESTIONS ABOUT
THAT IN A SECOND. BUT, I HAVE
ONE, ONE QUESTION ABOUT, TO THE
LAO ON THE ISSUE OF, THE YOU
WANT US TO YOU ASKED THE
QUESTION AND OR ASKING US TO
THINK ABOUT HOW DO WE WHAT DO WE
CONSIDER ESSENTIALLY RESERVES?
AND YOU DIDN'T SAY THIS. I DON'T
THINK, BUT, FROM YEAR TO YEAR,
AS WE SOMETIMES UTILIZE RESERVES
FOR SPENDING, YOU DID TALK ABOUT
CORE SERVICES. YOU MENTIONED
THAT. AND I GUESS IN MY MIND AND
PLEASE HELP ME UNDERSTAND AND
HELP US. ARE YOU ARE YOU
REFERRING TO WE SHOULD FOCUS ON
SORT OF WHAT I WOULD CALL
BASELINE SPENDING AS OPPOSED TO
NEW SPENDING. WE SAW THAT A LOT,
CERTAINLY IN MY SUBCOMMITTEE
WITH SOME NEW PROPOSALS TO SPEND
NEW MONEY UTILIZING RESERVE
FUNDING, SOME OF THOSE DID NOT
HAPPEN. AND I THINK THAT WAS
THAT WAS A GOOD THING, I THINK
SOME MAYBE DID OVERALL IN THE
COURSE OF A NEGOTIATION DID
HAPPEN. BUT DO YOU WANT TO TALK
AT ALL ABOUT THAT PRACTICE AND
HOW MAYBE WE SHOULD BE THINKING
ABOUT THAT AS WE GO FORWARD?
YES, SURE. THANK YOU FOR THE
QUESTION. WE DO I
THAT THAT WE HAVE THIS CONCEPT
OF THE STATE SORT OF CORE
SERVICE LEVEL, RIGHT. AND
ULTIMATELY, THIS IS A PRETTY
HYPOTHETICAL CONCEPT. IT'S NOT
NECESSARILY ONE THAT'S WE CAN
EMPIRICALLY SAY THIS IS EXACTLY
WHAT THE STATE'S CORE SERVICE
LEVEL IS, BUT THE WAY THAT WE
GENERALLY THINK ABOUT IT IS THE
AMOUNT OF ONGOING SPENDING THAT
THE STATE HAS ALREADY COMMITTED
TO AND, OF COURSE, THAT ONGOING
SPENDING LEVEL CHANGES OVER TIME
AS THE LEGISLATURE ADDS NEW
COMMITMENTS TO IT, BUT WE DO
THINK THAT THAT'S A HELPFUL KIND
OF REFERENCE CASE. AND IT WAS
ONE OF THE REASONS THAT THIS
YEAR WE, SORT OF CONSISTENTLY OR
ENCOURAGED THE LEGISLATURE TO
PULL BACK ON ONE TIME SPENDING
BEFORE USING RESERVES SO THAT
RESERVES WERE AVAILABLE TO COVER
ESSENTIALLY, THAT ONGOING
COMMITMENT TO CALIFORNIANS.
YEAH. AND I ENCOURAGE YOU, TO
CONTINUE TO DO THAT NEXT, YOU
KNOW, IN THE FUTURE TO REMIND US
WHEN WE ARE IN A POSITION OF
SPENDING, ONE TIME VERSUS
UTILIZATION OF RESERVES TO SPEND
FOR ONGOING PURPOSES, I THINK
THAT'S IMPORTANT FOR US TO
ALWAYS BE AWARE OF, TO THE, MR.
BRENNAN, FROM THE 21ST CENTURY
ALLIANCE. YOU FOCUSED. AND
AGAIN, I APPRECIATE THAT A LOT
OF YOUR COMMENTS ON THE
VOLATILITY OF REVENUE FOR THE
STATE. PRIMARILY AROUND CAPITAL
GAINS, WHICH IS A DRIVING
FACTOR. BUT I THINK EVEN MR.
SISNEY, I BELIEVE, MENTIONED
IT'S NOT JUST THAT IT'S NOW
CORPORATE TAX. IT'S A NUMBER OF
DIFFERENT REVENUE SOURCES THAT
ARE NOW VOLATILE. DO YOU WANT TO
SHARE MORE ABOUT ABOUT THAT AND
YOUR ASSESSMENT OF THAT. YEAH
THANK YOU FOR THE QUESTION. NO
WE HIGHLIGHTED CAPITAL GAINS
BECAUSE THAT'S BEEN SORT OF THE
WHERE THE ACTION IS, SO TO
SPEAK, OVER THE LAST DECADE OR
SO, WE TEND TO AGREE ACTUALLY,
THOUGH, WITH THE IDEA THAT WE
NEED TO LOOK, IF WE'RE GOING TO
MAKE THIS CHANGE, WE NEED TO
LOOK AT VOLATILITY MORE BROADLY.
I MEAN, IF WE WERE TO DO THE
QUICK AND EASY WAY ON THIS, IT
WOULD BE TO KEEP THE STRUCTURE
LARGELY THE SAME AND KIND OF
TINKER WITH THE PARAMETERS. BUT
A NUMBER OF OTHER STATES LOOK AT
VOLATILITY IN A MORE FULSOME
WAY. AND I THINK GIVEN THAT WE
WANT TO MAKE REFORM THAT, IS
RESILIENT THROUGH A VARIETY OF
DIFFERENT ECONOMIC CONTEXTS, I
THINK IT PROBABLY WOULD BEHOOVE
US AS A STATE TO DEVELOP A
MEASURE OF VOLATILITY, A TRIGGER
OF VOLATILITY THAT IS BROADER
THAN CAPITAL GAINS AND INCLUDES
SOME OF THE, SOME OF THE OTHER
FACTORS THAT MISS HOLLINGSWORTH
MENTIONED. TELL ME MORE ABOUT
WHAT THE OTHERS, BECAUSE YOU YOU
MENTIONED THE OTHER STATES, I
BELIEVE IT WAS IN YOUR
PRESENTATION AND THE VOLATILITY,
RANKINGS. IF YOU WILL, IF JUST
BRIEFLY, WHAT ARE SOME OF THE
MAIN DIFFERENCES IN THOSE
VOLATILITY, ASSESSMENT THAT WE
HAVE VERSUS OTHER STATES THAT
JUST TO HELP US THINK ABOUT
THINGS, WE SHOULD BE MAYBE
CONSIDERING AS WE GO FORWARD. SO
JUST OFF THE TOP OF MY HEAD,
THERE ARE A FEW OTHER MODELS
THAT I'VE BEEN TAKING A LIKING
TO, I GUESS. SO, NORTH CAROLINA
FOR INSTANCE, AT ALL, EVERY THE
INCREASE IN IN REVENUES YEAR
OVER YEAR, EVERY INCREASE, 15%
OF THAT AUTOMATICALLY IS
DEPOSITED INTO THEIR RESERVE
FUND. SO THAT'S JUST 15%.
EVERYTHING IN EXCESS OF THE YEAR
BEFORE A COUPLE OF OTHER STATES
USE, SORT OF WHEN THE GROWTH IN
REVENUES EXCEEDS SOME THRESHOLD
OVERALL. SO, NEBRASKA, WHEN THE
COMPOUND ANNUAL GROWTH RATE,
WHEN, WHEN, BUDGET REVENUES
EXCEED I THINK THE AVERAGE OF
THE LAST 12 YEARS COMPOUND
ANNUAL GROWTH RATE, THEN THAT
EXCESS SOME PERCENTAGE OF IT IS
THEN PUT AWAY. SO THIS IS A
BROADER MEASURE OF VOLATILITY
THAT DOESN'T FOCUS ON THE SOURCE
OF THE VOLATILITY. BUT SIMPLY
WHAT'S COMING INTO THE TREASURY.
THAT'S INTERESTING I THINK THAT
MAKES A LOT OF SENSE FOR ALL OF
US IN OUR, HOUSEHOLD BUDGETS.
WHEN YOU HAVE EXCESS FUNDS, YOU
CAN YOU SAVE SOME OF IT, YOU CAN
SPEND SOME OF IT, I DEFINITELY
INTERESTED IN MORE OF THE
FINDINGS FROM OTHER STATES AND
HOW THEY APPROACH THAT, I
ASSUME, THOUGH, YOU ALSO NOT
JUST IN YOUR ASSESSMENT OF ALL
VOLATILITY, IT ALSO HAS TO DO
WITH THE SOURCE OF THE
VOLATILITY THAT ARE THERE
ASSESSMENTS OF THAT OR. WELL IT
COULD I MEAN I THINK I DON'T
KNOW ALL THE CONTEXT FOR THE
FOCUS ON CAPITAL GAINS OTHER
THAN TO SAY THAT WE'RE
PARTICULARLY SUBJECT TO CAPITAL
GAINS. BUT BUT AS MR. SISNEY
SAID, PAST IS NOT NECESSARILY
PROLOG. AND AS WE THINK ABOUT
GOING FORWARD, THERE COULD BE
SHIFTS THAT WE CAN'T FORESEE, SO
I'M NOT SURE THAT THE SOURCE OF
THE VOLATILITY IS AS IMPORTANT
AS THE FACT OF THE VOLATILITY.
AGAIN, CAPITAL GAINS IS PROBABLY
GOING TO CONTINUE TO BE THE
LARGEST SINGLE SOURCE OF
VOLATILITY IN CALIFORNIA. BUT
BUT IT NEEDN'T NECESSARILY
ALWAYS BE THUS. AND IF WE'RE
GOING TO MAKE A CHANGE AT THE AT
THE BALLOT BOX, YOU KNOW, WE
WANT TO MAKE IT MAKE IT COUNT.
THAT WOULD BE MY VIEW. OKAY.
APPRECIATE THAT. THANK YOU. I'LL
LEAVE IT AT THAT. I'M SURE
COLLEAGUES WILL HAVE QUESTIONS
FOR THE OTHER, PANELISTS. I
WOULD JUST END AGAIN WITH A
COMMENT WHERE I STARTED. I THINK
AS WE LOOK AT THIS, I'M I'M ALL
FOR AND HAVE BEEN IN FACT, I WAS
SHARING WITH, WITH MY COLLEAGUE
HERE FROM SAN DIEGO, THE FIRST
QUESTION THAT I ASKED ABOUT THE
WHETHER THAT, BUDGET DEFICIT
STABILIZATION ACCOUNT STILL
EXISTED AND IT DOES, CERTAINLY
IN OUR SUBCOMMITTEE WE TALKED
ABOUT HOW DO WE CREATE,
STABILIZATION FOR HIGHER
EDUCATION, WHICH, YOU KNOW, OUR
UNIVERSITY OR PUBLIC UNIVERSITY
SYSTEM HAS TO DEAL WITH THIS
BACK AND FORTH. AND SO WE SHOULD
THINK ABOUT MAYBE, ALTHOUGH
STATUTORY FOCUSING ON THE CORE
SERVICES TO THE LÀ POINT, WE
HAVE A SAFETY NET RESERVE
PERHAPS WE SHOULD CONSIDER
HIGHER EDUCATION ONE OF THE CORE
SERVICES AND STATUTORILY, AT
LEAST THROUGH THAT ACCOUNT, MAY
BE FURTHER DEFINED, AND SO I'M
ALL FOR RESERVES AND TALKING
ABOUT MORE RESERVES, BUT I THINK
WE NEED TO GET TO THE CORE
ISSUE, WHICH IS THE VOLATILITY.
CERTAINLY BASED ON GROWTH, BUT
ALSO ON WHAT I BELIEVE IS,
REALLY HINDERS OUR ABILITY TO
LONG TERM PLAN, WHICH IS THE
REVENUE FOR OUR STATE. SO THANK
YOU. MR. CHAIR, THANK YOU VERY
MUCH. ASSEMBLY MEMBER. EXCELLENT
QUESTIONS. AND WE WILL NOW GO
SLIGHTLY NORTH IN SAN DIEGO TO
YOUR COLLEAGUE, MR. WARD, JUST
SLIGHTLY NEXT DOOR, THANK YOU,
EVERYBODY, FOR THE PRESENTATION
AS WELL, AND PARTICULARLY FOR
SOME OF THE VERY SPECIFIC
RECOMMENDATIONS THAT YOU'RE
OFFERING HERE TODAY. IT'S,
PROBABLY JUST THE BEGINNING OF,
HOPEFULLY FUTURE DISCUSSIONS AS
WELL THAT WE CAN ACT UPON FOR,
ANYTHING THAT WE CAN DO IN OUR
PURVIEW AND, OF COURSE,
ENGAGEMENT WITH THE VOTERS AND
MY LINE OF QUESTIONS ACTUALLY
JUST REALLY, RELATE TO WHAT MY
COLLEAGUE FROM SAN DIEGO WAS
TALKING ABOUT AS WELL. AND I WAS
CURIOUS ABOUT, I ACTUALLY ALMOST
90% OF IT WAS REALLY ANSWERED
THROUGH THIS. SO THANK YOU FOR
THAT, BUT BUT DIGGING IN A
LITTLE BIT MORE, KNOWING
CALIFORNIA'S SORT OF CORE
STRUCTURE, OUR BIG THREE ON
PERSONAL INCOME, ON SALES AND ON
CORPORATE TAX RATES AND THE
VOLATILITY WITHIN THOSE. ARE
THERE OTHER, WITH OTHER STATES?
DO THEY HAVE A DIFFERENT SORT OF
MIX OF, OF THEIR MAJOR SOURCES
OF REVENUES THAT ARE LENDING
THEM TO MORE NATURAL,
PROTECTIONS AGAINST VOLATILITY,
OR ARE YOU SEEING OTHER, OTHER
MODELS WHERE OTHER STATES ARE
LOOKING AT OTHER SOURCES OF
REVENUE IN A WAY THAT JUST
NATURALLY PROVIDE FOR, FOR
SMOOTHER VARIATION OVER YEAR
OVER YEAR? I WILL SAY THAT THAT,
STATES THAT ARE BASED THAT HAVE
THE, THEIR STRUCTURES BASED MORE
ON SALES TAXES, SALES TAXES ARE
IN THE ECONOMIC LITERATURE,
REGRESSIVE REVENUE SOURCE. THEY,
THEY IMPACT LOWER INCOME
FAMILIES MORE. THEY ALSO TEND TO
BE MORE STABLE REVENUES FOR
STATES AND LOCAL GOVERNMENTS.
AND SO GOVERNMENTS THAT ARE
BASED MORE ON THE SALES TAX,
THEY THEY DO HAVE CHALLENGES
WITH FISCAL MANAGEMENT, BUT NOT
AS GREAT AS STATES WITH
PROGRESSIVE INCOME TAX
STRUCTURES THAT HAVE CAPITAL
GAINS AS A BIG ELEMENT.
CALIFORNIA, ILLINOIS, NEW JERSEY,
MASSACHUSETTS THESE ARE AMONG
THE STATES THAT HAVE THE MORE
VOLATILE REVENUE STRUCTURES. AND
THEN THERE ARE THE STATES, AS
WAS MENTIONED, THAT ARE RESOURCE
DEPENDENT REVENUE STATES LIKE
ALASKA AND WYOMING. THEY ARE THE
MOST VOLATILE OF ALL, IN SOME
CASES MUCH MORE VOLATILE THAN
THAN CALIFORNIA. SO, AMONG THE
STATES THAT HAVE A BIG CAPITAL
GAINS PERSONAL INCOME TAX
COMPONENT, I THINK IT'S FAIR TO
SAY CALIFORNIA NOW LEADS THE WAY
AMONG THOSE STATES. AND IN
HAVING PROP TWO AND THEN OTHER
STATES, THAT THAT DON'T HAVE AS
VOLATILE STRUCTURES ALSO HAVE
THE TYPES OF RAINY DAY
STRUCTURES THAT, THAT, THAT WERE
MENTIONED. GREAT. WELL, THANK
YOU ALL. ALL RIGHT, WE'RE GOING
TO DO, VENTURA. AND THEN I SEE
ORANGE COUNTY WANTS TO GET INTO
THE MIX AND WE'LL WORK OUR WAY
NORTH UP HERE TO TORRANCE. BUT
ASSEMBLY MEMBER BENNETT, THANK
YOU VERY MUCH. VERY HELPFUL
INFORMATION HERE. A COUPLE OF
QUICK QUESTIONS JUST TO OUR
COMMITTEE STAFF, THE INVESTMENT
OF THE $100 BILLION THAT'S ALL
DONE IN COORDINATED AND I ASSUME
WE'RE TRYING TO MAXIMIZE REVENUE
AT THE SAME TIME THAT WE'RE
MAXIMIZING SECURITY OF THOSE
FUNDS. SEE ANY OPTIONS THERE
THAT SO THE FUNDS OF THE STATE
TREASURY ARE MANAGED BY, OUT OF
THE TREASURER'S OFFICE THROUGH
THE POOLED MONEY INVESTMENT
BOARD THAT CONSISTS OF, OF THREE
EXECUTIVE BRANCH OFFICIALS AND
THE TOTAL, IN THAT TREASURY IS
MORE THAN $200 BILLION. THE
AMOUNT THAT IS CALLED A
BORROWABLE, THAT IS THAT IS
FAIRLY LIQUID ON A DAY TO DAY
BASIS, IS MORE THAN 100 BILLION.
AND THOSE ARE GENERALLY INVESTED
IN US TREASURIES AND SECURITIES.
SO AND EQUIVALENTS, CASH
EQUIVALENTS. SO FOR MOST OF THE
LAST DECADE THEY HAVE EARNED
ALMOST NO RETURN BECAUSE
INTEREST RATES HAVE BEEN LOW.
THEY NOW ARE EARNING EFFECTIVELY
A TREASURY YIELD OF AROUND 4%,
SO THEY'RE MANAGED FOR SAFETY.
THEY'RE MANAGED FOR LIQUIDITY,
AND THEY'RE VERY GOOD REASONS
FOR THAT. THANK YOU. THE STATE
HAS NEVER HAD AS MUCH AS THEY DO
TODAY. ALL RIGHT. THANK YOU VERY
MUCH, AND IF I COULD GO TO THE
LÀ OFFICE, IT JUST LIKE A LITTLE
MORE EXPLANATION OF YOUR
SENTENCE THAT SAYS WE ADVISE
ASSESSING CHANGES THAT COULD
ALLOW THE STATE TO BUILD
RESERVES IN DISPARATE TYPES AND
LENGTHS OF ECONOMIC EXPANSIONS.
COULD YOU CLARIFY THAT A LITTLE
BIT MORE? YEAH. OF COURSE, SO
THE IDEA HERE IS THAT, YOU KNOW,
IT TOOK ABOUT EIGHT YEARS OR SO,
RIGHT? FROM 2014 TO 2020 FOR THE
STATE TO BUILD TO THE QUOTE
UNQUOTE, MAXIMUM LEVEL OF THE
BSA TO 10% OF GENERAL FUND TAXES
IN THAT TIME. BUT THAT WAS ALSO
THE LONGEST ECONOMIC EXPANSION
IN RECORDED HISTORY. RIGHT. SO
IF THE GOAL OF THE STATE IS TO
GET TO 10% AND PERHAPS A SHORTER
AMOUNT OF TIME, THEN DIFFERENT
RULES WOULD BE NEEDED. THANK
YOU. AND THIS IS JUST AN OVERALL
COMMENT, BUT HOPEFULLY, A
SUGGESTION AND I'D LOVE TO HAVE
ANY FEEDBACK AFTER THIS HEARING.
NOT NECESSARILY RIGHT NOW, BUT,
YOU KNOW, MOVING AVERAGES. YOU
SEE THE MOVING AVERAGES ISSUE
AND A NUMBER OF THE OTHER STATES
AND THE DATA THAT YOU'VE
PRESENTED TO US MAKE SOME SENSE.
YOU KNOW, FROM MY PERSPECTIVE,
LOOKING AT, YOU KNOW, FIVE YEAR
MOVING AVERAGES, ETC, BUT, THE
IDEA OF TRYING TO STABILIZE OUR
REVENUE SOURCES ALWAYS RUNS INTO
THE PROBLEM OF REGRESSIVE TAX
QUESTIONS, BUT IT SEEMS TO ME
THAT THE BENEFITS OF STABILIZING
OUR REVENUE SOURCES ARE
SIGNIFICANT, AND WE COULD, IN
CALIFORNIA, ADOPT A POLICY THAT
TAKES THE STABILITY THAT COMES
FROM, FOR EXAMPLE, A CHANGE IN
STATE SALES TAX AND USE SOME OF
THAT STABILITY IN REVENUE TO
MAKE SURE THAT WE OFFSET THE
ECONOMIC IMPACT TO LOW INCOME
PEOPLE, BECAUSE THAT'S WHO WE'RE
REALLY CONCERNED WITH ON THE
REGRESSIVE SIDE. GIVE A FUNDING
SOURCE TO THOSE LOW INCOME
PEOPLE, BUT THEN BE ABLE TO
MAXIMIZE THE STABILITY, THE
BENEFITS OF THE STABILITY AND
THE REVENUE WE GET FROM HIGH
INCOME PEOPLE BUYING CARS AND
OTHER THINGS. BECAUSE VALUE
ADDED TAXES IN EUROPE, WHICH IS
NOT IN GENERAL, EUROPEAN
COUNTRIES, ARE NOT CONSIDERED
COUNTRIES THAT ARE REGRESSIVE IN
TERMS OF WHAT THEY'RE DOING.
VALUE ADDED TAXES HAVE
TREMENDOUS BENEFITS IN TERMS OF
HAVING PEOPLE PAY THE PROPER
COST OF PROVIDING OR
DISINCENTIVIZING CONSUMPTION,
THAT, THAT THAT IS HIGHER THAN
THE COST OF PROVIDING THE
SERVICE AND REVENUE AS WE GO
FORWARD. SO I'D LIKE TO THROW
THAT OUT THERE. IT SEEMS LIKE
THERE ARE MANY PEOPLE IN THE
LEGISLATURE THAT WOULD LIKE TO
TRY TO FIND A WAY TO GET OUT OF
THIS VOLATILITY OF REVENUE, AND
BUT WE WON'T DO IT UNLESS WE'RE
CREATIVE ABOUT DEALING WITH
REGRESSIVE TAXES AND SOME KIND
OF SUBSIDY. THANK YOU. MR.
GRAVES, DID YOU WANT TO COMMENT
ON THAT OR MR. BRENNAN? NO. OKAY
OKAY. ALL RIGHT, THEN WE WILL
MOVE OVER HERE TO ASSEMBLYMEMBER
VALENCIA. WONDERFUL. THANK YOU,
MR. CHAIR. AND, MR. BRENNAN, I
JUST WANT TO START OFF BY
THANKING YOU FOR THE SHOUT OUT
TO ORANGE COUNTY. WE DO PROVIDE
A SUBSTANTIAL AMOUNT OF REVENUE
TO THE STATE AS LONG ALONGSIDE
LÀ AND, OF COURSE, SAN FRANCISCO
AND THE REST OF OUR COUNTIES
ACROSS THE STATE OF CALIFORNIA.
SO THANK YOU FOR THAT. AND I
ALSO WANT TO HIGHLIGHT WHAT OUR
CHAIR MENTIONED ABOUT THIS,
HAVING TO BE A METHODICAL AND
STRATEGIC PROCESS AND TAKING THE
TIME NECESSARY TO ENSURE THAT
WHATEVER WE INSTILL
CONSTITUTIONALLY AND,
STATUTORILY IS WHAT'S BEST FOR
CALIFORNIANS. SO AND AS CHAIRS
BUDGET SUBCOMMITTEE SEVEN ON
ACCOUNTABILITY AND OVERSIGHT, I
FEEL A DEEP RESPONSIBILITY TO
MAKE STRIDES IN SAFEGUARDING
CALIFORNIA'S FISCAL STABILITY. I
AM GRATEFUL FOR THE LEADERSHIP
FROM OUR GOVERNOR, SPEAKER RIVAS
PRO TEM MCGUIRE. AND OF COURSE,
OUR CHAIR, MR. GABRIEL, AND THE
ENTIRE BUDGET STAFF FOR WORKING
TO ENSURE OUR STATE HAS A
BALANCED BUDGET. THIS YEAR, OUR
STATE FACED A GRIM REALITY. WE
WERE TASKED WITH CLOSING A
DEFICIT OF ALMOST $50 BILLION,
AND TO SEE THE FIFTH LARGEST
ECONOMY IN THE WORLD COME TO A
NEARLY $50 BILLION SHORTFALL IN
SPENDING CUTS AND RESORT TO TAX
INCREASES ON OUR BUSINESSES,
SHOULD PUSH US TO RETHINK OUR
APPROACH TO THESE ISSUES.
CURRENTLY, OUR STATE RELIES
SIGNIFICANTLY ON OUR PROGRESSIVE
TAX SYSTEM AND RAINY DAY FUND TO
NAVIGATE OUR UNPREDICTABLE
REVENUE STREAMS AND SPENDING
HABITS. HAVING THESE SYSTEMS IS
CRITICAL, BUT THEY ARE OUTDATED
AND MUST BE IMPROVED TO BETTER
ACCOUNT FOR TODAY'S FINANCIAL
REALITIES. AND RECENTLY, I
ANNOUNCED THAT I WOULD BE
INTRODUCING AN ASSEMBLY
CONSTITUTIONAL AMENDMENT TO
ADDRESS CALIFORNIA'S FISCAL
STABILITY BY REVISING THE RAINY
DAY FUND AND THE GANN LIMIT. AND
I INTEND ON INTRODUCING THAT
PIECE OF LEGISLATION FOLLOWING
THE END OF THIS SESSION AND
STARTING AT THE NEXT SESSION, SO
THAT WE COULD HAVE A TWO YEAR
WINDOW TO HOPEFULLY GET
SOMETHING THAT'S CONCRETE AND
STRATEGIC. I BELIEVE THAT WITH
PRUDENT BUDGET MANAGEMENT AND
THE MODIFICATION TO THE GANN
LIMIT AND RAINY DAY FUND, WE CAN
BETTER PREPARE THE STATE AND OUR
GREAT PEOPLE FOR FUTURE ECONOMIC
CHALLENGES AND A MORE PROSPEROUS
CALIFORNIA. THANK YOU. THANK YOU
VERY MUCH. ASSEMBLY MEMBER.
ASSEMBLY MEMBER. QUIRK-SILVA
THANK YOU FOR THE PRESENTATION
BY EVERYBODY. I'M LOOKING AT THE
SLIDE FROM BRIAN BRENNAN'S
SLIDES. NUMBER NINE, TALKING
ABOUT VOLATILITY, BUT NOW
FOCUSING ON MIGRATION. AND, AS
WE CAN SEE WITH YOUR SLIDE, OF
COURSE, WE SEE THAT, MIGRATION,
HAS BECOME AN ISSUE. THAT'S A
SERIOUS ISSUE. BUT WHEN WE LOOK
AT THAT AND ADD THAT TO THE AGE
OF CALIFORNIANS, I JUST READ AN
ARTICLE RECENTLY THAT SAYS WE
ARE, OF COURSE, GROWING OUR
SENIOR BASE. AND, BECAUSE LOW
BIRTH RATES AND OTHER FACTORS,
AFFORDABILITY IN CALIFORNIA THAT
WE A DECADE OUT FROM NOW MAY NOT
HAVE, THE YOUNGER GENERATION
HERE READY TO WORK AND DO THE
TYPES OF THINGS THAT WE'RE
LOOKING AT, AND IF YOU COMBINE
THAT WITH THE CORPORATIONS THAT
WE CONTINUE TO SEE, SADLY,
ALMOST WEEKLY, LEAVING
CALIFORNIA AND OUR HIGH WAGE
EARNERS A DECADE OUT FROM NOW,
WHETHER IT'S, THROUGH ANY OF THE
PRESENTERS HERE, ARE WE STARTING
TO PLAN FOR THIS, IN A SERIOUS
WAY, FOCUSING ON THIS MIGRATION
ISSUE. BUT I'LL LET YOU START
OFF. BUT ANYBODY ELSE WHO WANTS
TO CHIME IN AFTER, I MEAN, I
HOPE I THINK THAT'S WHAT WE'RE
DOING HERE. AS A MATTER OF FACT.
I MEAN, I APPLAUD YOU ALL FOR
ASKING THIS QUESTION BECAUSE I
THINK THE DEMOGRAPHICS OF THE
STATE ARE AMONG THESE
VULNERABILITIES THAT WE'RE
FACING THAT HAVE TO BE FACTORED
IN. SO I THINK THE BUDGET
RESERVE IS A GREAT PLACE TO
START ON THIS. I THINK I WOULD
OH, SORRY. GO AHEAD. OKAY. I WAS
JUST GOING TO ADD THAT, WE DID
SEE AN INCREASE ON NET IN HIGHER
INCOME CALIFORNIANS. LEAVING THE
STATE DURING THE PANDEMIC. BUT
SOME RECENT RESEARCH FROM THE
PUBLIC POLICY INSTITUTE OF
CALIFORNIA LOOKING AT 2022
CENSUS DATA, GIVES SOME INKLING
OF HOPE THAT THAT TREND IS
BEGINNING TO REVERSE. PERHAPS. I
MEAN, A TREND IS NEVER MADE BY
ONE DATA POINT OR TWO DATA
POINTS, BUT I THINK IT'S
IMPORTANT TO KEEP IN MIND THE
BIGGER PICTURE HERE, THAT MORE
RECENT DATA SHOWING ON NET THAT
HIGHER INCOME CALIFORNIANS, YOU
KNOW, ARE MORE LIKELY TO REMAIN
IN THE STATE RELATIVE TO OTHER
CALIFORNIANS WHO MAY BE LEAVING.
AND THERE ARE A LOT OF DIFFERENT
REASONS FOR THAT. AND WE ALSO
THINK IT'S IMPORTANT TO KEEP IN
MIND THAT ACADEMIC RESEARCH
SHOWS THAT THERE IS VERY LITTLE
TIE, TO CALIFORNIA'S TAX POLICY
IN TERMS OF BEING A REASON WHY
HIGH INCOME CALIFORNIANS WOULD
CHOOSE TO LEAVE THE STATE. SO
THERE'S NO ACADEMIC EVIDENCE
REALLY SUPPORTING THAT OVERALL.
ONE THING I WANTED TO MENTION IS
THAT THE PROPOSITION 30 TAX
INCREASES ON THE HIGHEST INCOME
INDIVIDUALS IN CALIFORNIA, THEY
EXPIRE IN 2030. SO THE
LEGISLATURE AND THE GOVERNOR ARE
LIKELY TO FACE A CHOICE IN THE
2026 OR 2028 ELECTION CYCLE,
WHETHER TO PUT A CONSTITUTIONAL
AMENDMENT OR A OR A MEASURE ON
THE BALLOT TO EXTEND THOSE
TAXES, OR TO CHANGE THOSE TAXES.
AND THAT'S SOMETHING THAT THE
LEGISLATURE COULD DO IN
COORDINATION WITH A RESERVE
MEASURE AS WELL. AND THINKING
ABOUT ALL THESE ISSUES, SORRY,
JUST ONE MORE ADDITION ON THIS
POINT, FROM A REVENUE
PERSPECTIVE, OUR OFFICE DOES
REGULARLY OR SOMEWHAT REGULARLY
LOOK AT, YOU KNOW, THE EFFECTS
OF MIGRATION ON REVENUE. WE
FOUND IN THE LAST COUPLE OF
YEARS THAT THE EFFECT WAS ABOUT
1% OF REVENUE REDUCTION. AND
THEN I THINK THAT TICKED UP A
LITTLE BIT IN OUR MOST RECENT
ESTIMATES. SO A QUESTION IS, YOU
KNOW, IS THAT TREND GOING TO
CONTINUE OR IS THAT BASICALLY A
STABLE NUMBER? THANK YOU. THANK
YOU VERY MUCH. ASSEMBLY MEMBER I
WILL NOW GO TO ASSEMBLY MEMBER
MURATSUCHI. THANK YOU. I ALL OF
THIS TALK ABOUT VOLATILITY
ALWAYS REMINDS ME OF WHEN I WAS
ON THE TORRANCE SCHOOL BOARD AND
DURING THE GREAT RECESSION, AND
WE WERE ON THE FRONT LINES OF
HAVING TO DEAL WITH ALL THE
STATE BUDGET CUTS. WE WERE THE
ONES THAT HAD TO VOTE ON LAYING
OFF TEACHERS AND INCREASING
CLASS SIZES AND HAVING TEACHERS
COMPLAINING TO SCHOOL BOARD
MEMBERS. I ALWAYS THOUGHT THAT,
YOU KNOW, THE LEGISLATURE WAS
WAS, YOU KNOW, ALWAYS BENEFITED
FROM HAVING ALMOST LIKE A BUFFER
BETWEEN THE, THE ANGRY PARENTS
AND, AND THE, THE BUDGET CUTS
THAT THE STATE WAS MAKING THAT
THE SCHOOL BOARDS HAD TO
IMPLEMENT. BUT THAT'S A WHOLE
NOTHER CONVERSATION, BUT, YOU
KNOW, YOU'RE TALKING ABOUT THE
VOLATILITY. YOU KNOW, I REMEMBER
BACK THEN THINKING THAT I WANTED
TO COME UP HERE TO TRY TO
ADDRESS THE VOLATILITY. AND I
REMEMBER BACK THEN, YOU KNOW,
GOING TO THE CONVERSATION ABOUT
WHAT OTHER STATES ARE DOING AND
WHAT ALTERNATIVES MIGHT BE
DOING. IT WAS MY UNDERSTANDING
THAT OTHER STATES HAD A HIGHER
PERCENTAGE OF THEIR REVENUES
COMING FROM PROPERTY TAXES. AND
SO WHICH WHICH IS A MORE STABLE
SOURCE OF REVENUES. BUT OF
COURSE, YOU KNOW, THAT THAT
RAISES, YOU KNOW, SOME OF OUR
COLLEAGUES FAVORITE TOPIC OF
PROPOSITION 13, YOU KNOW, TRYING
TO ADDRESS THAT. AND THEN SO
THEN, I REMEMBER SENATOR
HERTZBERG, A COUPLE OF YEARS
AGO, HE TRIED TO INTRODUCE THE
TAX REFORM IN TERMS OF, YOU
KNOW, EXTENDING TAXES TO, TO, TO
PROFESSIONAL SERVICES, AND, AND,
YOU KNOW, I THINK SIMILARLY, WE,
WE REALIZE THAT THAT WAS GOING
TO BE VERY POLITICALLY
CHALLENGING, YOU KNOW, TO, TO
START TALKING ABOUT, TAXING, YOU
KNOW, ACCOUNTANTS OR, YOU KNOW,
LAWYERS, YOU KNOW, WHO MAY PASS
ON THE COSTS TO, TO CONSUMERS.
AND SO IT SEEMS LIKE WE'RE LEFT
WITH THIS MOST POLITICALLY
PALATABLE WAY OF TRYING TO
STABILIZE OUR, OUR, OUR
REVENUES, WHICH IS TO FOCUS ON
THE RESERVES. YOU KNOW, I WANTED
TO NEXT TIME I SEE SPEAKER
PEREZ, I WANT TO THANK HIM, THAT
THE BEST THING HE PROBABLY EVER
DID WAS WAS TO GET PROPOSITION
TWO ENACTED IN TERMS OF HIS
ONGOING LEGACY FOR THE STATE OF
CALIFORNIA, BUT, YOU KNOW, THE
CONVERSATION ABOUT THE GANN
LIMIT, AND I DON'T KNOW IF MR.
VALENCIA IS THINKING ABOUT THIS,
AND HIS PLANS FOR INTRODUCING A
BILL, BUT I'M JUST READING THE
STAFF ANALYSIS THAT THE GANN
LIMIT WAS INTENDED TO CAP STATE
EXPENDITURES, BUT IT TREATS
RESERVES AS EXPENDITURES. AND SO
I WOULD THINK THAT THERE WOULD
BE BIPARTISAN AGREEMENT THAT WE
DON'T WANT WE WANT TO
INCENTIVIZE RESERVES. WE DON'T
WANT TO WE DON'T WANT TO
DISINCENTIVIZE RESERVES. AND SO
IS THERE ANY GOOD ARGUMENT WHY
WE SHOULD NOT CHANGE, PROPOSED
CHANGING THAT PROVISION TO TREAT
ALL RESERVES AS EXPENDITURES?
WELL, I THINK THAT ONE OF THE
CHALLENGES THAT GOES TO SOME OF
ASSEMBLYMEMBER LACKEY'S EARLIER
QUESTIONS IS THAT WHAT THE GANN
LIMIT DOES IS SET AN
APPROPRIATION LIMIT FOR STATE
AND LOCAL GOVERNMENTS. AND IF
THE STATE GOES OVER THAT, THERE
ARE A FEW OPTIONS FOR THE STATE
INFRASTRUCTURE SPENDING, BUT
ALSO TAX REBATES, RETURNING, TAX
MONIES TO THE PEOPLE. AND SO, IN
A SENSE, THIS ISSUE OF AMENDING
THE GANN LIMIT COMES DOWN TO
SOME DISCUSSION OF HOW MUCH YOU
WANT TO BUILD RESERVES VERSUS
HOW MUCH YOU WANT TO HAVE THIS
MECHANISM THAT THAT, AMONG OTHER
THINGS, SENDS, TAX REBATES BACK
TO, TO THE PEOPLE. AND THAT THAT
IS ONE OF THE, THE TRADE OFFS IN
THIS DISCUSSION, I THINK. OKAY.
YEAH. YEAH. NO I CAN APPRECIATE
THAT AS, AS MR. LACKEY IS
LOOKING AT ME, YOU KNOW, I MEAN,
I KNOW WE ALL, TALKED ABOUT THE
MIDDLE CLASS TAX REFUND, WHEN
WE'RE GOING BACK TO TALK TO OUR
CONSTITUENTS, BUT, AT THE SAME
TIME, I WOULD THINK THERE WOULD
BE BIPARTISAN AGREEMENT THAT,
YOU KNOW, WE WOULD WE WOULD WANT
TO HAVE, STABILITY. YOU KNOW,
FOR SCHOOL FUNDING, THAT, THAT
WE DON'T WANT TO BE, YOU KNOW,
THESE BOOM AND BUST CYCLES WHERE
WE'RE GIVING PINK, PINK LAYOFFS
OF NOTICE FOR OUR TEACHERS, AND
SO I WOULD HOPE THAT THERE WOULD
BE, PROGRESS MADE IN TERMS OF
ADDRESSING THIS GANN LIMIT, YOU
KNOW, BECAUSE I THINK
ABSOLUTELY, WE I BELIEVE THAT
THE BEST WAY TO, TO TRY TO
ADDRESS THE VOLATILITY ISSUE,
YOU KNOW, POLITICALLY SPEAKING,
IS TO FOCUS ON STRENGTHENING OR
INCENTIVIZING RESERVES. AND THAT
WE SHOULD NOT BE,
DISINCENTIVIZING BY TREATING
RESERVES AS EXPENDITURES. I ALSO,
NOTICED ALONG WITH, MISS
QUIRK-SILVA, THE, YOU KNOW, THE
CHART ABOUT THE MIGRATION AND IT
WOULD SEEM TO ME THAT, YOU KNOW,
AS OUR ECONOMY, AS MORE AND MORE
PEOPLE, WORK, VIRTUALLY THAT,
YOU KNOW, THIS IS A CONCERN THAT
WE ALWAYS NEED TO KEEP IN MIND.
YOU KNOW, WHILE I, I APPRECIATE
THE, THE, THE BUDGET AND POLICY
CENTER'S FOCUS ON, ON, ON, YOU
KNOW, MAKING SURE THAT WE'RE
PROVIDING FOR THE MOST
VULNERABLE CALIFORNIANS, YOU
KNOW, AND, YOU KNOW, WE OFTEN
ENTERTAIN IDEAS ABOUT, YOU KNOW,
LIKE A WEALTH TAX. YOU KNOW,
BUT, WE ALWAYS HAVE TO KEEP THIS
CHART IN MIND IN TERMS OF WHEN,
WHEN WE'RE TALKING ABOUT THE
WEALTH TAX, I, I, I DON'T KNOW
IF, IF, LIKE, LIKE, IS THERE
ANY, ANY, THERE SEEMS, IS THERE
ANY DATA THAT, THAT CAN BE CITED
HERE IN TERMS OF WHETHER A
WEALTH TAX WOULD BE MORE OR LESS
LIKELY TO CONTRIBUTE TO THIS
TREND OF THE OUTMIGRATION OF
WEALTHY CALIFORNIANS? I MEAN, WE
DON'T KNOW WHAT WHAT WE CAN SAY
IS IN IN EUROPE IN THE 90S,
THERE WERE 12 COUNTRIES THAT HAD
WEALTH TAXES OF SOME SORT. TODAY
THERE ARE THERE ARE FIVE, AND
THEY'VE PROVEN DIFFICULT FOR A
COUPLE OF REASONS. ONE IS
THEY'RE JUST REALLY HARD TO
IMPLEMENT. IT'S REALLY HARD TO
IDENTIFY A SORT OF WHAT WEALTH
ARE WE TAXING, HOW MUCH IS
THERE? AND THEN THE OTHER
PROBLEM, PARTICULARLY IN THE
EUROPEAN CONTEXT, BUT BUT YOU
KNOW, WE SEE THE DYNAMIC PLAY
OUT HERE IS FOLKS WERE LEAVING,
FOLKS WERE LEAVING THESE
COUNTRIES AND GOING TO OTHER
PLACES. AND THAT'S THAT'S A
DYNAMIC WE HAVE TO LOOK AT, AND
ALTHOUGH ALTHOUGH SORT OF
PINNING DOWN CAUSATION IS
SQUIRLY, THERE IS ACTUALLY A BIT
OF, THERE IS ONE PAPER OUT OF
STANFORD THAT LOOKED AT THE 2012
TAX INCREASE, THE, THE SALT
CHANGES IN 2017 AT THE FEDERAL
LEVEL. AND THERE WERE ACTUALLY,
UNANTICIPATED INCREASES IN THE
NUMBER OF HIGH INCOME FOLKS WHO
LEFT JUST FOLLOWING THOSE
POINTS. OBVIOUSLY, 2012, THAT
WAS STATE LEVEL. 2017 WASN'T A
POLICY CHANGE IN CALIFORNIA, BUT
IT DID HAVE THESE TAX IMPACTS
VERY RARELY. MY SENSE VERY
RARELY DO PEOPLE MAKE DECISIONS
ABOUT LEAVING BASED ON TAXATION.
BUT WHEN YOU LAYER THAT ON WITH
TECHNOLOGY CHANGES, WITH CHANGES
IN THE ECONOMY, OBVIOUSLY WITH
ENVIRONMENTAL ISSUES AS WELL,
IT'S SORT OF EACH EACH HAS A
SEPARATE IMPACT, IF I MAY ADD.
CENSUS DATA, YOU KNOW, SHOW THAT
MOST OF THESE INTERSTATE MOVES
ARE DRIVEN BY, FAMILY
CONSIDERATIONS BY JOB
CONSIDERATIONS, AND ALSO BY
HOUSING AND OBVIOUSLY HOUSING IS
A BIG MOTIVATOR FOR PEOPLE WITH
MIDDLE AND LOW INCOMES IN OUR
STATE. AND THIS LEGISLATURE
OBVIOUSLY KNOWS THIS AND HAS
BEEN WORKING ON THIS FOR YEARS
NOW, TRYING TO FIGURE OUT HOW TO
GET MORE AFFORDABLE HOUSING,
BECAUSE IF YOU CAN'T AFFORD TO
LIVE IN CALIFORNIA, OF COURSE
YOU'RE GOING TO LOOK FOR A MORE
AFFORDABLE PLACE TO LIVE. SO
THAT IS ONE OF THE BIGGEST
DRIVERS. AND IT'S NOT DRIVING
HIGH INCOME FOLKS OUT OF
CALIFORNIA, RIGHT? OF COURSE,
THERE'S A PINCH FOR ANYONE IN
TERMS OF HOUSING COSTS, BUT
WHAT'S WHERE THE DRIVING OUT
FACTOR HERE IS REALLY AFFECTING,
FAMILIES WITH LOW AND MODERATE
INCOMES. SO THAT THAT'S AN
IMPORTANT POINT. WE THINK SHOULD
BE KEPT IN MIND. ACADEMIC
RESEARCH DOES NOT BEAR OUT. AND
AS BRIAN, SORT OF JUST, YOU KNOW,
REITERATED THAT, FOLKS, HIGHER
INCOME FOLKS ARE LEAVING BECAUSE
OF TAXES, RIGHT? THERE'S A LOT
OF RESEARCH THAT SHOWS FOLKS
WITH HIGHER INCOMES HAVE JOB AND
FAMILY REASONS AS MUCH AS THEY
MAY BE ABLE TO WORK REMOTELY
FROM WHEREVER THEY WANT, THERE
MAY BE GOOD REASONS FOR STAYING
IN CALIFORNIA, GIVEN THE TYPES
OF JOBS THEY HAVE AND THE TYPES
OF NETWORKS THEY'RE INVOLVED IN.
THESE FACTORS ARE MOST AFFECTING
FAMILIES WITH LOW AND MIDDLE
INCOMES. I MEAN, I'M FAMILIAR
WITH THE DATA THAT I'VE SEEN
THAT INDICATES THAT THE NUMBER
ONE REASON WHY CALIFORNIANS ARE
LEAVING THE STATE IS BECAUSE THE
COST OF HOUSING. BUT BUT IN
TERMS OF TALKING ABOUT BUDGETS
AND REVENUES, WHAT IS THE
CURRENT FIGURE, THAT THE TOP 1%
OF CALIFORNIA INCOME EARNERS
CONTRIBUTE, WHAT, OVER 50% OF
OUR REVENUES? IT'S AROUND THAT.
IT VARIES FROM YEAR TO YEAR. BUT
THAT'S THAT'S A GOOD THAT'S A
GOOD BALLPARK OKAY. YEAH. SO
THAT'S THAT'S MY CONCERN THAT,
YOU KNOW, WHILE WE CERTAINLY DO
WANT TO CONTINUE TO WORK ON
MAKING HOUSING MORE AFFORDABLE
THAT, YOU KNOW, ARE WE WHAT ARE
WE DOING TO KEEP THAT 1% THAT
WE'RE RELYING FOR 50% OF OUR
STATE REVENUES ON? IF I COULD
JUST ADD ON, I DIDN'T MAKE A
POINT EARLIER. THERE'S A LOT OF
IT'S INTERESTING ALL THE
CONVERSATION ON THE COMMITTEE
ABOUT REVENUE VOLATILITY
CONSIDERING, YOU KNOW, WE'RE
HAVING A YOU'RE HAVING A
CONVERSATION ABOUT RESERVES. AND
ONE OF THE MAIN PURPOSES OF
RESERVES IS TO HELP SMOOTH OUT
THE UPS AND DOWNS OF OUR STATE'S
PROGRESSIVE TAX SYSTEM. IT IS AN
ALTERNATIVE TO THE, MYTHICAL
STABLE REVENUE STREAM THAT WILL
NEVER CAUSE POLICYMAKERS ANY
PROBLEM. FROM HERE TO ETERNITY,
RIGHT? ANY REVENUE STREAM WILL
RESULT IN SOME LEVEL OF
VOLATILITY DOWN THE ROAD, AND
PROBLEMS WILL HAVE TO BE SOLVED.
WHERE I'M NOT HEARING ENOUGH,
YOU KNOW, CONGRATULATIONS ON.
LOOK AT WHAT WE DID AS A STATE
STARTING IN THIS CHAMBER. AND
THE VOTERS APPROVING A DECADE
AGO, YOU KNOW, A VERY SOLID
POLICY PROPOSAL TO ACTUALLY SOCK
AWAY MORE MONEY, COMING FROM THE
HIGHEST INCOME EARNERS, LARGELY
FROM CAPITAL GAINS, AND SET IT
ASIDE FOR THOSE TIMES WHEN WE
KNOW REVENUES WILL DECLINE, WE
KNOW THEY WILL BECAUSE WE'VE
SEEN IT HAPPEN AND IT'LL HAPPEN
AGAIN IN THE FUTURE. SO THE
RESERVES AND THE AGENDA ASKED A
VERY GOOD QUESTION. WHAT IS THE
PROBLEM WE ARE TRYING TO SOLVE
HERE? WHAT IS THE PROBLEM YOU
ARE TRYING TO SOLVE? THAT'S THE
VERY FIRST QUESTION TOWARD THE
END OF YOUR AGENDA. AND SO I
THINK THE CONVERSATION, IF IT
CAN BE FOCUSED ON THAT QUESTION,
I THINK IT WOULD BE VERY HELPFUL
BECAUSE THEN YOU DON'T END UP
GOING DOWN ALL THESE DEAD END
ROADS WHERE IT'S LIKE, IF ONLY
WE HAD THE PERFECT TAX SYSTEM IN
CALIFORNIA, THEN ALL OF OUR
PROBLEMS WILL BE SOLVED. WE HAVE
THE TAX SYSTEM THAT WE HAVE. IT
BEARS A LOT OF BENEFITS. IT
BRINGS A LOT OF BENEFITS TO
CALIFORNIANS. IT ALLOWS US TO
HAVE VERY ROBUST PUBLIC
SERVICES. THEY COULD BE MORE
ROBUST THAN THEY ARE NOW, BUT
LET'S I WOULD LIKE US ALL TO AT
LEAST ACKNOWLEDGE THAT
POLICYMAKERS DID SOMETHING VERY
PRUDENT HERE, BY PUTTING IN
PLACE REQUIREMENTS TO SAVE FOR A
RAINY DAY. AND WE HAVE SEEN THE
BENEFITS OF THAT OVER THE LAST
FEW YEARS. AND WE CAN CONTINUE
THAT WITHOUT CHANGING ANYTHING
IN THE FUTURE. MAYBE SOME NICKS
NIPS AND TUCKS AND TWEAKS. AND
OF COURSE, WE YOU'VE HEARD ME
SAY WE THINK THAT THERE IS A
REASON FOR EVEN MORE INVESTMENTS
IN CALIFORNIA'S COMMUNITIES.
WE'VE GOT A LOT OF WORK TO DO IN
THIS STATE, AND IT'S GOT TO BE
ABOUT MORE THAN JUST SUSTAINING
AND MAINTAINING. IT'S GOT TO BE
ABOUT GROWING AND FURTHERING
POLICIES THAT CAN REALLY HELP
CALIFORNIANS TO NOT JUST MAKE
ENDS MEET, BUT TO THRIVE. SO
THAT'S THE CONVERSATION THAT MY
ORGANIZATION IS REALLY EXCITED
ABOUT HAVING. AND PERSONALLY, I
THINK TALKING ABOUT REVENUE
VOLATILITY AND HOW TO STOP IT IS
KIND OF A DEAD END BECAUSE WE'VE
HAD THIS CONVERSATION. I'VE BEEN
AT THIS FOR ALMOST 25 YEARS,
RIGHT. WE'VE SEEN THIS
CONVERSATION COME AND GO OVER
TIME, AND IT'S NOT GOING TO GO
ANYWHERE. THE QUESTION IS, HOW
DO YOU MOST EFFECTIVELY ADDRESS
REVENUE VOLATILITY. RIGHT. SO
THAT WE CAN HAVE THE KIND OF
STATE WE WANT. AND SOLVE THE
REVENUE SHORTFALLS WHEN THEY
INEVITABLY OCCUR? NO, WHICH IS
WHY I STARTED OFF BY TALKING
ABOUT HOW THAT WAS ONE OF THE
GREATEST LEGACIES THAT SPEAKER
PERES AND I THINK I'M LOOKING
AROUND THE DAIS, I THINK I'M THE
ONLY ONE THAT WAS AROUND TEN
YEARS AGO TO VOTE ON AC ONE. SO
I WOULD TOTALLY AGREE WITH YOU
THAT THAT YOU KNOW, THE
ESTABLISHING THE RAINY DAY FUND
WAS ONE OF THE BEST THINGS THAT
WE'VE DONE. YEAH. THANK YOU.
CONGRATULATIONS. THANK YOU.
YEAH. THANK YOU. ALL RIGHT, I
THINK WE'RE. THANK YOU VERY
MUCH. ASSEMBLY MEMBER. I THINK
WE'RE GOING TO GO, ASSEMBLY
MEMBER JACKSON AND THEN OUR VICE
CHAIR. AND THEN IF NO ONE ELSE
WANTS TO GO, I WILL I WILL JUMP
IN, AND THEN WE'RE GOING TO OPEN
IT UP TO PUBLIC COMMENT, MR. MR.
GRAVES, I THINK YOU'RE ASKING US
TO DO TOO MUCH. WE DON'T FOCUS
ON GOOD STUFF HERE. WE ONLY TALK
ABOUT THE CATACLYSMIC THINGS, I
THINK FROM WHAT I'M GATHERING
HERE, IT DOESN'T SEEM AS THOUGH
WE NEED TO MAKE SOME MAJOR
REVISION OF WHAT WE NEED TO DO,
BUT MAKE SOME MINOR TWEAKS IN
ORDER TO ENSURE THAT WE HAVE
GREATER STABILITY INTO THE
FUTURE. IT SEEMS TO ME THAT A
10% RESERVE WAS A GOOD START,
BUT WE MIGHT NEED TO EXPAND
THAT. I THINK THE QUESTION FOR
ALL OF YOU IS, WHAT DO YOU
BELIEVE IS THE APPROPRIATE
PERCENTAGE OF A RESERVE THAT
WILL CONTINUE TO HELP US TO GET
THROUGH SOME OF THE VOLATILITY
THAT WE KNOW MIGHT END UP BEING
MORE VOLATILE INTO THE FUTURE?
RIGHT, GIVEN NATIONAL,
INTERNATIONAL CONFLICTS AND, AND
TRENDS, OUR ECONOMY IS
REALIGNING IN TERMS OF OUR MAJOR
COMPANIES. RIGHT, WHAT WOULD BE
THE APPROPRIATE PERCENTAGE OR A,
A REASONABLE PERCENTAGE, SO THAT
WE ARE NOT DOING SO MUCH THAT WE
ARE NOT INVESTING INTO THE
PEOPLE WHO, NEED ADDITIONAL
SUPPORT, ANY THOUGHTS? I CAN
START, YOU KNOW, I WILL SAY
SOMETHING SLIGHTLY UNSATISFYING,
WHICH IS THAT OUR OFFICE DOESN'T
HAVE A SPECIFIC RECOMMENDATION
FOR, YOU KNOW, HOW BIG IT SHOULD
BE, BECAUSE ULTIMATELY, THERE
ARE, AS I MENTIONED EARLIER, A
LOT OF SUBJECTIVE DECISIONS.
RIGHT HOW BIG OF A OF A
SHORTFALL DO YOU WANT TO PREPARE
FOR, WHAT KINDS OF BUDGET CUTS
DO YOU WANT TO BE ABLE TO AVOID?
IS IT THE LEGISLATURE'S DESIRE
TO AVOID REVENUE INCREASES AT
ANY POINT IN THE FUTURE, OR
REVENUE INCREASES? ACCEPTABLE.
SO THESE KINDS OF QUESTIONS, OF
COURSE, DRIVE HOW BIG OR HOW
SMALL, THE RESERVE, YOU KNOW,
SHOULD ULTIMATELY BE, BUT, YOU
KNOW, FOR CONTEXT, AS I
MENTIONED EARLIER, 50% IS THE
AMOUNT OF GENERAL FUND REVENUE
LOSSES THAT WE'VE SEEN OVER THE
LAST FEW DECADES. SO IF THE
STATE WERE GOING TO SAVE, SAY,
ABOUT HALF OF THAT, THEN THAT
WOULD BE SOMETHING CLOSER TO
25%. BUT AGAIN, IF THE
LEGISLATURE DID, YOU KNOW,
SIGNIFICANTLY INCREASE THAT
MAXIMUM LEVEL, THE RULES
PROBABLY WOULD ALSO NEED TO BE
CHANGED IN ORDER FOR THE STATE
TO BE ABLE TO ACTUALLY ACHIEVE
SOMETHING THAT BIG. SO THE FIRST
STEP IS WHAT PERCENTAGE DO WE
WANT TO SAVE? AND THEN WHAT
RULES DO WE NEED TO CHANGE IN
ORDER TO MAKE SURE THAT WE CAN
DO THAT? YES RIGHT. OKAY. AND IF
THAT 25% WAS, ALREADY THE LAW OF
THE LAND, HOW WOULD THAT WHAT
WOULD OUR BUDGET SITUATION LOOK
LIKE RIGHT NOW? IT WOULD LOOK
ALMOST EXACTLY THE SAME, WE'VE
REACHED NEARLY. WE REACHED THE
10% THRESHOLD NEARLY IN 2020,
AND WE REACHED IT ACTUALLY IN
2223. SINCE 2223, I THINK IT'S
MAYBE BEEN AFTER YOU ACCOUNT FOR
KIND OF TRUE UPS AND SOME OF THE
ADJUSTMENTS. I THINK IT'S MAYBE
BEEN A FEW BILLION DOLLARS, 2 TO
$3 BILLION. THAT ULTIMATELY WENT
TO INFRASTRUCTURE INSTEAD OF THE
RAINY DAY FUND, BUT THAT WOULD
HAVE ONLY PUT THE STATE AT, YOU
KNOW, SAY 11%, 12%, NOT ANYWHERE
NEAR 25%. AND I'LL ADD ON, I'LL
ADD ON IN PART BECAUSE I CAME
FROM THE LIO. I THINK THE SAME
WAY. I'M NOT SURE THERE IS A
SINGLE RIGHT PERCENTAGE, BUT IF
THE GOAL IS TO GROW IT BIGGER IN
THE NEXT ECONOMIC CYCLE THAN
10%, IT'S GOING TO HAVE TO
INVOLVE A COMBINATION OF EITHER
SETTING ASIDE MORE EVERY YEAR
THAN WE DO NOW, OR DOING MUCH
MORE ON THE DISCRETIONARY SIDE.
SO IN OTHER WORDS, NOT SOMETHING
THAT'S A RULE, BUT JUST
SOMETHING THAT IN SURPLUS YEARS,
THE LEGISLATURE VOLUNTARILY SETS
ASIDE A GREATER AMOUNT OF MONEY
ALONGSIDE THE MANDATORY DEPOSIT.
SO IF THE GOAL IS TO GROW IT
BIGGER, IT'S GOING TO I THINK
IT'S PROBABLY GOING TO HAVE TO
INVOLVE BOTH OF THOSE THINGS. SO
IT'S JUST THE BASICALLY THE
LENGTH, THE LENGTH OF TIME, THE
CYCLE WAS BETWEEN THE GREAT
RECESSION AND NOW IT'S NOT ABOUT
THE PERCENTAGE THAT WE WOULD
HAVE PUT ASIDE, BUT IT WAS THE
AMOUNT EVERY YEAR WE WERE
PUTTING IN. SO WE WOULDN'T HAVE
EVEN BEEN ABLE TO HIT THAT
ANYWAY. IS THAT WHAT YOU'RE
SAYING? RIGHT? IF, SAY, IF, SAY,
YOU HAD A CAP OF 20 OR 25%.
YEAH. UNDER THE RULES THAT WE
HAD IN IN PROP TWO, WE WOULD NOT
BE THERE TODAY. WE WOULDN'T HAVE
WE WOULDN'T HAVE HIT IT IN THE
LAST ECONOMIC CYCLE. I DON'T
THINK SO, SO I THINK THAT IF THE
GOAL IS TO GET IT BIGGER, YOU
HAVE TO THINK OF WE HAVE TO
THINK ABOUT THAT LOOKING
FORWARD, HOW TO CHANGE IT.
ANYONE ELSE? OH GO AHEAD BRIAN.
THE ONLY THING I WOULD MENTION
THERE ARE A FEW STATES THAT
ACTUALLY STRESS TEST. SO THEY
EVALUATE THEIR THEIR INCOME,
THEY EVALUATE THEIR EXPENDITURES
ON AN ANNUAL BASIS TO DETERMINE
WHAT THE WHAT THE RAINY DAY FUND
LEVEL IS. THAT'S PRETTY
COMPLICATED, I MEAN, WE'RE
ALREADY STRESSED, SO. WELL, I
MEAN, THAT'S TRUE. WE KNOW WE
KNOW THAT IT'S THERE ALREADY,
RIGHT, OUR SENSE, OUR SENSE IS
THAT SOMETHING ON THE 20 TO 25%
LEVEL IS RIGHT, AND IT DOESN'T
GET YOU A WHOLE LOT MORE SORT OF
PRECISION IN TERMS OF A RIGHT
ANSWER, BECAUSE THERE IS NO
RIGHT ANSWER, BASICALLY, HOW
MUCH RISK WE'RE WILLING TO TAKE
OURSELVES. THAT'S ESSENTIALLY
IT. THAT'S ESSENTIALLY IT IN THE
MINNESOTA CONTEXT. THEY ARE
THEIR GOAL IS TO BE ABLE TO
COVER THAT'S THAT'S THAT'S THE
TERM THAT THEY USE. AND IT'S,
NOT WELL DEFINED, BUT COVER,
NINE OUT OF TEN RECESSIONS. IN
OTHER WORDS, OTHER THAN THE
GREAT DEPRESSION LEVEL, LIKE
THAT'S WHAT THEIR GOAL IS. SO
WHEN THEY WHEN THEY'RE OUT
TALKING TO THEIR COLLEAGUES AND
TO, TO VOTERS, THAT'S THE WAY
THAT THEY ARTICULATE WHAT THEIR
GOAL IS. BUT AGAIN, THAT'S I
THINK THAT THAT MAY BE,
SUGGESTING THAT WE CAN BE MORE
PRECISE AND WE CAN ACTUALLY WE
CAN ACTUALLY BE GOT IT. I'M JUST
GOING TO ADD A REMINDER AGAIN.
YES, ANY NUMBER IS GOING TO BE
ARBITRARY, BUT ALSO, AS YOU
KNOW, THERE ARE SO MANY TOOLS IN
THE BUDGET BALANCING TOOLBOX.
AND RESERVES ARE ONE. RIGHT. SO
THERE ARE A LOT OF OTHER WAYS IN
WHICH THIS YEAR AND IN PRIOR
YEARS, THE LEGISLATURE AND
GOVERNORS HAVE MANAGED TO
BALANCE BUDGETS WITHOUT HAVING A
GIGANTIC RESERVE. SO I GUESS ONE
QUESTION WOULD BE, DO YOU
ACTUALLY WANT TO BUILD A
GIGANTIC RESERVE? MR. CHESNEY
POINTED OUT HOW IN THE 1970S,
THAT WAS A LIABILITY LEADING UP
TO THE PASSAGE OF PROP 13 IN
1978, THAT WAS NOT SEEN AS A
GOOD THING BY CALIFORNIANS TO BE
PAYING TAXES AND HAVING A LARGE
PROPORTION OF THAT SITTING IN A
FUND AND WONDERING, WONDERING
WHO'S GOING TO USE IT. AND WHEN.
SO THERE MAY BE POLITICAL
CONSIDERATIONS THERE, BUT ALSO
JUST A REMINDER THAT YOU HAVE SO
MANY WAYS TO BALANCE YOUR
BUDGET. AND THAT SHOWED UP THIS
WAY IN YOUR JUNE BUDGET PACKAGE.
RIGHT. BORROWING FROM SPECIAL
FUNDS, A LOT OF OTHER THINGS
THAT WERE DONE. MR. SISNEY
MENTIONING THE $100 BILLION IN
BORROWABLE RESOURCES BECAUSE OF
THE PRUDENT BUDGETING WE'VE
ENGAGED IN OVER THE LAST DECADE.
SO MAYBE COMING AT THIS NOT FROM
THE PERSPECTIVE OF WE NEED A
RESERVE THAT SOLVES ALL OF OUR
PROBLEMS IN THE VERY WORST CASE
SCENARIO, BUT WE NEED A RESERVE
THAT ACTS AS A TOOL THAT WE CAN
USE IN CONCERT WITH OTHER TOOLS
TO HELP US MANAGE THE UPS AND
DOWNS OF OUR PROGRESSIVE TAX
SYSTEM. RIGHT. WHAT COMES TO
MIND FOR ME IS THE IDEA THAT FOR
ME, I'M NOT REALLY A FAN OF JUST
ONE TIME FUNDING, PARTICULARLY
FOR THOSE WHO ARE, PROGRAMS THAT
ARE GEARED TOWARDS OUR LOWER
INCOME, THOSE WHO ARE IN
SURVIVAL MODE BECAUSE ONE TIME
FUNDING IS NOT ENOUGH, YOU NEED
CONSISTENCY AND PREDICTABILITY
FOR PEOPLE TO BE ON A PATH TO
THRIVE. RIGHT. AND SO I'M LEERY
ABOUT THE IDEA THAT, YOU KNOW,
ON GOOD TIMES, LET'S JUST DO IT
ONE TIME FUNDING AND THEY HAVE
THEIR THING. BUT THEN WHEN
THAT'S GONE, THEY'RE BACK TO
WHERE THEY STARTED FROM. AND SO
I THINK THE IDEA IS HOW DO YOU
FIND THAT BALANCE. AND I GUESS
THAT'S WHAT WE'RE ALL TALKING
ABOUT HERE IS WHAT IS THE
APPROPRIATE BALANCE. THE BEST OF
OUR ABILITY, AND BUT HOW CAN WE
GIVE THE VAST MAJORITY OF OUR
FOLKS THE CONSISTENCY AND
PREDICTABILITY THEY NEED TO MAKE
CALIFORNIA WORK FOR THEM, RIGHT?
YES THANK YOU. THANK YOU VERY
MUCH, DOCTOR JACKSON. WE'LL NOW
TURN TO THE VICE CHAIR. THANK
YOU, MR. CHAIR, HAVING THIS
CONVERSATION ABOUT GANN LIMITS,
IT'S VERY TIMELY, THE FIRST CALL
I TOOK THIS MORNING WAS FROM THE
SUPERINTENDENT OF CALAVERAS
COUNTY UNIFIED SCHOOL DISTRICT,
WHICH IS UP IN THE FOOTHILLS,
AND THEY'RE IN A VERY TOUGH
SITUATION RIGHT NOW. THEY HAVE A
BUDGET OF $41 MILLION, 11
MILLION OF THAT GOES TO SPECIAL
ED FUNDING. SO IF YOU DO THE
MATH THAT'S A HUGE NUMBER. AND
THEY ARE IN BIG TROUBLE. I MEAN,
TO THE POINT OF JUST TRYING TO
FIGURE OUT A WAY TO STAY
SOLVENT. AND IT'S SOMETHING THAT
WE'RE GOING TO HAVE SOME
CONVERSATIONS WITH MOVING
FORWARD BECAUSE THERE IS A LOT
OF STRINGS ATTACHED TO FUNDING
AS IT EDUCATION. I DO. IT'S A
DIFFERENT CONVERSATION. BUT AS
IT RELATES TO GAN, IF WE WERE
WELL, BECAUSE OF GAN, LIKE $9.5
BILLION HAS BEEN SPENT TO SCHOOL
FUNDING, AND IF WE WERE TO
EXCLUDE RESERVE DEPOSITS FROM
THAT, WHAT EFFECT WOULD THAT
HAVE ON THAT SCHOOL FUNDING?
LISA. LISA MROZINSKI AGAIN, I
CAN'T EVEN PRONOUNCE MY OWN LAST
NAME NOW, THE RESERVE DEPOSITS
WOULD NOT IMPACT SCHOOL FUNDING.
THEIR FUNDING IS STRICTLY
CALCULATED BY PROPOSITION 98
GUARANTEE. THE RESERVES ARE PUT
ASIDE OUTSIDE OF THE PROP 98.
GENERAL FUND. SO YOU'VE GOT 998
GENERAL FUND IN YOUR GENERAL
FUND. SO PUTTING MORE ASIDE IN
RESERVES WOULD NOT IMPACT THAT.
EVEN IF WE WERE TO GO TOWARDS A
SURPLUS ALLOCATION ACCOUNT, THAT
WOULD NOT IMPACT SCHOOLS BECAUSE
THAT SURPLUS IS DETERMINED.
AFTER ALL, THE CONSTITUTIONAL
REQUIREMENTS ARE MET, SO THAT
WOULD NOT NOW THE LOCAL LIMITS.
IS IT CONCERNED WITH THEIR LOCAL
LIMITS? YES. BECAUSE AT THE
LOCAL LIMITS, ANYTIME THEY
EXCEED OR GET TO THE END OF
THEIR LOCAL LIMITS, THOSE LIMITS
FALL BACK TO THE STATE. SO A
LOCAL EDUCATIONAL AGENCY OR A
DISTRICT SHOULD NEVER REALLY
HAVE A PROBLEM WITH THEIR LIMITS
BECAUSE THEY JUST IT'S A PROCESS.
EVERY YEAR THEY THEN NOTIFY THE
STATE, AND THE STATE THEN
ABSORBS THAT ON OUR LIMIT. SO
THE TOTAL LIMIT FOR THE STATE
ISN'T EXCEEDED, BUT THE LOCAL IT
BECOMES. AND THAT IS ANOTHER
KIND OF PROBLEM THAT WE HAVE
WITH THE STATE IS THE AMOUNT
THAT WE'RE ABSORBING FROM THOSE
LOCAL LIMITS AT THE STATE LEVEL.
OKAY. SO THAT I MEAN, THAT'S AND
THAT'S KIND OF GOOD NEWS IN SOME
WAYS, BECAUSE I THINK ONE OF THE
THINGS WE REALLY DO STRUGGLE
WITH, AND YOU KNOW, JACKSON'S
BROUGHT UP AS WELL, LIKE THERE'S
A LOT OF OUR UNDERSERVED
COMMUNITIES THAT ARE REALLY,
REALLY STRUGGLING. AND I THINK
AS WE HAVE THESE DISCUSSIONS ON
HOW THIS AFFECTS THINGS, LIKE WE
REALLY NEED TO MAKE SURE THAT,
YOU KNOW, RISING TIDES RAISE ALL
SHIPS AND WE CANNOT FORGET
ABOUT, YOU KNOW, AND IT'S JUST I
MEAN, CALAVERAS UNIFIED IS IN
BIG TROUBLE. AND I THINK IT'S
JUST INTERESTING. AND I WANT TO
MAKE SURE THAT AS WE HAVE THESE
CONVERSATIONS, THAT WE'RE NOT
DOING ANYTHING THAT COULD
POTENTIALLY CUT FUNDING FROM THE
SCHOOLS IN SOME OF OUR
SIGNIFICANTLY UNDERSERVED AREAS.
AND THEN JUST ON A BROADER
SCALE, YOU KNOW, RECENTLY WE
WENT OUT OF THE COUNTRY ON A BIT
OF A TRIP, AND THEIR EDUCATION
SYSTEM IN GENERAL WAS VERY
RESPONSIVE TO A MODERN DAY
WORKFORCE. AND I THINK ONE OF
THE THINGS THAT, AS WE THINK
ABOUT HOW WE SPEND STATE DOLLARS,
ARE WE GETTING THE MOST BANG FOR
OUR BUCK. AND WHEN IT COMES TO
PRISON PROGRAMS, I THINK THERE
IS A LOT OF THINGS WITHIN THE
PRISON SYSTEM THAT WE SPEND A
LOT OF MONEY ON PROGRAMS TRYING
TO, YOU KNOW, FOR RECIDIVISM
REASONS. BUT WE'RE NOT REALLY
NOT GETTING THAT RETURN ON
INVESTMENT BECAUSE THOSE JOBS
MAY NOT BE AVAILABLE ANYMORE.
THE ECONOMY, THE WORKFORCE HAS
MOVED AWAY FROM THEM. SO I WOULD
LOVE FOR US TO CONTINUE TO HAVE
A CONVERSATION AS WE GO THROUGH
THESE BUDGET CRISISES THAT THE
DOLLARS THAT WE DO SPEND, WE'RE
GETTING THE RETURN ON
INVESTMENT. AND IF THERE ARE
PROGRAMS WITHIN THIS PARTICULAR
THE PRISON PROGRAMS, I AM VERY
PASSIONATE ABOUT THAT. IF
THERE'S THINGS IN THERE THAT ARE
NOT WORKING, LET'S HAVE THAT
CONVERSATION AND LET'S LOOK AT
THAT. BECAUSE IF WE'RE GOING TO
JUST BE THROWING, YOU KNOW,
MONEY DOWN A DRAIN, I THINK
THERE'S BETTER WAYS TO DO THAT.
SO I JUST WOULD LOVE TO CONTINUE
THESE CONVERSATIONS AND MAKE
SURE THAT AS WE FIGHT A BUDGET
CRISIS AND THERE'S A LOT OF,
GREAT DIALOG THAT'S HAPPENED
TODAY, AND THERE'S A LOT OF
THINGS THAT WE CAN LOOK INTO,
BUT LET'S HAVE THOSE
CONVERSATIONS. LET'S MAKE SURE
THAT WE ARE USING THE DOLLARS
THAT WE DO HAVE IN THE MOST
RESPONSIBLE AND EFFECTIVE WAY
POSSIBLE. EXCELLENT. THANK YOU
VERY MUCH, MR. LARA. I'M GOING
TO JUMP IN WITH A FEW COMMENTS,
AND WE WILL THEN OPEN IT UP TO
PUBLIC COMMENT IF THERE IS ANY.
BUT FIRST, LET ME THANK ALL OF
OUR PANELISTS FOR SHARING YOUR
INSIGHTS, YOUR THOUGHTS, THE
HISTORICAL PERSPECTIVE HERE, THE
TECHNICAL EXPERTISE. WE
APPRECIATE IT VERY MUCH. WE
EXPECT THIS TO BE AN ONGOING
CONVERSATION. I THINK YOU'VE
GIVEN US A LOT TO CHEW ON, A LOT
TO THINK ABOUT. THERE ARE
SEVERAL DIFFERENT DIMENSIONS TO
THIS CHALLENGE, TO THIS, TO, TO,
TO, TO ALL OF THE ISSUES HERE
FOR US TO CONSIDER AND CERTAINLY
TRADE OFFS AS, AS ALL OF YOU
HAVE NOTED. AND THOSE ARE ONES
THAT I THINK WE WANT TO THINK
THROUGH CAREFULLY, JUST A COUPLE
OF OBSERVATIONS FROM MY
PERSPECTIVE. ONE, I WANT TO PICK
UP ON WHAT SOME OF
ASSEMBLYMEMBER'S MURATSUCHI
TALKED ABOUT WITH THE GANN
LIMIT. I WILL CONFESS, IT WAS
NOT FAMILIAR WITH IT WHEN I WAS
ELECTED. AS I THINK PROBABLY
MANY CALIFORNIANS ARE NOT. I
KNOW IT'S OLDER THAN I AM. SO I
WAS NOT HERE FOR ITS INCEPTION,
AND IT WAS REALLY JUST SORT OF,
MIND BOGGLING TO ME AS WE WERE,
YOU KNOW, CONTEMPLATING THIS
HISTORIC BUDGET SURPLUS THAT WE
HAD, THAT DOING THE PRUDENT,
THOUGHTFUL, RESPONSIBLE THING
OF, OF, OF PUTTING MONEY AWAY
FOR POTENTIAL FUTURE RAINY DAY
THAT THAT WE WOULD BE
CONSTRAINED IN THAT. AND SO I
THINK THERE IS A LOT OF
OPPORTUNITY THERE FOR THOUGHTFUL
CONVERSATIONS. OBVIOUSLY
SOMETHING WE'LL NEED TO GO BACK
TO THE VOTERS TO DO. BUT I DO
THINK THAT THAT'S A CONVERSATION
THAT WE OUGHT TO HAVE, TO ME,
ACTUALLY FITS WITHIN THE
FRAMEWORK OF, OF, YOU KNOW,
INFRASTRUCTURE INVESTMENTS.
RIGHT? THIS IS SOMETHING ABOUT
DOING SOMETHING BIG AND
IMPORTANT AND MEANINGFUL FOR THE
STATE THAT WILL SERVE
POTENTIALLY MANY GENERATIONS OF
CALIFORNIANS. AND I WOULD
CERTAINLY PUT BUILDING UP OUR
RESERVES IF WE DO FIND OURSELVES
IN A HISTORIC, YOU KNOW, THAT
TYPE OF HISTORIC SITUATION
AGAIN, YOU KNOW, I THINK IT IS
IMPORTANT FOR US AS AS SEVERAL
OF THE WITNESSES NOTICED, TO
THINK ABOUT THAT, WHAT THE LAST
DECADE HAD LOOKED LIKE IS NO
GUARANTEE OF WHAT THE FUTURE
DECADES MAY, MAY, MAY BRING. AND
SO, AS WE ARE TRYING TO BUILD A
SYSTEM TO MAYBE INNOVATE AND
IMPROVE THIS SYSTEM, SOME OF THE
HISTORIC ECONOMIC EXPANSION THAT
WE HAVE SEEN IN PRIOR DECADES,
NONE OF THAT IS GUARANTEED IN
THE FUTURE. AND WE NEED TO BE
MINDFUL OF THAT AND THOUGHTFUL
ABOUT THAT. AND CERTAINLY ALSO
JUST TO ALSO UNDERSTAND THAT
BECAUSE OF THIS INCREDIBLY
INNOVATIVE ECONOMY WE HAVE HERE
IN THE STATE OF CALIFORNIA, WE
MAY HAVE A LOT OF VOLATILITY ON
JUST ON THE NATURAL, YOU KNOW,
AS WE AS PEOPLE CREATE NEW
COMPANIES AS THEY HARNESS NEW
IDEAS, AS YOU KNOW, WHO KNOWS
WHAT THE BOOM IN AI WILL BRING
FOR CALIFORNIA, WHAT THAT WILL
MEAN FOR OUR BUDGET. NONE OF US
CAN PREDICT THAT. BUT WE COULD I
COULD IMAGINE A NUMBER OF
DIFFERENT SCENARIOS IN HOW THAT
HOW THAT MIGHT WORK ITSELF OUT.
SO, I THINK IT'S IMPORTANT FOR
US TO THINK THROUGH ALL OF
THESE, THINGS WITH A LOT OF
SPECIFICITY AND BE REALLY
CAREFUL AND THOUGHTFUL IN HOW WE
APPROACH THIS. I DO ALSO WANT TO
PICK UP ON WHAT DOCTOR JACKSON
ARTICULATED, BECAUSE I THOUGHT
HE ARTICULATED IT VERY WELL. TO
ME. IT'S NOT THAT THERE IS A
TENSION BETWEEN RESPONSIBLE AND
PROGRESSIVE GOVERNMENT. I
ACTUALLY THINK THAT THEY GO HAND
IN HAND AND THAT IT IS
FOUNDATIONAL, AND CERTAINLY THAT
WE ARE EXCEPTIONALLY MINDFUL UP
HERE. AND I WANT TO COMPLIMENT
DOCTOR JACKSON AND MANY OF OUR
OTHER SUB CHAIRS WHO DID THE
EXERCISE THIS YEAR. THEY ARE
INCREDIBLY MINDFUL OF OUR MOST
VULNERABLE COMMUNITIES, AND WE
UNDERSTAND THAT THERE IS
EXTRAORDINARY NEED OUT THERE
RIGHT NOW AND THAT PEOPLE REALLY
NEED HELP AND THAT THERE ARE
FAMILIES IN CRISIS AND WE NEED
TO MAKE THOSE INVESTMENTS. BUT
WHAT WE DON'T WANT IS TO FIND
OURSELVES IN A SITUATION WHERE,
GOD FORBID, WE'RE HAVING TO
SLASH THOSE SOCIAL PROGRAMS THAT
ARE PROTECTING OUR MOST
VULNERABLE. AND SO THAT REQUIRES
PRUDENCE, THAT REQUIRES BEING
FISCALLY RESPONSIBLE AND
PLANNING FOR WHAT MIGHT HAPPEN
IN THE FUTURE. AND CERTAINLY IT
IS A GOOD POINT THAT WE HAVE A
LOT OF TOOLS OUT THERE, BUT WE
WANT TO BE MINDFUL ABOUT HOW WE
USE ALL OF THEM IN CONCERT TO
PUT OURSELVES IN THE BEST
POSITION. WHAT WHAT I WOULD LIKE
TO AVOID. AND I THINK IT'S
ACTUALLY A VERY INEFFICIENT WAY
TO DO GOVERNMENT, IS YOU HAVE A
GOOD YEAR, YOU CREATE A BUNCH OF
PROGRAMS, YOU HAVE A BAD YEAR,
AND YOU TAKE A BUNCH OF THOSE
PROGRAMS DOWN. AND THIS, YOU
KNOW, IT'S NOT AN EFFICIENT WAY.
IT'S NOT GOOD. IT'S NOT AN
EFFICIENT WAY TO DO PUBLIC
POLICY. IT'S NOT GOOD FOR THE
PEOPLE THAT WE SERVE. AND AGAIN,
I DON'T THINK THERE'S ACTUALLY A
TENSION HERE BETWEEN THOSE TWO
THINGS. I THINK BEING SMART AND
THOUGHTFUL ABOUT OUR RESERVES
AND FISCALLY RESPONSIBLE IS
FOUNDATIONAL TO THE KIND OF
GOVERNMENT THAT WE WANT TO HAVE
THAT IS EMPATHETIC AND
COMPASSIONATE AND SERVES OUR
MOST VULNERABLE COMMUNITIES. AND
THEN THE FINAL THING I WOULD
WOULD OFFER HERE IS, I'VE ALWAYS
BELIEVED THAT ONE OF THE WAYS IN
WHICH YOU CAN BE A TRUE PUBLIC
SERVANT AND BE RESPONSIBLE IS TO
PLANT SEEDS IN A GARDEN THAT YOU
MAY NEVER LIVE TO SEE, OR THAT
YOU MIGHT NOT SERVE IN A
LEGISLATURE TO SEE AND SO I JUST
WANT TO TAKE US BACK TO THAT. WE
ARE TALKING ABOUT HERE WITH SOME
OF THIS DEFERRING OUR OWN
ABILITY TO MAKE CHOICES ABOUT
HOW WE SPEND MONEY TO GIVE A
FUTURE LEGISLATURE THE
OPPORTUNITY TO PROTECT THE
PEOPLE OF CALIFORNIA IN A
DOWNTURN AND THAT IS THAT, TO
ME, IS AN IMPORTANT THING. AND
SOME IN SOME WAYS RUNS CONTRARY
TO POLITICAL IMPULSES THAT A LOT
OF OTHER PEOPLE MIGHT HAVE. AND
I JUST WANT TO COMPLIMENT THE
MEMBERS OF THIS COMMITTEE WHO
ARE WILLING TO EXERCISE THAT
SELF-DISCIPLINE BECAUSE THEY
UNDERSTAND THAT IT IS ULTIMATELY
IN THE PUBLIC INTEREST TO DO SO,
AND ULTIMATELY IN THE BEST
INTERESTS OF THE COMMUNITIES WE
SERVE. SO I THINK THERE'S A LOT
OF OPPORTUNITY FOR ALIGNMENT
HERE. AS I SAID IN MY OPENING
STATEMENT, I SEE THIS AS A
CONVERSATION THAT SHOULD
TRANSCEND POLITICAL IDEOLOGY.
AND MR. SISNEY OUTLINED FOR US
SOME OF THE CONCERNS, IN PRIOR
GENERATIONS, THAT PROGRESSIVES
AND CONSERVATIVES HAD ABOUT
THIS. BUT I THINK THERE'S A WAY
WHERE THOSE STREAMS CAN MERGE
TOGETHER, WHERE WHERE PEOPLE
ACROSS THE IDEOLOGICAL SPECTRUM
SAY THIS IS NOT ABOUT AN
IDEOLOGY, THIS IS ABOUT BEING
RESPONSIBLE, THOUGHTFUL, PRUDENT
STEWARDS OF MANAGING THE BUDGET,
THE VOLATILITY THAT WE HAVE HERE
IN THE STATE OF CALIFORNIA, AND
DOING AND FINDING THAT BALANCE.
I THINK THAT WAS THE WORD THAT
DOCTOR JACKSON USED. AND I THINK
IT'S EXACTLY THE RIGHT WORD
BETWEEN PROTECTING FOLKS NOW
MAKING THE INVESTMENTS WE NEED
TO MAKE NOW, BUT ALSO BEING
PREPARED FOR WHATEVER FUTURE
STORMS WE MIGHT HAVE IN THE
FUTURE. SO A LOT TO DISCUSS, A
LOT TO DIG INTO. VERY, VERY
GRATEFUL FOR WHAT WE HEARD HERE
TODAY. I THINK YOU GAVE US A LOT
TO THINK ABOUT, A LOT TO CHEW
ON. GRATEFUL, AS ALWAYS, FOR THE
EXCEPTIONAL HARD WORK OF OUR
STAFF ON BOTH SIDES TO TEE UP
SOME OF THE QUESTIONS WE NEED TO
ANSWER, LOOKING FORWARD TO
CONTINUING THIS CONVERSATION.
AND WITH THAT, WE WILL OPEN IT
UP TO PUBLIC COMMENT.
GOOD AFTERNOON. LINDA HèA WITH
WESTERN CENTER ON LAW AND
POVERTY. WE APPRECIATE THAT THE
FINAL BUDGET DID PROTECT THE
SAFETY NET PROGRAM, INCLUDING
CALWORKS NUTRITION PROGRAMS,
FOSTER YOUTH AS WELL AS HEALTH
SERVICES PROGRAMS. HOWEVER WE
THE BUDGET DID EMPTY THE SAFETY
NET RESERVE. THE ONLY RESERVE
THAT'S DEDICATED TO CALWORKS AND
MEDI-CAL. AND SO WE WOULD URGE
THE LEGISLATURE TO REPLENISH THE
RESERVE. IN ADDITION, WE ALIGN
OUR COMMENTS WITH, MR. GRAVES IN
THE NEED TO MITIGATE, THE, THE
VOLATILITY IMPACTS BY ADVANCING
EQUITABLE POLICIES, AS WELL AS
ENSURING THAT BUDGET DEFICITS
ARE NOT BALANCED ON THE BACKS OF
LOW INCOME CALIFORNIANS. THANK
YOU. THANK YOU SO MUCH FOR THAT.
VICE CHAIR FULLER MEMBERS ALEX
TORRES HERE WITH BROWNSTEIN
TODAY ON BEHALF OF THE NEW
CALIFORNIA COALITION AND THE
OVER 800 LOCAL AND REGIONAL
CHAMBERS OF COMMERCE, ETHNIC
CHAMBERS AND ECONOMIC
DEVELOPMENT GROUPS IN OUR
STATEWIDE COALITION, WE'RE HERE
TO VOICE STRONG SUPPORT OF THE
BUDGETING REFORMS OUTLINED AND
DISCUSSED TODAY. THANK YOU, MR.
CHAIR. MR. VICE CHAIR, AND THE
STAFF FOR OUTLINING THIS
IMPORTANT DISCUSSION HERE TODAY.
I'LL RESTATE IT, BUT IT'S BEEN
MENTIONED SEVERAL TIMES TODAY.
IT'S ENCOURAGING ON THE MOVEMENT
HERE. IF WE ARE TO AVOID THE
CHRONIC BOOM AND BUST CYCLES
THAT HAVE PLAGUED CALIFORNIA AND
THE PAIN EXPERIENCED BY
CALIFORNIANS DURING THE DOWN
CYCLES, WE JUST HAD A VERY
DIFFICULT BUDGET CONVERSATION,
MR. DOCTOR JACKSON, YOU HAD A
PARTICULARLY DIFFICULT
CONVERSATION, AND I THINK TO
AVOID THAT, IT IS REALLY
CRITICAL THAT WE MOVE WITH
EXPEDIENCY WITH HASTE TO FIGURE
OUT WHAT WE DO ON THIS EFFORT.
SO, ASSEMBLYMEMBER VALENCIA,
THANK YOU SO MUCH FOR YOUR NOTES
ON THE EFFORT YOU PLAN TO LEAD.
LOOK FORWARD TO WORKING WITH YOU
ON THAT. SPECIFICALLY, WE WANT
TO EXPRESS OUR SUPPORT FOR THE
PROPOSED RAISING OF THE CAP ON
THE RAINY DAY FUND FROM 10% TO
20% OF THE STATE BUDGET. THE
EXCLUSION OF DEPOSITS INTO THE
RAINY DAY FUND FROM THE STATE
APPROPRIATIONS LIMIT, SO THAT WE
ARE NOT CONSTITUTIONALLY DIS
DISINCENTIVIZED FROM INCREASING
THE RESERVES. WE ALSO WANT TO
ENCOURAGE YOU TO CONSIDER
INCREASING THE CONSTITUTIONALLY
REQUIRED CONTRIBUTION TO THE
BUDGET STABILIZATION ACCOUNT
FROM 1.5% TO 2.5%, TO ACCELERATE
THE RATE AT WHICH THE BSA CAN
ACCUMULATE RESERVES, FOR THESE
AND OTHER PROVISIONS, I ALSO
WANT TO EXPRESS SUPPORT ON
BEHALF OF THE BAY AREA COUNCIL,
REPRESENTING 320 LARGE EMPLOYERS
IN THE NINE COUNTY BAY AREA, AND
CEO JIM WUNDERMAN. AGAIN, AND
VERY IMPORTANT HEARING, FIRST OF
MANY CONVERSATIONS. COME LOOK
FORWARD TO HAVE THEM. THANK YOU.
BRANDON UP HERE WITH BROWNSTEIN
HERE ON BEHALF OF THE NEW
CALIFORNIA COALITION, VOICING
SUPPORT ON BEHALF OF PARTNER
ORGS WHO CAN'T BE HERE TODAY IN
SUPPORT OF PROPOSED LANGUAGE
AROUND SPECIAL RESERVES AND
GRANT GANN LIMIT CHANGES
SPECIFICALLY HERE TO VOICE
SUPPORT FROM MIKE ROOS SOUTHERN
CALIFORNIA LEADERSHIP COALITION
OR COUNCIL AND SILICON VALLEY
LEADERSHIP GROUP. THANK YOU.
THANK YOU FOR THAT. HI,
EVERYONE. YESENIA JIMENEZ WITH
GRACE AND CHILD POVERTY IN
CALIFORNIA. JUST WANTED TO GIVE
A THANK YOU TO EVERYONE WHO
CENTERED THE DISCUSSION ON LOW
INCOME CALIFORNIANS AND HOW THEY
ARE IMPACTED BY OUR BUDGETARY
DECISIONS. WE HOLD GRATITUDE FOR
THE LEGISLATURE AND GOVERNOR FOR
THE GROUNDBREAKING BUDGET
AGREEMENT, WHICH FOR THE FIRST
TIME PRESERVES THE POVERTY OF
THE ANTI POVERTY SAFETY NET
DURING A DEFICIT AND REJECTS
AUSTERITY MEASURES THAT HARM THE
MOST VULNERABLE CALIFORNIANS.
WITH THAT IN MIND, WE ARE
EXTREMELY CONCERNED ABOUT THE
BUDGET AGREEMENT'S COMPLETE
WITHDRAWAL OF THE $900 MILLION
SAFETY NET RESERVE, THE ONLY
STATE RESERVE DEDICATED TO
PROTECTING CALWORKS AND MEDI-CAL
DURING AN ECONOMIC DOWNTURN.
THIS MOVE LEAVES THE CRITICAL
PROGRAMS EXPOSED TO FUTURE
CHALLENGES, WHICH MEANS WE LEAVE
OUR FAMILIES ON HOLD DURING
ECONOMIC DOWNTURN. THERE IS NO
EASY WAY TO SAY LEAVING THE
LIVES OF FAMILIES ON HOLD WHO
CAN LEAST AFFORD IT WILL NOT SET
US UP FOR A PATHWAY TOWARDS
PROSPERITY AND EQUITY FOR ALL.
WE STRONGLY URGE THE LEGISLATURE
TO REPLENISH THE SAFETY NET,
RESERVE AND STRENGTHEN SAFETY
NET PROGRAMS TO SUPPORT FAMILIES
IN TIMES OF GREAT NEED. THANK
YOU. THANK YOU SO MUCH. WOULD
ANYBODY ELSE LIKE TO COME IN
FRONT OF MR. BRENNAN? ANYBODY?
OTHER COMMITTEES? ANYBODY? YEAH,
HE STILL WORKS. CAN YOU HEAR ME,
SIR? GO AHEAD PLEASE. I WANT TO
THANK ALL THE PANELISTS. THE
MEMBERS, YOU KNOW, I'VE BEEN
DOING THIS A LONG TIME, AND IT'S
EASY TO GET JADED. THIS WAS
ACTUALLY ONE OF THE MORE
INTELLIGENT, THOUGHTFUL,
INSIGHTFUL CONVERSATIONS WE HAD
IN THIS BUILDING IN A WHILE.
WE'VE GOT A LOT OF WORK TO DO IN
THIS AREA. I LOOK FORWARD TO
WORKING WITH ALL OF YOU ON IT.
IT'S CLEAR TO ME THAT EVERYBODY
WANTS MORE VALUABLE TOOL HERE,
MORE FLEXIBLE TOOL. I'M NOT SURE
RAISING THE CAP DOES THAT, BUT
ALLOWING YOU TO MAKE VOLUNTARY
CONTRIBUTIONS WITH FEWER
RESTRICTIONS. SO DEALING WITH
THE INTERPLAY WITH THE GANN
LIMIT SEEMS TO BE IMPERATIVE.
AND THERE WERE THOUGHTFUL IDEAS
IN ALL PARTS. SO I LOOK FORWARD
TO WORKING WITH YOU ON THIS.
THANKS. THANK YOU SO MUCH FOR
THAT. ANY OTHER WITNESSES?
ANYBODY ELSE? I'LL JUST. I DRIVE
TIME, I STRETCH. APPRECIATE IT.
ANY OTHER WITNESSES, ANY OTHER
PUBLIC COMMENT? SEEING NONE. ANY
OTHER QUESTIONS FROM THE
COMMITTEE STAFF? THANK YOU
EVERYBODY I THINK WE'RE
ADJOURNED. THANK YOU. THANK YOU.
YES.